♪ ♪ good tuesday morning welcome to "squawk alley." i am carl quintanilla with morgan brennan at post 9 of the new york stock exchange. jon fortt joins us from oracle's open world in san francisco. we'll get right to the story of the day, and that is market selloff. complete team coverage this morning. bob pisani is on the floor, looking at the key driver for stocks morgan following cat and 3 m ylan mui in washington watching the fed speakers, and mike santoli looking at the broader themes in the markets. let's begin with bob pisani and earnings we have gotten so far. >> the important thing, we are waiting for europe to close. every day we weaken going into

european close, last five or six sessions we are in the lows there key story, budget refused, italian budget refused by european union spreads are widened there. sitting near lows of the day here in the u.s., sectors that are weakest on global concerns semi conductors, emerging markets and industrials are weak staples are flat and utilities just slightly to the down side. the key story about guidance, 3m was a disappointed, cut the full year guidance. utx maintained and caterpillar affirmed but it was below expectations where is the positives versus negative that's what the markets are trying to debate we have a lot of positive. strong economy, higher revenue, tax cuts reduced regulation overall that's what's moving the market early in the year. now we have a host of head winds

to deal with we have issues like higher rates, higher labor and material costs, stronger dollar, populous government in italy, country specific issues like china slogan saudi arabia. potential isolation of saudi arabia remember, they're a country with a major investor in technology funds. the important thing is how stressed is the market now a lot of it is occurring in the u.s. and chinese stock market. i don't see any recession happening. that would be the number one concern. number two, i don't see any credit disruption commentary and i hear vague concerns about liquidity. when i walk around here, spreads are tight. contagion fairly contained now to the stock market in china and the united states. guys, back to you. >> we'll come back to you soon and morgan is watching the industrial names, cat and 3m set the tone. >> and the caterpillar call is

starting now we will monitor those headlines. the other four letter word, cost the way i think about it and the way the market is thinking of it is tariffs and trade tensions, coming home to roost for the multinational industrials and manufacturers. here's the key though. many of these companies are coming out, saying they are able to offset rising costs, costs from tariffs, higher freight and logistics prietsz with better -- prices with better pricing caterpillar will see price increases, 1 to 4% worldwide, it will more than offset higher costs. we have seen similar commentary out of 3m. had them on the call this morning, expecting $100 million head wind from tariffs but pricing will offset that similar story united technologies, specifically in the otis elevator segment. they say costs are outpacing

price. they had this gang buster aerospace report, that seems to be offsetting head winds in otis elevator last year specific saw big runups in stocks, big earning beats, saw big outlook raises throughout the year. it has been a slightly different story this year, and perhaps some of the valuations have gone out and you're seeing dramatic selloffs, particularly in cat and 3m. >> worst day for cat since '09 >> big move for the stock. >> we are watching the raft of fed speakers, including voting members. >> carl, one down, four more to go minneapolis fed president did not talk about rates or the economy in his speech this morning, but we're waiting to hear from the fed president f atlanta, dallas, chicago, kansas

city investors will be paying close attention to charlie evans one of the fed's biggest doves he is going to argue because expectations are low, the fed won't have to raise rates as much we will watch to see if he changes his tune, especially amid mounting wage pressure. that would be a sign the doves are starting to back down. but the only voting member of the fomc speaking is rafael bostic, he brought up the murder of jamal khashoggi as one of the geopolitical risks we will keep you posted on any news out of the speeches >> thank you for that. as we promised, mike santoli has a look at the overall market, what broader themes can be seen. >> big picture, s&p 500 is basically flat, up less than 1%. with earnings growing at more than 20% clearly the market all year has been not willing to put a

multiple on this corporate performance. what is the market sniffing out or bracing for, that's the question housing and auto has been weak the trade situation has something to do with that. the late cycle thinking has perfect v pervaded in terms of levels, arguably where we are now, it seems like textbook retest, meaning the market has gone back to levels we saw before, did not go into free fall once it broke through. in february we undercut the first low. who knows. seems like too many people are hoping for a successful retest, so that also comes into the mix as well. right now it is a matter of how the market reacts to this given the fact that so many stocks preceded indexes into the deep losses a lot of the market is kind of washed out. >> you look at caterpillar, down 8%, they said sharp increase in

demand led to supply chain challenges across the industry i guess that's an issue, a good issue. they're saying they're growing but of course you have the other head winds that are beginning to do things like pressure margins. >> that shows you where investors' raw nerve is, margin pressure, have we seen peak performance for corporate profits. and credit markets aren't saying there's something ugly happening domestically in the economy. you look at the leading economic indicators, all these things that tend to give you some kind of alert when the economy is slowing down a lot, it is not really there but on the other hand, if you look at the chart of the s&p, boy, it looks like a textbook top. you had a weaker new high later, several months after the first one in january, and that's why i think you have nervousness has something changed in terms of trend or are we just having a complex correction process >> don't go anywhere

stocks sell off, some momentum dow down 400 nasdaq taking a hit in correction mode. over the last week, tech underperforming. are there any bargain valuations as the tech sector had a selloff. professor, great to have you back >> glad to be here >> what's happening with your model now in terms of valuations if we shave numbers off earnings because of costs or tariffs, at what point do things look cheap? >> i think collectively tech stocks have not done much worse than the rest of the market, especially the last week i think part of the reason we overreact to tech movement is some of the tech stocks are trading at such high prices, when you see the absolute drop in price, it looks awful

100 drop in a stock price. when you trade, it is 4.5, 5%. i think we are overreacting to changes. the other is i think if you look at the tech sector, it is divergent. old tech companies are the more reasonable stocks in the market. you look at the microsoft, the apple. i would buy them the younger tech companies are being corrected and i think legitimately so. they had a great run up. it was a matter of time before they correct >> we have on the screen i don't like the netflix business model. netflix we know has come off highs of the summer, big bond offering announced this week what don't you like? >> i think they're in a cycle that they can't get out of here is what i see, they borrow money, make more original content. they get more subscribers, go to the market to push up the market price and use that to borrow

more money i don't see a way in which they get out of this cycle. it is not as if they can slow down production of content, once subscribers hit, because they're training subscribers to expect 20, 25 new shows a year. and that's not sustainable there's something about the model that bothers me. just doesn't look to me like a sound business model that you can scale up >> pretty much useless i guess i'm asking a leading question here. to talk about technology as an investment area any more, you were touching on it, there's netflix on one hand, there's microsoft, apple on the other. technology has infused itself into so many different business areas, it almost seems like you need to come up with different terms to talk about what's really transformative or potentially transformative about

these companies. >> in fact, i breakdown technology by age. it is amazing, a 25-year-old tech company is like a 100-year-old manufacturing company. almost interesting to see the aging of a sector happen hyper speed. but that's what you're seeing in technology now i think we almost need old tech, middle age tech, and new tech. they're behaving very different ways >> we have been talking for awhile now in terms of the idea of rotation from growth to value and whether we're seeing that take place your thoughts on it, and if so, where do you see value within tech >> i don't think it is going to be a clean rotation any more i think you're going to get a very muddy rotation, it is not like the old days. i think you see the market look for more earnings and cash flows which means you look at tech companies like google and facebook a lot more favorably than companies like amazon and

netflix. google and facebook have earnings from cash flow to sustain themselves amazon and netflix don't i think you're going to see markets different between those two groups of companies as you go forward >> lot of discussion on the interest rates on tech not every tech company is equally exposed, netflix is a good example of that where does that lead you if you believe the fed is resolute? >> i think the biggest impact that interest rates have is in making future growth less valued across the board, companies that are more reliant are effected more than companies that have earnings and cash flow for now i think the effect will vary across companies i think those tech companies that borrow money to fund growth have asked for trouble, and that might catch up with them >> professor, good to get your take on days like today.

look to see you soon coming up, more on the market selloff huge moves, names like 3m and caterpillar after reported earnings that were disappointing to the street. we'll take a closer look at industrials with bob nardelli, former ceo of chrysler, home depot. more "squawk alley" after the break. dow wn85 do 3 at fidelity, our online u.s. equity trades are just $4.95. so no matter what you trade, or where you trade, you'll only pay $4.95. fidelity. open an account today.

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take a look at shares of caterpillar, down. the conference call is under way now. early headlines from the ceo saying we feel good despite geopolitical risk in trade, normal seasonal patterns in fourth quarter, see continued strong operational performance that many of the end markets are in the early stage of recovery, they feel good about the state of their business, currently favorable commodity prices continue to create demand. and need for oil and gas infrastructure are in focus in china, that trajectory remains on pace. seeing normal seasonal trends for that market. shares are down 6.5% some other big manufacturers and names on the heels of earnings, harley-davidson, 3m lower after

calls. more on industrial economy, corporate earnings and ceo confidence, let's bring in former ceo of ge power, home depot and chrysler, bob nardelli, now founder of accelerate thanks for joining us today. >> good morning. good to be with you. >> your take away in terms of what we have seen from some of the major industrial and manufacturing companies that reported earnings. are investors overreacting with moves like 8% in caterpillar >> i think the buzz word for today is the only certainty is uncertainty. it is disappointing. i know a lot of these individuals, jim is doing a great job at caterpillar, their chairman, dave calhoun, old colleague of mine from ge, i think they've done a fabulous job in navigating some of the external activities that are going on there if you look at boeing, jim mcnerney was the chairman and ceo, i think you're getting negative reaction potentially out of saudi, but you talked a

bit about it, and i was with a group of ceos the last couple of weeks, their predictions are 3.7% gdp they acknowledge that material cost is going up there are issues with tariff majority feel they can handle 10% tariff impact, a lot of what you said today, they're projecting you can get 2.7, 3% price increases. caterpillar talked about that. if you think about the supply base, they think they can get productivity out of them and concessions, and they're going to continue to drive productivity with tech changes, repatriation of funds, morre is going into r&d and capital programs so corporate america has done a great job and we should be cheering for what they have accomplished i think the external events, saudi, tariffs, some of the issues with midterm elections are having the negative impact,

and has the market a little jittery. it is unfortunate because we have had steady, sustainable, predictable improvement month after month, quarter after quarter, year after year >> bob, i guess a lot is riding on the next productivity print, right? if the supply side experiment will work, that's the confirmation, isn't it >> i think so. again, in proof positive, you look at what they have done. we have seen rate increases. and i guess the feds are trying to potentially get in front of it so they don't have to try to catch up last thing they want to do is stall and have to make instead of a quarter, maybe a half to three quarters, we have seen that in the past where they've gotten behind, had the jump. it created more uncertainty and negative reaction. i think corporate america has their act together we have seen regulations pull

back, seen corporate tax improvement. unemployment is up those are all very positive signs. it is unfortunate we have these again external events causing jitterness and uncertainty in the market see what happens by the close and what happens in the next few days. >> bob, to dig into the tensions between the u.s. and china little more, seems to be some impact in tariffs, depending on the industry and the business specifically at what point does this become a bigger potentially more head wind >> we have to let it play out. we propose 200 billion, they propose 60 it is like check mate. we push the chips to the center of the table i don't think they can respond in that fashion.

i hope that calm, collective conversation continues between us and china they're a player and we can't ignore them, but we have to make sure it is a level playing field, to use the president's term, we want fair trade i dealt with that the last 10, 15, 20 years, whether at ge, trying to sell power turbines and looking at taxation on our corporation versus what i had to compete with with siemens and other globals, same with the other auto industries, selling into china, chrysler i think it is a responsible position we have taken we have to let it play out, not overreact to it. not do any knee jerk reactions thoughtful, calm heads have to prevail and i think we get through this in a protuck difficult -- productive, successful way for the corporation. >> by that do you mean supply chains that have taken route over 70 years will be uprooted

are executives talking about moving production out of china or moving global production out of china >> yeah, you know, carl, i think that's going to happen with repatriation of funds, with lower corporate tax, with some of the incentives and regulation roll back, the opportunities are going to be more home based than they had been in the prior administration i think you're going to see some of that, number one. number two, as volumes shrink in china, there's going to have to be major concessions made by those suppliers to hold the volume which is critical to their employment levels over there as a result of these tariffs. so in some cases you won't see a massive repatriation, but you'll have to see concessions on the part of the suppliers, that supply chain to your point from china to the u.s. market they're not going to be able to handle that volume shrinkage if in fact it takes place

and in fact, it will take place. >> when i hear you speak about potential for reshoring of supply chanls ins to the u.s., makes the case for the trump administration to keep tariffs in place for potentially even longer >> well, i don't know if they'll be longer. i think there's a little bit of shock effect we do 200, they come back with 60 i think he is trying to make the point, the president trying to make the point he is looking for fair trade for an open negotiation to make sure that goods can flow both ways equitably. and i hope that they continue to stay on that strategy and have a successful negotiation like we did with canada and mexico >> bob, before i let you go. i need your thoughts on ge, they don't report until next week, we have seen another leadership change at the company. going through many changes in

general, including shifting and spinning off of two peegs -- pieces of the portfolio. >> i have a tremendous amount of confidence in larry that moved to the ceo position. they delayed the earnings announcement a week. i think that's fair to give larry a chance to get his arms around it, make sure he understands what he is going to convey to the public and be able to stand behind that he is a man of high integrity, man of action. he moves at blink speed. i think that's what hindered general electric in the last 14, 15 months. there was a lot of analysis but not as deliberate action as we'll see from larry some spin offs and the disposition, transportation, baker hughes, i think the key for general electric, they have to generate cash and have to

generate cash quickly if they want to hold a dividend. they have to look at the pension liabilities that they've got, 30 some billion 125, 123 billion in debt down rated, so cost of money has gone up for them they've got a cash situation in front of them. i think what larry will do is bring stability of communication and direction. you know, i get a lot of calls from close friends and colleagues they're just looking for clarity of direction and mission i think people will pull together under larry in a successful way i wish him and all of the people at ge the very best. >> bob, thank you. great to get your thoughts on a day like today bob nardelli. >> thank you. quick check of the markets as we monitor the selloff. some buying going on dow off the lows to the tune of almost 200 points. dold day for pulte, and mcna's "squawk alley" is back after a

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welcome back let's get to sue herera for an update >> good morning. here's what's happening at this hour in indonesia, saudi arabia foreign minister says the investigation into the killing of journalist jamal khashoggi will produce the truth about what happened. the country acknowledging he died on october 2nd, they say in a fist fight at the kingdom's consulate in istanbul. >> the investigation discovered discrepancies between what is reported and what happened as a consequence, 18 people were detained for questioning and some were dismissed from their positions. >> sandra day o'connor says she has alzheimer's disease. she made the announcement in a

letter today she was nominated by president reagan, served on the high court from 1981 until 2005. an explosive device found monday in a mailbox at the suburban new york home of george soros. he is a favorite target of right wing groups. the explosive was proactively detonated by the bomb squad. you're up to date. that's the news update this hour back to you guys carl >> thank you very much. we are watching the selloff with complete coverage on what's driving the global market selloff. seema mody has how global markets are handling it, with european markets close to the day. dominic chu with a look at market momentum and phil lebeau looking at the markets >> caught in the cross hairs of growth concerns and continued political uncertainty in italy start with italy the european union has

officially rejected the italian government budget proposal, telling rome to revise, resubmit plans due to excessive spending. europe response is hours after the italian president said there's quote no plan b when it comes to government deficit target you can see the italian benchmark is falling deeper in negative territory, bear market territory. ahead of the ecb meeting thursday, mario draghi, central bank governor will likely be pressed on impact of italy on central bank policy. keep an eye on the euro which has fallen 2% in the past month. taking a step back, looking at major indexes, german dax has fallen tech led the selloff plummeting more than 25% after it surprised with weak q4

guidance as it faces heightened competition. french firm atos dropping 20% after slashing its forecast, citing global market uncertainty. disappointing earnings out of europe as well morgan >> seema mody, thank you kate rogers has the day's earnings, monitoring the mcdonald's conference call happening now. >> down day for the markets. mcdonald's gains of 5% one of the only restaurant companies in the green this after better than expected earnings and revenue seeing a big beat globally and international lead markets, thanks to modernization efforts that are on-going. the company is making substantial progress in efforts around the world, adding that the largest international markets are well positioned to sustain on-going growth. also acknowledged franchisees

are taking on a lot at once, completing another 1,000 renovations, set to surpass 4,000 by end of the year, outfitted with that experience in the future here in the u.s. back to you. >> let's bring in dominic chu and momentum names which have yet to report. >> they have yet to report that's right we wanted to look at some stocks that are bucking the trend a little ones that are seeing a bid off inter day lows or levels we have seen to give an idea where momentum has been. we move off worst levels of the day. one thing to look at, i shares home construction eft. home construction related stocks have been a huge down side move in the past few months this has perhaps a little short covering field if you look at components of it, we know earnings are driving

some action behind home builders pulte, moved sharply, but a recent down trend near or median term play on home builders, perhaps covering short positions today. also want to look at other stocks making moves. interday to the up side. on the banking side, fifth third bank, earnings related story, but again a stock that's been very much to the down side in the past 12 months, certainly on a year to date basis for regional banks that's moving to the up side based on earnings. something to watch another one, high flyer in terms of momentum and technology related stocks, talking semi conductors with advanced micro on inter day basis, the stock moved sharply well off lows of the session. morgan, as we talk about where we are seeing a little action, at least when we see somewhat of a bid in the market, it will be

in some stocks that had recent down trends or ones where people are looking to cover shorts or find deep value. back to you. >> i would add one more to the pile in terms of earnings movers, lockheed martin which has an earnings call now that's been an outperformer after being raised, too. just in terms of what we have seen from companies that reported, can you put it together versus where we stand and expectations >> for the season, we have a fifth of the s&p 500 reporting numbers, and right now like i said before, it is generally positive for the earnings season that doesn't seem to be enough to propel earnings season feeling to the up side earnings per share slated to grow by 22%. sales growth, 7.5%, if you look at the companies that reported and yet to report on a blended basis, if you look at those numbers, it is whether or not traders use this move as a sell the news catalyst, whether earnings season is positive enough to get people back in the

marketplace. for now, feels like there's a heavy weight to it seems like momentum is to the down side near term, morgan. >> thank you let's bring in phil lebeau, a look at how transports are doing today. >> and morgan, they are moving lower. transports have not been an area of strength for the market for several weeks. we are seeing that reflected again today. although we have seen some stocks move higher in the last half hour. look at the dow transport. they continue to be a dragon the dow overall -- drag on the dow overall. kirby has been top of the list most of the morning, then the airlines, norfolk southern, all of them down moving around a fair amount. united couldn't nntinental had r than expected earnings american reporting earnings thursday morning

we'll get the numbers from american, then we'll be talking with the ceo of american airlines during "power lunch" thursday and look at the auto stocks. the reason we throw them up, like other parts of the market on a volatile day, you'll occasionally see a sector move higher general motors, toyota, fiat, chrysler and ford higher in the past half hour there's no catalyst we have been able to find but it is not uncommon when you have this much volatility. >> phil, one theme with the airlines is operating expenses up double digit. trimming capacity growth plans, right? >> they have been trimming capacity growth plans. for the most part, showing better discipline than in the past that doesn't change concern that's out there amongst investors that they believe they will not be able to maintain that discipline as we move into

2019 >> thank you let's bring in allen ruskin and jill carey hall. allen, the return of volatility in equities the last couple of weeks, you talk about fx, volatility has been there quite some time. we're seeing a drag in terms of currency moves on industrial reports, for example, 3m this morning. >> seems to me it is more than just a drag on earnings side of things there's a broader global macro piece to what's going on here. one, you've seen u.s. yields stop the selloff that's really the ten year yield was i think the catalyst for the move down. you heard the china story, i think it has been crucial. the saudi story as relates to oil, also important. even in europe you've had the italian budget story you have a lot of different

elements kicking in and fueling or adding fuel to the down swing in u.s. equities. >> in terms of what it means for the u.s. dollar through the end of the year? >> still looking solid, mostly solid versus risky currencies. commodity currency that are sensitive to equities. market currencies in general are turning down, had a torrid time of late. i think you'll see the dollar sideways, vis-a-vis euro it weakened versus the yen in this environment where you have yields going down and equities going down, the yen is the best performer. >> jill, your take on equities, given that lows of today down 550 points in the dow, can we now say we are in a deeper correction for stocks or are you positive moving to end of the year >> right we've had a 5% plus pull back.

typically you see about three a year so we are on par there the good news is valuations are down, back to historical average levels fourth quarter could be better for the market we are expecting up side from here profits growth is strong this earnings season, even though it is down from last quarter. and we're going to be paying attention to what we see from companies as earnings season kicks into high gear so far guidance has been generally okay we have seen guidance trends from companies that are on par to slightly better than we see in october capex guidance, we have seen risk if there's worry on trade companies are spending >> allocation between u.s. and international, where are you >> so we have seen this wide divergence between u.s. and international.

multiples at levels we haven't seen post crisis on a relative basis. but the u.s. is a relative area of strength. still seeing upward revisions in the u.s., not the case globally. until we see trends bottom out in other areas outside of the u.s., we think the u.s. looks like the area of relative strength >> allen, you mentioned china. let's talk about moves and whether you expect the chinese to step in and more broadly support it or whether it weakens as trade and tariff situations continue to accelerate. >> they seem intent on resisting any up move in dollar above seven. protection levels seems to be 695, judging by the price action we see i would anticipate that will continue while china is trying to feel like they can negotiate in a positive way with the united states. if the negotiations turn sour, however, then i think dollar china weakens, keeping in mind

underlying pressure, economic pressures are very much in favor of dollar china going higher. >> is this buffetted by brexit talks or rome? >> rome. the uk and sterling has become almost impossible to trade because of brexit talks. the btp spread, if you watch that vis-a-vis the euro in particular. >> thank you for joining us. let's bring in jon fortt who's at oracle open world after talking to mark hurd this morning. jon, what were your take aways from that? >> carl, first off we talked about what intended to be the news of the gathering which was oracle's next generation cloud we also talked about market volatility and impact there. talked geopolitics, first to the markets. here's what he said about potential impact on or cal and

customers of all of the stock movements. >> first of all, doesn't effect us much whatsoever, but the numbers that do effect us which are again a small amount, i could see it could effect a number of customers, yes >> so a little perspective there. perhaps not to put too much into short term stock moves also talked about oracle next generation cloud, oracle executive chairman larry ellison took to the stage and took aim at amazon, trying to contrast oracle's move towards cloud security with amazon's move in cloud security i tried to press mark hurd on what he sees as aws weakness specifically, specific breaches he believes oracle technology could have prevented he didn't answer that exactly, but here is what he said about security. >> the level of sophistication of the attacks is ever

increasing, so just as our capabilities to defend so increasing are the ability to attack he hit home on the security side in addition to that, focused on the evolution of our database technology, which is just as important in the context of the gen 2 approach this is the most exciting database release in concert with gen 2 in the history of the company. >> and then finally on saudi arabia, back in february mark hurd said that oracle was going to open a data center in saudi arabia for the middle east region i asked him in follow-up to that, given the news about saudi arabia's involvement in killing of journalist jamal khashoggi, is that still the plan, he appeared to back away from that a little bit, leave room for a different plan for the region. take a listen. >> the middle east is a strong

region for oracle. we will have a data center in the middle east, whether that's in uae or some other part of the middle east, we'll see but we will put a data center capability in the middle east. >> that was the first time i heard him talk about a data center for the middle east, perhaps not being in saudi arabia initially again in february they talked specifically about saudi arabia many companies not wanting to say specifically what they might do to change plans because of news out of saudi arabia, but clearly mark hurd and oracle hedging a little as they wait for more details on the incident to come in, carl >> jon, a great interview. when you talk about security, the conversation about competition between oracle and aws, one of the other things it brings to mind is the pentagon cloud contract, so-called jedi competition, worth something like $10 billion over the next

ten years that many companies are competing over i believe oracle has protested this request for proposal. what did mark hurd have to say about that >> well, i did talk to him about that, morgan as a matter of fact, the government accountability office has about three weeks left to deal with the protest that oracle put up. oracle saying hey, this is a $10 billion ten year cloud contract. department of defense said they want to award to a single company. they're not comfortable with that in part because there's a feeling in technology that perhaps amazon has positioned itself better than others because of work with the cia to capture some of that oracle saying they want a chance, given their deep government involvement to have a shot at a piece of that. i tried to push mark hurd on the fact that oracle is arguing that oracle's hardware works better with oracle software would oracle still have a problem with all of the contract

going to one company if it went to oracle. he didn't quite bite on that one either, given what larry ellison said i think all of the other companies in technology looking to get involved with this big contract that's going to be a case study for somebody in the cloud security they love to talk about government contracts and their ability to execute on them, morgan >> great stuff, jon. as always, thank you when we come back, former morgan stanley chairman steven roach is with us his take on what's driving the global market selloff. dow is down 419. more "squawk alley" after this break.

here is what's coming up on "the halftime report. the worry the cyclical sendoff is sending investors as those stocks drag the market lower today. how bad could it really get? plus, why has the market stopped rewarding good earnings? several stocks have posted only to sink later. our call of the day says you should buy into one of the weakest areas of the market. we'll tell you which one at noon we're about ten away see you then the dow is down 463. s&p hanging on to 2700 but only by about five points a lot of the names that are

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rough ride for the market continues. two-fi two-fifths are in bear market territory, down 20% or more from

their 52-week highs. concerns about geopolitics, a china slowdown affecting sentiment, look at the shanghai composite down 21% year to date. joining us on the phone former morgan stanley asia chairman and senior fellow, stephen roach good to have you back. we've talked about u.s./china. equities on both sides of the ocean reflecting the concerns that we had earlier in the year? >> i think the outlook for the two economies is a little bit divergent, carl. the u.s. economy has considerable nearterm momentum there's a compelling case to make that it's going to fade as the fiscal stimulus wanes, fiscal risks mount china has a dicier near-term economic outlook as the gdp and monthly data flow for september

indicates. the longer term is more compelling, more policy space to utilize. there is a divergence here >> in terms of that longer term outlook, i know they just announced these plans. is that what you're referring to >> i think those are cyclical responses, morgan, and they will put a floor on the near-term risk of the chinese economy. the rebalancing of the consumer has led the economy dealing with some of these productivity issues for the supply side initiatives. that frames the longer term for china.

with the renovations and this trade war they are still constructive for china >> do you think we get to a deal in terms of trade and some of the ip issues, et cetera, with china? >> we talk about the possibility of sort of a short-term fix possibly on the trade front. the longer-term issues on innovation, industrial policy both the u.s. and chinese side >> in terms of how to think about u.s. businesses in china, we certainly have had a steady stream of industrial earnings today. it doesn't seem -- it seems they're feeling the impact of

tariff but the business in china, per se, isn't necessarily being affected do you think that's the best way to categorize this right now or there's broader softness that affects corporate america? >> the structural changes in china are favoring the domestic demand so the companies that can lever their business in china's growing consumer markets built into the earnings potential. the export pressures will come from the tariffs have yet to be felt in the chinese export trends which actually remain quite strong through september that sector will get hit if the tariffs remain in place. >> stephen, before we let you

go, buenos aires, this meeting official between the president and xi, wilbur ross told us it's a state meeting not a meeting. what's the best you can hope for at that meeting? >> i think they'll be reaffirming their personal friendsh friendship and a desire to work through what has been a difficult set of issues. i think it will be purposely vague, carl, and lacking in substance on the tough issues of allegations of technology, theft, and violation of intellectual property. i think that is ultimately going to be the critical issue that drives a wedge between our two nations. >> stephen, always good to talk to you i appreciate it on a busy day like this one. stephen roach talking about u.s./china

back with us is our mike santoli who has been watching the interday price action. got a bit of a bid there and then that faded. >> we did. we're settling into the midday stall. hanging around the levels everyone has been fixated on with the s&p below where we were 12 days ago. i do think it will be the game of, you know, do you see a real rush of buying interests or people want to see how it closes they say if it closes above that 2710 we've been watching you have to say the market has done enough in the short term right now it really should start responding to being very oversold and good seasonal force that is start to kick in right around this time of year maybe that's complicated by the election maybe it's complicated by the kind of abundance of geopolitical stuff i do think that's where we're at right now. rally soon or else we have to start asking what else the market is trying to tell us. >> in the meantime you look at the s&p. every single sector is lower today.

i realize there's a bit on gold. it doesn't seem like the flight to safety trade is really -- >> you are seeing is really beat up stuff like home builder stocks and heavily shorted stocks get a little bit which is a reverse move >> tomorrow we'll have at&t, boeing, u.p.s., norfolk southern let's get to "the half." this is cnbc breaking news, market sell-off. good afternoon i'm scott wapner the continued cyclical sell-off, a sign how sick the stock market is and does it mean even more declines it is noon and this is "the halftime report. our focus is on three spokes of the sell-off. number one, cyclicals. two, the trade war, china and tariffs. three, is the fed back in a box? it's a big day for investors from coast t