24 hours. >> much better growth. >> sales force does. >> d.r. horton, going higher. >> i love all the paper we're seeing in the energy space. i don't know. i think oil is going up and through $50. i lot of way things are trading. >> speaking of going higher, that's what the market is doing. we pick up that story now. >> halftime is over. "power lunch" and the second half of the trading day starts right now. >> hi, everybody. welcome to "power lunch." a rally ahead of the fed. the dow is up triple digits as you see there by 171 points. better than 1%. nasdaq up about three quarters of 1% at 35 points. and the s&p 500, mandy, at 1969. i remember we haven't had that spirit here since 1969. you know that's an eagles song. >> it's a good year. most of the focus is on when the fed will raise rates, less attention is given on how the central bank will actually hike rates. we'll show you the anatomy of a

hike. >> fears about china. many are questioning whether you can trust the economic data. that's nothing new. what is what we're going to tell you about not only the size of china's economy but it's growth rate. it will surprise you, folks. >> okay. but let's get straight to today's big rally. the dow is out of correction territory. and little by little over the past three weeks volatility has been sliding as well. he joins us now from the nyc floor. what does today's rally tell us about what the market is expecting about thursday? >> the market doesn't seem terribly concerned about the potential for a rate hike. when they talk about that volatility, let's look at the s&p 500. we're at the highs of the day. folks, we have seen this movie before. this happened many time. take a look at the markets midday. this is the day before the federally. there is a well known phenomena. it's been studied for many years. they did a paper on this a few

years ago noting the tendency of the market to go up before the fed meeting and into the fed meeting. advancing to declining the stocks. that is advancing to declining stocks two to up with. volume son the moderate side. this is a 1% rally. they're not discriminating against any one sector or another. industrials, tech, financials, health care, consumer discretionary stocks, all up roughly 1%. that's what you call a broad rally. it's the same no matter what you look at. if you look at the dow leadership, merk and the pharma group, microsoft and the tech group, even chevron and the oil group. 3m and industrials, united health care, every sector up is roughly 1% to 1.5%. the bigger cap the better here. one thing that is very important i think about today is we're moving in a different direction from china. china was down very big overnight, particularly mainland china. today, that's the ftse 2025. that is mostly stocks that trade in the hong kong market. big cap stocks.

they're actually up in the u.s. and very moderate decline in stocks that are trading on mainland china in the u.s. a little moving away from the china trade right now. >> i want you to stay there and bring in ben willis. he is around you. he is the senior trader at princeton securities. this is the biggest fed meeting in years, right? they're telegraphing as much as they possibly can. the interest in getting it done and raising rates. back to the volatility question. it has been trending down wards since that brief spike above 50, what was it three weeks ago? so what is this telling us? can we sort of pull apart what that downward spiral is telling us? what the fed does doesn't matter either way? >> no, i think from an equity position, we had a very, very, very brief spike above $53 only minutes long when we had the swoon down 1,000 points. the vix index is actually not as highly used as it used to be which i think is one reasons

that it's pricing is under so much pressure if you will. it's a second thought, if you will. josh brown did a good piece on it the other day at the halftime report. but the fact of the matter is you'll see the vix continue to trade down because the equity markets are telling through is a rate hike coming. that is going to be an indication bullish for earnings in stocks, not bearish. there may be a knee jerk reaction to the down side. but the professional investors are telling you that the risk is coming off, therefore, the vix is coming in. >> the important thing is we believe the vix is some indicator, the market is telling us that they are not terribly concerned about what the fed is going to do, whether they raise rates or not. remember, there is a substantial minority who believe they will raise rates. the other point i want to pouin out, why didn't they panic? they did panic. we went on concerns about the fed raising rates. so small group of traders. and china as well. small group of traders really did panic. and those who sold them that

protection made them a lot of money. >> absolutely. we love volatility. that is a reaction from nonprofessionals, if you will, that drove the vix to $53. when they saw that preemup, sold. >> don't you think this doesn't mean the markets are all clear just because the vix is trending to the down side f you watch the oil market, for example, oil is a proxy for global growth. >> right. >> when oil moves weird, the markets move weird. we have seen this now for several weeks. so i don't think we're clear in term of volatility. >> there is a correlation with oil trading and equities. but they team to detatch from themselves after an hour or two worth of trading. the markets seem to separate. but you'll see the equity markets move with the commodity. west texas and brent the other day. there is a correlation but it is very short lived. >> great conversation, guys. we'll talk about crude later on in the show. of course, we had the crude close as well during "power lunch" at 2:30 p.m. eastern. let's get to the nasdaq noun.

hi, bertha. >> yeah, tech today very strong. and it's really been a tech field rally here at the nasdaq. the big strength coming with the large caps. the tech sector etf is back within 7% of the recent high, well out of correction territory. chips are still in correction territory. they're not in bear market territory. they're down less than 15% from their recent high. in fact, they've been among the best performers today. apple, of course, up today ahead of tim cook's appearance tonight on stephen colbert's show. signalling that preorders for the new iphone 6s and 6s plus could exceed the sales of the 6. the chinese stocks, it's now positive again for jd.com and it is leading the chinese adr sector overall. and they're rising despite that drop that we saw in the chinese market overnight. twitter getting a lift with the new cash tag political donation

initiative. and north land capital analyst saying go pro could be a target for apple as apple looks to harness more content. back to you. >> very interesting. bertha. it will be interesting to see what tim cook does on colbert. i think he'll hand him a samsung phone to make a call with. bob pisani mentioned -- i bet you. here, try a gal axy. he mentioned oil. the adjective used is weird. i don't know whether this price move is weird or isn't weird. what it is rallying right now by about 1.4% at $44.61. look at the difference between it and brent. really narrow, unusually narrow i think in my recollection. they're at $46.50 is ice brent crude. let's get a market flash. >> shares of target nearing the best level so far today. the big box store announced they're getting into the grocery delivery service here. teaming up with instacart to test market services for the same day delivery. this time in a test market in minneapolis now of goes well, it

may expand the service to other parts of the country. shares were up over 2% this year for target. we'll see if the same day delivery provides an even bigger catalyst for the shares. back to you. >> thank you very much. did you know that we're only two days away from the most suspenseful fed meeting in the past decade? just two day as way. i want to let you know. the main question is will the fed raise rates? that's been the question for a long time. less attention has been given, folks, to how the fed would actually do it. what does the fed do when it does raise rates? steve liesman with a look at the anatomy of a rate hike. >> reporter: it was the predawn of the modern age. twitter didn't exist. there was neither iphone nor ipad. the year, 2006. it was the last time the federal reserve raised interest rates. so it's not embarrassing to ask, what exactly is a fed rate hike?

the federal reserve controls outright only one interest rate in the economy. the one banks use to lend to each other overnight or the fed funds rate. the prime rate is tied to the fed funds rate and consumer credit cards are tied to the prime rate. with a higher rate, the fed tries to slow down the economy. with a lower rate, it tries to stimulate the economy. that's what the fed did with successive cuts during the financial crisis of 2007. it slashed rates to zero where they've been for nearly seven years. raising rates this time will be complicated. when they were lower to zero and the economy was still in the doldrums, the fed tried to stimulate growth by buying long term bonds, pumping $4 trillion of cash into the banking system. with all that money sloshing around, banks don't need to borrow from each other in the fed funds market. they have plenty of cash of their own. the fed solution -- pay the banks not to lend this extra cash. the fed will offer bank what's

is called interest on excess reserves. inducing them to keep their monday on account at the fed and not lend it out. loans to private borrowers will have to be at a rate above what the fed is paying banks not to lend. even with this, the fed is unsure it can hit the target. so it's now going to try to keep the funds rate in a range, aiming for the midpoint. if the fed hikes, the new range expected to be between 25 and 50 basis points or around 37.5 basis points. and that will be the dawn of a new age. few if any central banks left zero. the fed is looking to be the first one. and folks, i'm sorry to tell you, that's not the whole story. we talked about the ceiling. the ceiling is the interest on excess reserves. there is also a floor, reverse repot rates. they're trying to hold on and provide collateral to the economy. you can see right there what it

is. this is courtesy of credit suisse. that blue line is the overnight repo rate. the green line is the discount rate and the red line is the interest on excess reserves. there is a lot of money sloshing around in the economy. it's going to be very complicated. the fed doesn't know if they can hit that new fed funds target rate. tyler? >> so i want to ask a question that may be inarticulately phrased. the fed is going to look for a range for the fed funds rate. that suggests to me they don't control it as correctly as, say, a bank that says our rate is going to be 1.8%. >> okay. >> how do they make that -- how do they make that range come to be? >> through the use of various instruments they v the interest on excess reserves on as a ceiling and reverse repo as a floor. think about if you're on the ocean with the waves going back and forth and ability to keep something level. it's very difficult. what sloshing around underneath you is all of these excess

reserves and it's very difficult in the old days there was much less in the way of excess reserves out there. much less money in the fed funds rate. this is a new era with all this trillions of money out there that the fed thooz try to hit a target with all that excess reserves throughout. >> steve, fantastic. we'll see you tomorrow. i know we'll see you on thursday in washington. mandy? >> very interesting. >> yeah, very good. >> i learned a lochlt okay, a rally on the street aheads of the intensely watched and debated fed meeting that does kick off tomorrow. what do you do if the fed moves? morgan brennan has smart plays. hi, morgan. >> so today we're digging into consumer staples. based on historical performance, we have winners and losers. so stay tuned. you're watching cnbc, first in business worldwide. lease the 2015 rc 350 for $429 a month for 36 months.

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u.p.s. will hire 95,000 seasonal workers for the holiday rush. yum brands, ta taco bell is launching taco bell canteina. it will serve alcohol. it is moving higher today. and ge planning to move 500 jobs overseas to europe and china this after congress refused to lend a program for foreign firm pching u.s. products. tyler? >> all right. since the august correction,

consumer staples underperformed the s&p 500, the second worst performer behind utilities. how do the staples perform in a rising rate environment? questions you didn't know you had. first, explain what in the world consumer staples are. what kinds of companies? >> they're food companies. they're booze makers and soda companies. >> things you can't do without. >> tobacco companies. basically, they're the names that you as a consumer will buy no matter what is going on with the economy. those are the staples. that is different from discretionary. so as wall street awaits the fed's decision later this week on whether to begin raising rates, we turned to our data partner to see how consumer staples, a traditional safe haven for investors fair. the fed hiked rates four time. 1994 to 1995, 1999 to 2000, 2004 to 2006 and a one off rate increase in 1997. so we looked at how consumer stocks performed one month after the initial hike in each of the

cycles. as a benchmark, the s&p 500 lost 2.5% on average. trades lower every time. you can take a look and see that right here. consumer staples did a little better, down every time. only losing 1.6%, 1.a% on average. but there are three companies that bucked this trend. the first, brewer molson coors brewing company. it traded positive 75% of the time. and it averaged a 9% return. fellow brewer, constellation brands also gained three quarters of the time. another winner, costco. traded in the green 75% of time. averages a 3% gain according to kensch. these are names to steer clear of as the fed gets ready to raise rates. soda companies. specifically pepsico which lost 3% on average and down every time. also coca-cola enterprises which produces and distributes coke products abroad. that lost ground. it slid on average 10% a month

after the fed. another historic loser, whole foods. that fell after each rate hike and that lost on average 10% as well according to kensho. >> the dow is out of correction territory. stocks are rising now for the third time in four sessions. our next guest favors the consumer discretionary sector and says it is the strongest sector in the market. in fact, phil, just doing a quick look at the sectors year to date, consumer discretiona discretionaries are overtaken health care year to date and only those two sectors are in the green year to date which is interesting. do you expect that to continue? >> i do. i think we've kind of forgotten a little bit about what really matters to our economy. what really mat serz the strength of the consumers. and to mandy's point, costco is a great name. but on the discretionary side, you think about an underarmor,

we're going into the holiday spending season. and the consumer is in great shape. just recently i think it went over and everyone got caught up in the fed and what's going on in china. but did you see the august print on wages? they came in at .03%. if you analyze that number, that means wages are up over 3.5% annually going forward if that number holds on. couple that with $115 billion tax credit in the form of gasoline and you've goot to love the discretionary sector. i'm surprised there is not more being made about the strength of the consumer here and the season we're about to head into. and what we just came off. >> i guess wage gains could be better, right? i'm sure a lot of people out there are wishing they were a little higher. we did see retail sales come out this morning. they were better than expected. what sector you would have void, if any? >> you know, it's interesting. when you look at the utilities sector, it's traditionally defensive mechanism. but in a rising rate environment, i would be concerned about the utility holdings. it's a sector that worries me.

when you look at what's gone on there and the correction and oil and energy stocks. they're not cheap. utilities are right there with it. i traded very similar. so equally energy and utilities are both concerns. traditionally defensive sector. i don't think that holds true this time. mostly because of the issue with the situation that's going on with energy. like energy, even though we've had a correction energy prices, we've had a correction energy earnings. the same thing for utilities. that will be two sectors i would say that will be problematic going forward for the rest of the year. >> problematic. phil, thank you. and your year end target is 2100. >> quick point on that if i may. >> sure. >> you look at the last six years, average ratest return or fourth quarter is 7%. you put 7% on top of where we are today, we get the 2100, back it up by a strong consumer, we're going to get there. >> thank you very much you to. let's get to dominick for a market flash. >> we're watching shares right now. what is happening with blue buffalo. the shares are up by 4%.

helped along by analyst upgrade over at wells fargo. they're saying now the recent pullback in the shares post that really hot ipo present a good valuation buying opportunity. they cite possible international expanse plans and what not. so those shares, tyler, doing very well in today's trade. >> thank you very much. american airlines up to day. but down 20% so far this year. down 20.5%. the ceo will talk about the next leg of growth as he sees it. plus, fears about china's economy. many question whether you can trust the economic data that comes out of that country. so what is china's real gdp? we've got a new report that's going to surprise you. we'll be right back.

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health records and family history, so we can analyze it. he's doing everything right... for the most part. no pain, no gain. you are a beast, ted. my name is watson. how can i help you? welcome back, everybody. it's been awe turbulent year for american airlines. the stock is down 20% since january. but could there be clearer skies on the horizon? phil lebeau is speaking with american airlines ceo. hi, phil. >> tyler, i get this question from a lot of people. look, it's been a couple years since us airways and american airlines got together. the merger is complete, right? well, not entirely. they still have the vreservatio system to put together. that will happen next month. and this operations center is another big step. this is the new operations

center. 1600 people work in this facility inside this facility. they are either dispatching or monitoring more than one million american flights every year. so this is really the nerve center for american airlines. this is the last step in the integration of american and us airways. take a look at the profit growth for american over the last four years. now if you go back to whether they were in bankruptcy and they lost, you know, a little over $1.5 billion, then they turned profitable. in the last couple years, it's ratcheted up thanks in large part to lower jet fuel. this year they're on pace to have record profitability but doug parker says this is not as good as it can get for airline investors or for american airlines. >> demand is quite strong in the united states. that's where most of our service s we're seeing -- we have seen fares come down. that's a result of capacity increases. i think that is largely result f fuel price declines. you add it up, profits are way up.

>> and a lot of people are asking what about pricing? can pricing hold up or are we going to see more pricing pressure in term of airfares? most in the industry do not think we'll see a ton of pricing in terms of the next six months to a year, guys. but keep in mind, we're in an interesting position here in terms of what we're seeing with the economy and with demand for air travel here in the united states. i'll be curious to see how we get through the holiday season as we go into the first half of next year. just how much of an impact that does have on pricing. >> thank you very much, phil lebeau in ft. worth, texas. to the bond market, rick san telly is tracking the action. we're two weeks away from f day, fed day. i see the two year yield is hitting around four year highs. >> well, i'll tell what you, market volatility in a fixed income market is kicking off. there's big debates going on as to exactly what's going on. steepeners, flatteners, distance between fed funds and twos, fed

funds and fives. suffice it to say all that is going on but a word of caution. the very nature of fed fund futures is small ranges. the coupon curve is on steroids. look at a two day chart of two year note yields. they're zooming. looks like we're going to get the highest close since the spring of 2011, finally. we've had many intraday plays above 74 1/2 basis points. that's the threshold. look at a two day of tens. zoom from 220 to 226. that will be the highest close since the fifth of august. two day of 30s. trading close to 305 going back to july 21st. dollar index as well. keep it simple. stocks are up. fixed income guys get nervous. rethinking what the fed would do. thank you janet yellen for a big day in the pits. tyler, balk. >> all right. thank you very much. a rally haefd the fed stocks at session highs. it is, of course, all about the fed meeting this week. will we get the first-rate hike

in nine years? goldman sachs out with the list of stocks you should avoid when the fed begins to raise rates. we're going to name names next. awe believe active management can protect capital long term. active management can tap global insights. active management can take calculated risks. active management can seek to outperform. because active investment management isn't reactive. it's active. that's the power of active management.

here's your cnbc news update for this hour. pope frances will receive a special greeting from president obama when arrives in washington next week for his first ever visit to the u.s. the president will meet the pontiff at his plane when it lands at andrews air force base. a rare gesture from the president to a visiting dig any takery. north korea says it is upgraded and restarted all of its atomic fuel plants so it can increase the production of nuclear weapons. the warning fits a pattern of using claimed improvements in the air nuclear and missile programs to push for talks with the u.s. bmw's ceo collapsing during a news conference at the frankfurt auto show. he stumbled backwards and fell on his back during the first five minutes of the automaker's new lineup. the staff rushed to help him back to his feet. his condition though is not

considered serious. zimbabwe's 91-year-old president delivering the wrong teach h. speech at the opening of air new session of parliament, repeating a 25-minute address he gave to the legislature last month and no one stopped him. that's the cnbc news update at this hour. back to you, mandy. >> thank you for that. >> oil prices are closing right now. not far from a one month low. let's take a look at the numbers there for you. gold is trending to the down side at 1103. silver, copper are moving higher except for silver. >> thank you very much. stocks are at a session high. i think dom and i are going to give the same report we gave a month ago, right, and see if anybody notices. no one will stop us. let's look at the dow, nasdaq and s&p 500, shall we? they're at session highs. let's check in with bob pisani. hey bob. >> we're at the session highs, tyler. remember the old saying and there is some truth to it, sfokz te

stocks tend to go up going into a fed meeting. look at the s&p 500. we're essentially at the highs of the day. volume is only on the moderate side. better than 2-1 advancing to declining stocks right now. there seems to be a little bit of an interest rate play going on. bond yields are up, even in germany, bond yields moved up. interest rate sensitive stocks rup. luke at bank stocks, they're leading the way. the big money center banks but even the regional banks. so a lot of them are up about 2% right now. interest rate sensitive groups, telecom and home builders and utilities are also on the upside. sometime whethn you get treasurs to move to the upside, they suffer. not today. we're getting a broad raly. here's another interest rate sensitive group. emerging market stocks which are very sensitive to higher rates. even they're moving to the upside at this point. so it's a very interesting move going on. i'm not sure exactly what it all means. but we're seeing some kind of

rotation out of bonds and into stocks right now. i'm not quite sure what it means for the future of the fed rate hike situation. but that's a very clear play going on today. we'll have more at the top of the hour on. that back to you. >> all right, bob. thank you very much. goldman sachs out with a list of stocks you should avoid. out of here when the fed begins to raise interest rates. dom chu here with the names. >> it's interesting. i couldn't believe it when i was watching rick san telly's report about the two year yield and how it's a 45-degree angle. there is already this instance here where people are jockeying ahead of the fed interest rate decision. our team over at cnbc pro take a look at these. goldman sachs out with a note. we used numbers wrels to put together the story here about where people want to go or stay away from if this whole rate hike picture plays out f you have a rate hike here, what to watch. look for the high quality stocks, the ones with stronger balance street and they don't have as much debt on their books that is variable. when interest rates rise, they reset to higher interest rates.

so that's goldman sachs's tack. the team over at goldman sachs. so what exactly are places or sectors that you should focus on because of this variable interest rate type situation? higher levels at least, relatively speaking, of this variable floating rate debt. you talk about financials and you talk about industrial companies. those are a couple sectors. lower relative levels of floating rate debt, you've got materials companies. you can take consumer discretionary ones as well. those are ones that you maybe take a look at in terms of ones that are stable, relatively so in this environment. so the list, they put together. they have 40 names on the list about stocks you want to look at. maybe to buy for the higher quality situations. they think they outperform in these type of situations. cvs, the average analyst estimate ahas the target price 20% above where they are now. oracle 22, biogen, 22. but of course those are a fannedful of the name from the full list of subscribers to pro.

go to cnbc.com for more on that. >> that story is up on cnbc.com/pro. >> okay. stocks are sitting around session highs ahead of tomorrow's fed meeting. we're holding and in some cases extending the gains. joining us now, chief invest. officer at atlantic trust and invest. strategist at lpo financial. gentlemen, thank you for joining us. first quick question to you, john. a lot of people have argued that it's ultra low interest rates that have been one of the main drivers of the bull market we've all enjoyed over the past six or so years. how much of a driver do you think it's been and if indeed that is the case, what will happen if and when rates start to rise? >> yeah, i think it's certainly part of it. i think this will be a maert of debate for the next couple years and the next couple of decades to figure out how much of this bull market was because of the fed and so i think that's going to be good to discuss. looking ahead, you have to

remember investors have to keep in mind that the first fed rate hike is not really the end of the bull market. it hasn't been in the past. it's not the end of the economic expansion. it's really just the next phase of this. so we went back and took a look at it. and eight of nine fed rate hike cycles since 1950, stocks are higher the year after the first hike. and our view really the whether is not so important. it's really the how much and how far and how fast. i think markets really need to get their head around that first. the when is interesting. but the how far and how fast is much more important for the economy and markets. >> so generally speaking, historically the stock -- stocks and the hiking cycle have been actually not so bad. historically speaking as well, can you also argue that the s&p 500 is sitting around historical norms in terms of pe. dave, do you agree that the market is okay from a valuation perspective? >> i do. i would put it just that way.

it's okay. it's not rich. it's not cheap. bat 15 1/2 time forward earnings for the s&p 500 and a low interest rate, low inflation environment, the market to us looks about where it should be in regardless of whether the fed moves into next year, that's not going to change. the key issue is do earns recover? we've had flat earnings and certainly negative some n. some sectors so far this year. we're looking for a bit of a revolverry in earns starting in the fourth quarter of this year, end of the first half of 2016. and if that comes to pass, and if as we expect whenever the fed begins to raise rates at the slow path, xbekt the bull market to continue for the foreseeable future though with a lower return profile than what we've enjoyed. >> and that's what happens in a mature bull market, doesn't it? like narrow leadership and fewer and fewer gains. but you're saying, dave, there still will be gains? >> yes.

we believe there will. a single digit market in terms of total returns over the next couple years. more volatility than the relatively quiet period we saw until the last few weeks. and to your point, narrow leadership. fewer stocks really sort of pulling the market higher. >> okay. dave and john, thank you very much for explaining that to us. a little bit of a history there. can you go online to see what are the risks to the market. >> what typically happens to stocks if the fed doesn't raise interest rates? we've been krufrcrunching the numbers. we have a report live from vancouver. >> there are three instances to draw on. the statistics are compelling. the markets could see big rallies over the next few weeks and months if the fed holds fire later this week. three time the expected rate hikes did not manifest. that is december of '93, december of '94 and may of '97.

the dodge dodgj and they trade all three occurrences. in term of the biggest individual stock winners, when rate hikes did not manifest, 30 days later, plenty of s&p 500 components traded higher. 100% of the time and saw average returns well in the double digits. the best of the best, those should be on the screen, j.p. morgan, eric kolovsona and j.p. morgan. i also need to mention that past three expectation wez drew on were based on federal fund futures. right now keep in mind that the expectations for rate hike are quite low. but these past outcomes are certainly something to keep in mind if expectation dozen rise ahead of that december meeting. later we're going to take a look at what happens when the fed does hike and how to play. that back to you. >> thank you very much. let's pose the question, what is the real state of the chinese

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2%. >> thank you very much. china's stock market tanking over the past few weeks taking down other major global markets with it. fears about a slowdown there, still the chinese government insists growth is on track. many economists don't believe them. michelle was going to take a look at that. but -- there you are, michelle! i thought you were going to be right here. >> no. >> details with a new report on what's believed to be a better assessment of the size of china's gdp. >> it's so crucial to the world economy right now. so the centers for strategic and international studies commissioned two of the top china researchers in the united states to try to figure out the state of the economy. here's what they found. remember, they've been doing this study for two years. so they went back and for 2013, they think that the chinese government understated the size of the chinese economy by a full trillion u.s. dollars. the official government is $9.5 trillion. the csi estimate is $10.5

trillion. to give you context, remember the u.s. is $17 trillion. so what happened s? the service sector was undercounted. real estate sector was undercount the. the r & d sector was undercounted. why? turns out that china is using a far older model for the measurement of gdp. a 1993 model while everybody else in the developed world turned ton a 2008 model. now they had promised that they were going to instill, you know, put in place the 2008 model by 2014. in december, just nine months ago, everyone was waiting for the new format which would have led to very large revisions of the previous five years of gdp. but guess what? never happened. they didn't change over. they're still using the old system. they didn't explain why. the researchers, taking a look.

they wonldered why on earth that this would be. and they think, well, you know, if you're struggling to meet your 7% target, maybe it's a lot better to have a smaller base to work off of. and they come to -- this is one of the conclusion thez come to which is political discomfort over the realities illuminated by better statistics can trump the benefits of transparency. this is only one of the many observations in this report, tyler. but it doesn't answer the specific question of when china says we're going at 7%, are they? they don't try to tackle that quechlt but it kind of gives you some -- a look into how they think about statistics. >> so what's your instinct here? is china doing better than we think or worse than we think? >> i think the fact that they did not want to raise the size of the economy over the last several years was very on purpose because the bigger the previous five years were, the harder it is to achieve 7% growth. so if they're struggling to achieve that, it's better to work off a smaller base.

i think bottom line, there is my analysis, not the writers of the report, suggest that things are tougher than might appear. >> than might appear. thank you very much. four star international advice now from dale winter. that's a good name for an investment manager. let's pick up on what michelle just said. what do you think the real numbers are telling us about china? do you think china is in better shape than we think, worse shape than we think or does it matter you to really? >> it doesn't matter so much because we're stock pickers. and we see great valuations, great expectations in terms of what the policy stimulus tools are, monetary policy can come down, fiscal stimulus and structural reform. it's a great start. low expectations. >> you're buying in china? >> yes. >> two handed? two fists? >> so we've been equities for the last 18 months. we describe them as value traps. we believe last year china was a value opportunity. and we still agree with that.

we think brazil is a value trap. >> all right. let's move on to a couple areas of interest for you. surprise is one. japan is another. china the third. why do you like europe and japan? is it as simple as monetary stimulus? >> that's part of the reason. so european equities have three things in common. and that's where we're bullish. firstly, they have low valuations and trading about 1.4 times price to book tlachlt is discount to the u.s. second, they have good possibilities for earnings. i call it the three cs, lower credit, comedy and currencies. those are actual tailers to earnings. and finally, q-e. beginning of qe, not like in the u.s., the end of qe. >> i looked at the largest holdin holdings, they all seem to be japanese companies. >> the actual waiting is 60% in europe. smaller sizes, 20% in japan and 15% in china. >> and then why are the individual holdings the biggest

in japan, i believe it was mitsubishi financial was one. >> yes, absolutely. we have a three to five year time horizon. we started buying them three or four years ago when it was a very nonconsensus area. we made good money on those. we still have upside but finding new opportunities in europe right now. >> i'm going to geoff you a choice. you have europe, japan, china. of those three areas of focus, which one is the best value now for buying? >> europe, this is core europe in terms of the euro zone, not the uk. valuations are a discount to the u.s. and to history. the qe program is just beginning. $1.1 trillion euro this march. if the data says that way and then also we have these earnings tail winds in term of lower credit, lower currency, lower commodities and also in the big picture of things, european earnings are still 40% off their prior peak. >> that's a very clear argument.

thank you very much. >> thanks for your time. >> dale winner. appreciate it. >> life, death and taxes. interest rates are bound to move higher sooner or later. that has many of us asking if right now is the last best chance to buy a home. but the better question might be am i in the right place to buy? a look at what is hot and what is not in the housing market. location-wise. that is still ahead. ♪ the 306 horsepower lexus gs. experience the next level of performance, and there's no going back. lease the 2015 gs 350 with complimentary navigation system for these terms. see your lexus dealer.

yields on the two year note sitting around four year highs as bond traders position themselves ahead of the fed. more on what those yields are signalling coming up in the next hour of "power." among the sectors leading the way, industrials, financials and health care. and drilling down on individuals, merk, microsoft and chevron are leading the dow. if you missed any of the stories or others, visit the site. it's all there. powerlunch.cnbc.com. >> all right. on thursday, the fed will decide whether to raise short term interest rates for the first time since '06 or yahoo power

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another big hour on tap. stocks rally. there is also a huge move happening right now and a bizarre corner of the market. what it is and why it's happening ahead. plus, forget about interest rates. we'll talk about the hot spots for housing and the big differences between the economy now and the economy when the fed last raised rates. 2006 just seems so nine years ago. >> sure does. we'll be watching top of the hour. billionaire larry ellis son made another acquisition this time a swanky hotel in palo alto. robert frank is here with that story. >> it is a big number. a group controlled by billionaire larry ellisson bought the he pif any hotel. it is under $1 million per room. by the way, the cheapest room there tonight, i got it off the web is $750. so you'd have to rent that room for four years straight just to

make the revenue let alone the profit. analysts say the prices reflection of the booming economy in silicon valley. hotel rates have more than doubled in the valley over the past two years. but it's also part of larry ellisson's fast growing personal empire of hotels. he's about to open a new hotel in ball mu where he also owns more than a half dozen houses. he just bought the -- he just renovated two hotels in the hawaiian island. he bought the entire island for $300 million including the two hotels. the most expensive hotel ever sold in the u.s. is the backerat hotel in the u.s., that is $2 million. so more than twice. that's why people are saying with silicon valley, a million room in a strange way can be a bargain in this market. >> you have a little more news, don't you? >> i have a cake. i have the cake of the -- the dessert of the day. it's a $75 million cake. check this out. it is made by debbie wingham.

and it's about six feet long, made to look like a miniature fashion show. do we have footage of this somewhere? maybe we don't. >> doesn't quite do it. >> let's see if we can find it. how do you make a $75 million cake? with a lot of diamonds. over 4,000 diamonds. a little crunchy. >> guys, first off, i'm sorry to jump in on your hour. the show is power lunch, not power desserts, that's why we don't have a cake. by the way, $1 million hotel rooms and $75 million cakes, does anybody else smelling something brewing lately? >> bubble, bubble, bubble. >> there is the cake. there's the cake. >> by the way, we should say, the buyer of that cake was the family in the united arab emirates. brian, oil prices not really hurting everybody in the oil patch. >> let them eat cake. >> all right. thank you. >> we'll be back as well. >> thank you. i appreciate it. >> you know, it didn't go well, tyler, the last time that phrase

was uttered, i don't believe. >> no. and i said it knowing that. >> although, having just got back from paris, she did not say let them eat cake. shes is let them have biscuits or something like that. >> and on that note -- >> it still ended the same way. >> we're going to turn it over you to and melissa for our number two. >> all right. it is power snack. 2:00 on wall street. 1:00 on the floor in chicago. there is a rather big story developing in the treasury markets. so let us now get right to rick san telly. we don't talk about one year and two year treasuries very much for a good reason. they tend not to do much. today, that's different. what are they doing? why? what does it mean? >> absolutely. whether you looked at the one-year bill auction, to day which is a normal event on tuesdays or you look at yields on two year, three year, especially the shortened, he is exactly right. the long end is like ice skaters. imagine ice skaters holding a

rope. the shurt maturities are closest to the person holding the rope. most of the volatility is longer, longer, long end. but today the shortened is keeping up with yields up 7, 8 basis points. and it all is the catalyst -- the catalyst is the fed. many are saying china's the big story. it is. globally. but why now? what's changing the last three hours? the clock is ticking. and the new pervasive attitude and bob can go into this more is that the fed's going to go small, maybe they'll tweak interest on reserves as well. the stock guys are happy with that. do something little so we don't have to do this again. swear you're going to proceed slow. and that rally in stocks is just aggravating the selling that i just described in the treasuries. and even the long send part dissipating with yields that we haven't seen close over 2.25 on tens, over 3% on 30s, brian. >> rick, here's the thing. again, we talk about this fed meeting on thursday.

unfortunately, as if it's a binary event. they'll raise or they won't. is there a soft middle ground? it is possible because they're in that weird sort of band of zero to 25 basis points that they could just eliminate the bottom end of the band and say this is the new fed funds rate rather than have sort of that one quarter of 1%? >> absolutely. absolutely. they could play it from a band. they could do an eighth of a point. they can pay 20 or 25 basis points more on excess reserves. so to try to somewhat cushion the banks but to get things out there in a normalized fashion. to many, normalization really isn't just about raising rates. a, it's to demonstrate that the fed is thinking about the economy as well as markets. many traders believe that it's all about the markets. and it's all about immediate gratification to maybe take a longer view. but even more, brian this is really a long business cycle, a long bull market. and, of course, many are now

starting to say maybe in the next 15 to 20 months we get a recession. maybe the u.s. still grows. but the rest of the globe doesn't. all of this is just lighting a fire under the fed to do something sooner rather than later. >> citigroup arguing that a global recession is very possible next year. rick santelli, thank you very much. >> let's get to bob pisani. i know you're tired of talking about the fed. but when we look at 230 points up on the dow, is this the market saying the fed is less likely to move on thursday or something unrelated? >> the problem is we have a historical pattern that is playing out right now. that is the market moves the day before and going into the fed meeting. it's very well documented. the fed's done a whole paper on this phenomenon. take a look at the s&p 500. the problem is the trend here is so clear that we can't definitively say that they're going to bet they're raising or not raising. so there you see we're off the

highs for the day. rick is right. what's been going on in treasury market is definitely spilling over into the stock market to a certain extent. so here's the markets in the middle of the day. the day before the federally. that's the primary reason we're rallying. we're moving differently now out of bonds and into stocks. that's a notable things that happening today. rick highlighted that. the breadth is 2-1 advancing to declining stocks. volume son the moderate side. can you see sensitive groups. they've been outperforming all throughout the day. but if you look at the usb or regional banks and the big money center banks all up about 2%. interest rate sensitive groups that might even be a little bit hurt if bond yields moved up are also doing pretty well today. telecom and home building stocks and reitz are all on the upside. even utilities are doing well -- well, not as much as the market. here is another group that is odd. when interest rates go up, usually emerging markets don't. the eem is doing fairly well today having a nice little bounce back. so i guess the question here is what does it all mean? what i find unusual is bond

yields and treasury yields started moving up this morning about 8:0 when t8:30 when the rs came out. the stock futures did not move free open. all that advance we've seen today has been in the cash equities market after the market opened. so it's been a little bit of a strange day. most of this i would attribute to the day before the fed typical action. the bond stuff is throwing a little bit of a curve ball into all. this melissa? >> bob, thank you so much. let's bring in peter bookvar who joins us on the phone. beater, let's piece these together. connect the dots. it seems like the steepening of the trade is being unwound the day before the fed. >> yes. i don't know what to read into it. the fed funds futures market will be in the october contract which we xap toured in the september meeting is little changed here. so i also see the dollar strengthening. which also the sign that the market is beginning to sense a rate hike. i don't think anything was learned in the last couple days in terms of the data that would

get the market to lean one way or the other. that said, it's very possible the stock market rallying back near to 2000 on the s&p 500 is rallying into a potential rate hike. if the fed walks into the meeting today and discusses it through tomorrow and says the s&p 500 is near 2,000 thou, we're off record highs, maybe can you hand will a potential rate hike. maybe this is just major positioning by a few major players. but i think bottom line is that this kind of action tells you that we could be in for some major moves on thursday. f. they do raise interest rates. >> you know, peetd what is interesting? they're not sure how to handicap what the market will or will not do if the fed raises or doesn't raise rates. do you have any clear picture? it is even more confusing given today's market actions as to how the markets will take a rate hike? >> my sense is if they do not -- if they do raise but they couch it with dovish type commentary, i would expect a short term

raly. on the other hand, i think that logistics of a rate hike are going to be an issue for the markets. people have to understand that. the fed's rate hike is not the beginning of a tightening cycle. the beginning of the tightening cycle ended when q-e ended. this is phase two. out side of maybe a rally from 2:00 p.m. on thursday to 4:00 p.m. on thursday if they raid and say we're not doing it for a while, i expect some trouble after that. if they don't raise rates, we'll get another 2:00 to 3:4:00 p.m. rally. and what good is that? >> right. peter, we're going to leave it there. we'll look for that 2:00 to 4:00 p.m. rally. peter boockvar joining us. >> the white house just saying does it not support a house bill that is making its way up on capitol hill that would lift the ban on u.s. crude oil exports.

the white house saying that it's the commerce department that should make that decision. now this is a debate that's been going on since the 1970s in this country. should we have a ban that has been in place that long on crude oil exports. with the recent glut in oil production in the united states, there's been a real push to lift that ban. the obama administration so far hasn't signalled its support of that although there have been a lot of smaller policy steps to sort of loosen the existing set of rules. the obama administration is not going to support this house bill. i have to tell you, there is a sense in washington that the debate is moving on this issue and that ultimately what we could see is some sort of kpr s compromise down the line. the white house is signalling they're not going to support this bill at this particular time. >> i have that cartoon, i'm just a bill in my head. they signed it now it's a law. give us the lowdown on what could happen. just because the white house and the president says they do not support this bill, that does not mean that bill will not pass.

he's not saying he would veto any bill should it make it through congress kreshgt? he's just saying i can't get behind it. it could still happen. >> it could happen. house republicans could pass a bill on their own. it would likely die in the senate. the question is whether such a bill could pass in the senate at this point. and then whether or not the white house would agree to sign it once it got down to the president's desk. all of that would have to be worked out in advance. they think the commerce department should be in charge of rules here so you're going to get a little bit of an executive branch legislative branch tussle over who is really in charge here. but ultimately though, because of the way the oil dynamic has changed over the past decade, you've been in the range covering this, there's been a massive shift of opinion in washington over whether or not that crude oil ban that dates back to the 1970s after the arab oil shock is still relevant and should be in place. so one of the things to watch here is sort of where are the bread crumb trails here that would lead us to a policy change about it united states

government? we've seen the united states government make a number of sweeping policy changes under the obama administration. the question will be could this be another one before the president leaves offs? >> the commerce department -- the white house is sort of moving the decision to the commerce department in congress. just saying i don't like it. but it's up to commerce and congress, correct? yes or no? >> exactly. >> okay. >> so they're saying no for now. but there is a lot of debate on this. so we'll have to watch this. >> the commerce department has moved incrementally, you know, in many ways. ultra light crude exports, the crude exchange with mexico. is there anything to indicate that commerce department would not move forward with exports of oil? >> you know, you're getting a little bit beyond my level of depth here on. this i don't know what commerce has said recently on. this i do know that they moved on some of those incremental rules. i think there is also exports to canada now which is another change that they put in place in recent months and years. so where this all ends will be

up to president obama now in the remainder of his term, whether he signs the fwhal comes to him from congress or whether he does this through executive action. but it's definitely something to watch. you get the feeling here in washington that debate is shifting. >> all right. thank you very much. jumping on camera like. that appreciate it. jackie is down at the nymex. >> crude prices kind of falling out of bed on this news. there were headlines this morning about this bill potentially coming into play. of course, now that white house is saying that it's not behind it, the market doesn't necessarily think that it really has much of a chance. here's the situation that you mentioned. the commerce department, of course, allowing those compensate exports slowly but surely. you have a the love lobbying to see exports out of this country because there is such a supply glut. there are two school of thought on what this could do to pricing. the first school of thought is you take our wti, put it on the international market and it competes with the global benchmark which is brent and

that brings prices up. and generally that would probably be a good thing in this environment for u.s. producers. having said that, the white house hasn't taken a stance before this before coming out and saying they won't support it. and the commerce department has been the one to take the action on this. at the same time, traders are also telling me there are other factors at play here. we're going to get data out after the close, the api data. you also have a swing to the down side that was pretty severe yesterday. so this could just be some of the normal volatility that we've experienced as of late. >> all right. jackie, we'll see new just a bit. thank you very much. >> all right. more power lunch after this quick break. the dow up is. oil barely up after the headlines. we're back.

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the story is becoming the shortened of the bond curve. we're seeing the two year note up a good amount. the biggest move in that shortened for the one in two years since april of 2011. let us bring in steve liesman and our financial reporter at the "washington post." steve, i'm going to start with you. steve, you there? >> i think i'm looking at elan right now. yeah, that's me. that is me. >> looking at elan as opposed to looking at you or me, my friend. >> i'm also looking at steve. >> and talking with elan is better. >> yeah, we were winning. now we're losing. quickly, steve, let's talk about the markets. we're seeing this big move in the shortened of the bond market. we never talk about it.

any hints that with he can garner from the fed by look wlag is happening there? >> i think i'm completely giving up the whole process of using the markets to prognosticate everything. the jie ragss of late have been really mind boggling and it's very hard to get a signal. that said, the two year note and the level above 70 has been my barometer of the market's feeling about whether or not the fed is going to hike. if you go back to a slightly longer term rate, that was a signal that it's off. it got above 72 or 73. it was a signal the fed may be on. this screaming somebody suggested recently could be a couple big players positioning themselves. so maybe you want to take it with a grain salt for the moment. but certainly something up near 80 is the market saying we're positioning for a hike. >> you know, it's interesting. you came out with a piece saying the challenges this economy faces heading into fall, there are so many things. but i just worry if we wait for perfection, as steve and i talked about many times, nothing

will ever get done. i'm not even talking about the fed. i'm talking about life. >> yeah. you know, the big talk here in washington is not necessarily about the fed but about the possibility of a government shutdown and the threat of that is increasing every day. lawmakers have only about nine working sessions. that's if you include the day they're getting visited by the pope in order to come up with a deal to pass the budget before it expires at the end of the month. so the time frame is looking really short. there is no clear path for it. democrats want to extract some pretty strong concessions in terms of their support for the temporary spending resolution. things are not looking good now. the irony of that, if things -- if we do avoid a government shutdown now that, could be worse for the political climate in december when you might have another debate over the budget in conjunction -- >> so you're down there. you know, in sort of the hall of congress. or at least the bars of congress probably where that is the real action happens. we know. that right? i've been to the big hunt a few

time. and we -- and we talk about -- china was the big variable a couple weeks ago. are you saying now that this possibility of a government shutdown is the new china? is the new fear? >> well, i think it's definitely another layer of unsurn certainty. the fed won't have any more clarity than we do by the time they come out of the meeting on thursday. but looking forward, over the fall as you said, things are not going to look any better politically in washington. in fact, they could very well look worse as we get closer to the summer. >> i think we're only in the september camp left. are you still there? >> kind of backing off it there, brian. i find it really hard to think that yellen is going to move. winlt back and counted. the number is 63, brian. i know you like random numbers. 63 is the number of days that janet yellen has not spoken. the most powerful person in the final world. china melted down. wild jie raggyratio ins in mark

she hasn't said anything. she has to make a call here as to whether this is a better way to run this particular railroad. i'm no the sure. the result is all this kind of market gyration coming into the meeting and after. i'm not sure it's better to do it this way than to provide real guidance to the markets. >> many people -- >> for what it's worth, yellen is speaking next week at amherst and she is also speaking in december in washington. so take the signal you may from that. >> through go. i'm still in the september camp. i'm sticking to my guns. i'm calling it the strong and probably wrong campaign. steve and elan, thank you very much. appreciate it. melissa? >> let's get to a market flash. >> it is interesting debate. it's playing out in the stock side of things as well. look at the utility stocks with the rest of the market, they're

currently at the best levels of today so far. you think with treasuries here the yields surging, interest rates like utilities would lose some steam. that's traditionally how it works. some names are holding up the sector today. energy energy, excel energy, pepco is up between 1 and 3%. all of a sudden on a day when utility stocks and interest rate sensitive ones should be losing steam, you're seeing them at their best levels today. interesting trade developing there. >> are you in pt september camp or did you waffle out of it? >> you know, i tried to report on all sides of the story. intuitively, months ago i didn't think it was going to happen until later on in the year. however, the fed funds futures, i base it a lot on. that i would just say that whatever fed funds futures bring, i'm a probabilities guy. i like seeing the market dat yachlt and that has been suggesting for quite some time as you know that we weren't exactly going to have an interest rate hike this time around. who knows? i could be wrong. >> that was a waffle. >> up next, we're talking cargo,

pet food and perfume bottles. huh? "street talk" is on deck. we're also keeping a eye on the market. the dow up is 225 points. a big day for the dow. big moves on the shortened of the bond curve. a lot going on. stick around. we're back after this. danger from virtually anywhere. it's been smashed, dropped and driven. it's perceptive enough to detect other vehicles on the road. it's been shaken, rattled and pummeled. it's innovative enough to brake by itself, park itself and help you steer. it's been in the rain... the cold... and dragged through the mud. introducing the all-new mercedes-benz gle. it's where brains meet brawn.

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let's get a check of what is the talk of the market right now. the big move in the two year treasury note. let's bring in larry kudlow. we'll talk about the bank. this move in the ones and twos is quickly gaining attention. nobody seems to really be able to pin the reason of why we're seeing this move. do you have a very educated guess? >> not particularly. i mean, who knows? >> everyone is ascribing it to the fed. but there is also the school of thought is china a net seller maybe because they need to raise some of the cash? >> think of this, too, sully, people may sell bonds to buy stocks. the stock market looks good. i'm not an expert. i'm not a technical guy. but there are some signs and there are some people saying stocks have bottomed so i'm getting out of bonds and going back into stocks. the safety trade may come to an end. >> so you'd be more concerned, maybe intrigued, not concerned,

if we're seeing this move in the ones and twos and stocks weren't doing squat. >> i would be. that's a good point. i would be. i don't want the yield curve to flatten. that's why i think this is a safety trade. a risk back on trade. look, regarding the fed thing, you and i talked about this. i'll give you september if it's an eighth. now nobody likes the eighth idea. i get that. but they could if they wanted to. they could change the range from zero to 25. and the effective rate is 14, 15 basis points, they could change it from one to three days. >> this is an important thing you're bringing up. sort of -- i think there is this recency bias, by recency bias, i mean the 10, 15 years where we assume they're going to go in some 25 increments. 25 basis points. 50 basis points. a nice clean quarter or a half. looking back to william mcchezy

martin and the 50s, they have done moves that were not even in quarters, right? they've done the sort of tinier moves before, haven't they? >> they've done eighths. they did a lot in the 1980s. can i tell a one second story. when i was a very young economist at the new york fed woshgsing as a research guy in open market operations, i believe it was 1974, they had green felt boards and after the morning call between the new york fed and the board, nice lady took down the 9% fed funds rate and put up 12% in one day from 9% to 12%. inflation was raging in those days. my point is they can do anything they want whenever they want. i'm going to bet they shouldn't raise rates this time. >> one of the reasons i'm in this september camp, maybe it's hope, i guess. so just listen to me quickly on this. here's a quote from the federal reserve. "recent indicators suggest that

economic growth is moderating from the quite strong pace earlier this year partly reflecting a gradual cooling of the housing market and effects on increases in interest rates and energy prices." kind of a negative tone. that is from june 2006. that is the statement when the fed last raised rates. if you read that in a vacuum, you'd say that's a rate cut. they raised rates even when they were worried. >> yeah. that was just a different scenario. >> inflation was high. >> you had much higher inflation. the key point i've been making here is whether it's the indices you're looking at or the commodity markets or the treasury spreads, the breaking of the spread, there is no inflation. and, in fact, normal times the fed might be a little easier as a result of falling commodity indices. now they're not going to be easier now. but my point is i think they have breathing room.

i'd rather see them wait. they're going to have normalize. i get that. i heard you talking about a government shutdown. >> we d we talked about that being the new -- elan of "the washington post" talked about that being the new variable for the fed. >> can i tell you that i'm on the phone a lot about this subject. republicans are going to come back strong on iran. iran. not going to be planned parenthood. it's going to be iran. and there's talk that in the house there may be a continuing resolution with one policy rider and that would be no iran deal. >> wait a minute. they would attach -- >> one rider. >> kevin flynn is our producer. he's an awesome guy. he's been telling me to wrap for two minutes. this is an important point, kevin. so what you're hearing is in the halves congress, they may attach continuation of a budget, in other words, keeping the government operating to no deal

with iran? >> one policy writer roorider w atoked that, no iran deal. >> that is bold. >> this is speculation. goes to the senate. the senate does likewise. and then puts it on the president's desk and he will probably veto it but that would be a government shutdown if he does. here's the other thing. the politics here, the republican party is coming to a consensus that they are furious at the iran deal. it's a bad deal. and they're furious at how it's been handled legislatively. i don't know this. i just want to be -- i'm just telling you. i'm hearing this in the air, in the grapevine. >> and to be clear what larry is saying, it could be one or two people. oftentimes you get the same rumor repeated by eight people so you think it's true. but it's the same rumor going around. >> we'll see. >> is it smart? >> you'll see mill tanltcy on

iran. >> it is smart politically for the republicans to attach the continuation and the operation of the federal government to a deal with a foreign country? >> you know, as a rule i'm not a government shutdown guy. and i'm certainly not going to threaten it. but my own personal opinion this iran deal is so important and so bad, giving them $150 billion to kill more american soldiers and israelis and the middle east, it's so important that we cannot stop with the cloture vote we had last week. i hope it never come to a budget shutdown. but i would go to it. this may be a multidecade deal. >> that is very interesting. we appreciate you coming on. it could be an eighth. the kudlow eighth we'll call it. to reiterate, we don't know that's hang. that is what you're hearing on capitol hill right now. larry, thank you very much. >> looks like we're getting a bounce into the close. let's get to jackie. how does the close look?

>> just since we spoke we did see crude prices rebound up 60 cents. i'm waiting for the final print here. we did see a little rebound after that news coming out from the white house. this is what traders are telling me is really impacting crude. the volatility still remains high. we got the wild swings in either direction on a day to day basis. a whipsaw effect here. but when you look at the charts technically speaking, we've got formations and that usually signals that we are poised for a breakout to the upside. having said that, crude is moving to the upside as well. they could be add smfg the green that we're seeing on the wti side. the dollar higher. 95 for the dollar index is relatively low. so that is supportive as well. 4:30 api, tomorrow doe, brace yourself for that. >> all right. jackie, thank you. >> stocks near session highs right now. the s&p 500 is up by 1.3%. take a look at the bond market. that's where the action is. we're all over this market rally. what it might mean when it come to the fed.

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here's your cnbc news update. iraqi forces continue fighting to clear isis militants from an oil refinery. the iraqi prime minister said

last month the battle was critical to the fight against isis. if iraq can regain full control of the city, it could help push north toward the isis held city of mosul. the fbi is investigating an american airlines flight to chicago yesterday that was diverted to indianapolis because an unruly passenger. an air support spokesperson says a woman struck a crew member and a passenger while being restrained. daniel valez riaz was charged with several offenses. >> nearly 500 workers are are being laid off at the new port news shipyard to control costs as ship building company says it's in decline in business. the company is the nation's only builder of navy aircraft carriers. and janis joplin's 1965 pcar wil be auctioned off september 10th. it's expected to bring in excess of $400,000. the car remained in joplin's family following her death in 1990.

that is cnbc's news update at this hour. would you get it? >> you no he what i love about that car, sharon? now aday it's you're a celebrity, it's like you're in an suv, you're hiding. janis joplin is like this is me. you knew that was janis joplin. she wasn't hiding from anybody. >> that's absolutely right. everyone would know who she is in that one. >> that's a sweet ride. all right. sharon, thank you very much. >> happening right now, facebook's ceo is hosting the social media giant's latest town hall meeting. let's bring in julia with more on this. >> facebook latest town hall kicked off mark zuckerberg announcing that facebook is working on a dislike button. he said that if you're sharing something that is sad, it may not feel comfortable to like that post and they want to give people more options in term of how they weigh in on different posts to help encourage that dialogue. zuckerberg says they think they'll be able to rollout a dislike button soon. they're testing it and working on it right now.

zuckerberg, of course, started hosting regular public q&as last november at facebook's headquarters or ostss around the world. it's going on right now. i'll continue to monitor it. we'll be back with any more news. back to you. >> all right. thank you very much. it has been a good year for shares of facebook. in fact, it's not been a bad year for many big tech stocks in general. the qqq large cap tech etf is up 3% this year. the s&p 500 etf is down 3%. will that divergence continue? let's as the trading nation team. albert brenner joins us and stacy gilbert is head of drif ti vat ji at susquehanna. are the openings market saying the qqq looks good or at least looks better than the s&p 500? >> yeah, brian. as you are well aware, i look at where investors are positioning and where investors are placing risk. right now investors are saying that the qs have a higher risk premium and the s&p 500. although interesting on a

relative basis, it seems like small cap has one of the smallest risk premiums being priced in across the board right now. one of the things i really want to stress when you talk about etfs is you got to take a step back, lift up the hood and figure out what's in there. so if we're looking at the q specifically, keep in mind that 13% of the qs is apple. obviously a strong opinion on apple. you have an opinion on the qs here. biotech is over 13% of it. you're going to have a very different makeup. in term of choosing one of the, two you have to have a strong opinion on where you want to folk us in terms of where investors are positioning right now, honestly, they see more risk to the qs than the s&p 500. >> albert brenner, on a fundamental level, do you think technology will outperform the overall market? >> we love technology, brian. we think that tech sector, particularly the nasdaq 100 and stocks in that particular composition are reflected as the best innovation of american industry so that long term we

would expect that the q would outperform the s&p 500. however, you know in, the shorter term, severing a matter of relative value. and in that regard, we're actually evenly weighted right now both in technology and in health care, of course, which is also reflected in the nasdaq 100. >> yeah, so is there one part quickly of big tech that you think is better than others? >> i think stacy mentioned that there is a higher risk degree in biotech. we would agree with that. so although there are opportunities there, i think that one needs to be cautious in looking at that particular sector. >> all right. albert and stacy, thank you very much. appreciate it. for more trading nation go, to tradingnation.cnbc.com. we do two additional segments every day. >> major turmoil over the last month. we're talking to an international funneled manager

who says that europe remains his favorite place to invest. plus, who's hot and who's not in the retail space? we have stocks for you to consider and check out the stocks. stocks are near session highs right now with the s&p 500 up by 1.3%. you're watching cnbc, first in business worldwide. >> and now, the latest from tradingnation.cnbc.com and a word from our sponsor.

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the u.s. as we're seeing today. do you still believe that europe is a better place to invest than the u.s.? >> without a doubt, melissa. i think all the stars are lined up right now for europe. both on the short, medium and on the longer term. i've heard your former guest say that europe is attractive because qe is really supportive and qe is only in place in europe right now. but there are more granular reasons to be excited about europe. earnings have really grinded lower for almost five years now and are finally poised to head higher. europe is much cheaper than the u.s. by at least three points. you have again the support of the ecb and let's not forget you have the euro going from being a head wind turning into a tail wind for corporate europe. >> why though are earnings poised to go higher at this point? let's say they don't -- let's say qe isn't having an impact. mario came out two weeks ago saying they're willing to do anything and everything needed when it comes to monetary policy. we didn't have much of a

reaction in the european markets, surprisingly. that should be an indicator that it may not be working as it had before and/or the gains on the back of anticipated qe had been made when those markets were, you know, 20% higher as opposed to 20% lower now. >> well, i think europe is troughing. earnings are going it head higher. we've seen signs of ecbs reported signs of growth in lending to consumers, growth in lending to small and medium size businesses. and let's not forget that the gdp growth in europe right now is really clean. meaning that most of the growth is coming from domestic private consumption. it's not coming from a credit cycle. it's not coming from exports. i think people have simply just taken their eye off the ball and people meaning global investors in europe. right now everyone's talking about u.s. interest rates. everyone's talking about china. but the real story is in that quiet kid over there who is minding his own business and that's europe. valuations are on your side

right now. >> so boil it down to some sectors that we should be watching. what stuck out to me is goldman sachs moved barclay's and credit suisse to the conviction buy list. you like the banks or other areas in europe you think are worth looking at? >> the most important, most appealing sectors are without question economically sensitive sectors. capital spending as a percent of sales in europe are at 20 year lows. you have to be looking at things like consumer discretionary names and industrials. can you get a lot of european companies that are trading at significant discounts to their u.s. peers. you look at companies like adidas which you okay pay 17 times or pay 20 time for nike. >> thank you for joining us. >> all right. let's take a look at the markets again. stocks are sitting near session highs. the dow jones industrial average is up nicely today. it is a soft fed? is it relieved concerns about china? is it simply more buyers than

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take a look at the xrt. up today. down over 6.5% over the past three months. in the meantime, august retail sales numbers coming out this morning. pointing to gains of .2%. not great but not awful either. but as we hea of .2%. as we head into the most important months for retailers who is looking good? stacey, forget the lower gas prices will boom retail because obviously that has not been the case. who, though, is looking good from a strategy, operational perspective or from anything? >> yeah, you know, gas prices as you said just have not panned out here. so in q 2 we basically had bad news from most of the retailers, whether it was macy's or kohl's or gap. some of the retailers that are stand outs that continue to be stand outs, lb, you can hide out in the lingerie aisle with lb, victoria's secret, they have short lead times, their inventories under control and

their comps were triple in august what the expectations were. costco is another one that higher income, it's a club, it's -- you are paying fort best deals out there. those are two places in a rough tape as we go into holiday that you can definitely look to. >> okay. costco, yeah, and lb. it's kind of -- costco i get, lb kind of random. rick snyder, we look at that retail space that lb october nice, the cuss fragt thing for invest e you can the hottest thing one year and next year nobody is in your stores. >> you have to be very picky for that reason. it's all about fashion and consumer preferences. so it keeps it fun and -- but you do have to be picky, yes. >> so what do you like? >> after it sold off i like american eagle. they are a big denim supplier in the teen and young adult market,

we think there is a denim cycle that's trending upward and when we go to the mall american eagle has consistently been the least promotional store that we have seen. >> at the same time, rick -- sorry. you say that you are really wore kweed yooed about the luxury retailers. thud amazing stat that i thought was interesting when it comes to sax in the stock market in the days when you were covers sax. >> yes, when i was covering sax they used to say there was a 90% correlation between their sales on the lukts ri end and the sales at sax. so after the recent stock market sell off we are a little concerned about the luxury segment. >> you know, stacey, we look at luxury and everyone thinks this is always going to be fine. obviously rick is say that it's not. we know what you like. is there any part of this retail market that particularly worries you right now? >> yeah. i mean, i would tag on to the chat about the luxury sector. we talked about the end of may

when i was out of the ft luxury conference. they were talking about the major brands having the entire be flag ships 50% off. that's a massive shift in this business and as the years have gone by the percentage of importance out of china for the global luxury sector is increasing. so the taste right side also changing from the chinese consumer in luxury. they don't want their parents lb or mez necessarily, they are looking for the newer and better emerging brand. i still think that luxury has a shake out to go here. >> rick and stacey, thank you both very much. i have a feeling we will chat with you more about retail. >> coming up next, what do cargo, pet food and ketchup bottles have in common? they are all in street come r talk and coming um. befo before. r talk

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all right. a little later than normal but time for our daily street talk segment. hitting analyst's recommendations that you need to know about. fed ex-. one of their top picks out of earnings. their target is eye opening, 210 bucks, 40% upside on fed ex. they have above consensus earnings expectations and note the stock is down 19% from the june highs, we love the management, pretty much everything about the company they low. >> low fuel prices should be a tail end for the company but fed

ex and ups pretty much in a dead heat both down 10%. second stock viacom. jeffrey saying viacom should be valued 30% higher from where it was yesterday's close, the analysts out with some of the parts analysis has a $60 price target. jeffrey says there is a light at the end of the tunnel for domestic cable network and they offer hidden value. >> the revenue fell year over year because they didn't have any big movies in the quarter all at all. the big movie last year was "transformers". >> third stock blue buffalo pet products, wells fargo upgrading this to a perform. the growth opportunity three to five years is substantial. stock is reasonably priced. they have no exposure to emerging markets. their valuation range 28 to 29 a share, 30% upside. this company is at about 48% compounded annual growth rate

the last five years. >> it's amazing there is so much bullishness but the ipo price is 20 bucks, we will see if that holds the price. fourth stock myriad genetics, generating positive buzz sending the stock to a new high in the session. even though the analysts has an underperform rating, myriad alighted the growth potential using reasonable assumptions. the plan will be driven by slower growth hereditary cancer business, their efforts to diversify into diagnostics, urology and autoimmune disorders is key longer time. >> it's one of those companies where i read all the analysts comments, i had no idea what they were talk being whatsoever, it was so complicated. >> it's a biotech. >> the under the radar name of the day is stock five, it's called aptar group. i don't know if you have ever heard of them. >> no. >> i guarantee you something in your house is made by them. they make perfume bottles, tops for things like kich um and mustard that you would squeeze out.

who knew? bank of america, merrill lynch upgrading it from a buy to a neutral. they also graded owens, illinois, warehousing and silgon holdings. their average price target 71.50 on that name. they make all kinds -- the website was fun because i was like, oh, i wondered who made that squeezy bottle and now i know. >> somebody has to make it. you have to squeeze effectively. i will be watching that stock when reports earnings on october 29th. i don't know if you saw the action in ibb today, we are seeing a lot of large cap biotech stocks trading nicely. ibb up 1.12%. since janet yellen is talking tomorrow we thought on "fast money" tonight at 5:00 we would talk about biotech stocks. remember she said there was a bubble back a year ago? we're going to give you its trade on them now. >> i think there was like almost a year and a half ago. >> a year and a half ago a year ago in july. >> which sent them down but then

they are back up. listen, janet yellen obviously incredibly intelligence and powerful, but even the most powerful officials don't necessarily know how traders are going to react f anybody does let me know. melissa, thank you. look forward to that fine show tonight. take care. cow is up 257. "closing bell" starts right now. hi, and welcome to the "closing bell," everybody. i'm kelly evans here at the new york stock exchange. >> i'm bill griff get. i love days like today in the markets. we have so many different moving parts and pieces as you're trying to figure out the message here. the stock markets rallying ahead this have fed decision on thursday, the dow up now 1.6%, we are back out of correction territory by the way, the s&p is up 1.5 almost, nasdaq up 1.25, the russell which has been leading the way lately is up less than 1%. take a look