Low. Our roadmap begins with red october. Stocks off to the worst since the crisis futures have a new open. After the worst manufacturing in a decade, sources work on that this morning. Shares of pep ki so fueled by sales growth and a nice earnings beat ceo will join us first on cnpc in a few minutes market versus a rough time in an economic slow down a second selloff resulted in the dow falling more than 800 points s p lost its gains from queue and q3 combined. Investors will be paying close attention to Services Data in less than an hour from now jim, they say of the two times that ism manufacturers contracted, we havent had a recession because Services Held in last night i had marty mucci on from paychecks. My old colleague larry kudlow chief economic adviser to the president says thats where it comes from its not like gm creates jobs. He says this was the best time theyve had and september was a strong month in the country and was constrained by not being able to find more employees. Its kind of like there is two worlds here. Like marty is talking about acceleration in the economy and that we would have tremendous job growth if there were more people then we got the other part of the economy, which is the rails and the air transports and manufacturing, which is just not good and the warmer the marty mucci paychecks is who spends, who is buying houses lennar was one of the best quarters ive seen lennar have and theyre the largest home builder. So there are things happening in the xi that are incredibly strong and there are things that are happening that are incredibly weak. I dont want to just focus on the part thats weak marty was saying everybody is way do you gloom why i. Yesterday they called it fears of a semi recession because so much of the industrial economy is weak as you said the rest is not this is what the paycheck ceo told jim last night on mod money. My mad money my feeling is businesses are concerned, the demand for their products is there, theyre out trying to hire the Biggest Challenges is hiring people to fill the demand that they have, thats good news. Thats unbelievable i mean, its funny, sometimes you talk with executives after the camera is over marty id like to check my bull here, i know its important to be reasoned. He says, look, the issue in this country is we need more workers. Now, thats typically not the recession narrative. The recession narrative is we have a surplus of workers. Thats not the case. So i felt very sanguine after speaking to marty and also of, for background, the people at len far, they cant build the homes fast enough. So youve got that part of the economy, 10 of economy is housing. It does punch above its way. You find yourself thinking, before i get too bearish, remember these are the people who buy things thats why watching walmart, amazon, target, costco and home depot remains strong when our cart is a chart of the u. S. Economy, when you speak to the president s people, yes, i do theyre like in disbelief that we dont think its great that they put 7. 5 being in tariffs on europe because that like marty mucci will say the tariffs are impacting only 25 of the businesses that we have of which 75 of the 25 say there is no issue. Going into the crisis, our viewers will remember being told that housing, a small part of the economy. Dont worry too much now we are being told, oh, its reflective of the entire economy. I think thats a great point. I think the difference is when i remember when bob k toll came o talking about flips and there were way too many areas that are hot. Here its kind of opposite its, yes, there is some home buying for rental. That is a Johnathan Gray issue in terms of real estate allocation. The black sun, yeah but i do think that when i say futures had it. Single family, there is a demographic movement out of the parents home. Its probably happening in two waves. I know its nobodys term, they are finally getting off the couch. I was sick of being at home as frankly as it is, you have to make deals for them that dont really work hard they snack thats why pepsi added a quarter. They snack got to go to trailer joes you got to get this new red hot doritos. When we told you, not you, im from philadelphia, you is different. Its a fair point that are you making about the economy but during the course of the day when you and i are talking to people, or are you here or there, the trade work comes up every single time. Yesterday we were having lunch, i passed somebody who is a director on, actual lay director on three or four major boards when we were talking about it that uncertainty, that inability to want to actually allocate more capital than would be typically the case. Because you simply dont know. Thats going on, thats having a real impact it has an impact far beyond the Manufacturing Sector i will tell you, why do you think the stockmarkets will get clobbered . Because of that . Right so its getting reset, recognition that some companies are getting hurt now the directors that are on the boards of some of the companies i deal with, theyre saying like whats the problem were domestic weve built in our tariff, dollar tree. The dollar trees all right why is the russell down 12 from the last high . Why is it no higher down than it was in september of 2017 i think there is a lot of money coming out of the market because a lot of people feel it has to roll over i think there is a very big fear factor the fear factor again overdone, i think, with Elizabeth Warren Bernie Sanders does have Health Issues Elizabeth Warren jumps to the floor and there are people out there who believe Elizabeth Warren is quite frankly a redistribution i think shes, she is i think she can be tempered. Cashman said 200 points of the selling yesterday he thought was a sanders selloff i couldnt agree more do you remember a year out from the election the markets reacting in any way the expectation of either trump or obviously it was not expected at that point to win . It seems a bit far out to be discounting back the probability of a warren victory before the first primary has even begun i have agreed with you, but there when i read the second to the right of the New York Times yesterday about how Elizabeth Warren basically wants to redistribute how wealth is in this country as is Bernie Sanders, i hear, you know, your directors, you talk about tariffs, my directors talk about warren no, weve talked about this already many times you think its wrong to keep talking about it shell take the segment and tweet it out, see, theyre afraid of me it comes up almost every top. Top marginal tax rates, wealth tax, raising Capital Gains tax, dividend tax, i mean, we all know what you are talking and, jim yeah. Maybe its child care and healthcare and other universal things i dont know. I have tried to talk executives off the ledge because i think that senator warren in my belief can be less of a fear factor so to speak. She can be tempered she seems to view Corporate America as just bad. She if you look at her, im not going to disagree. Thats where i wonder i disagree. You didnt go in feeling that way. I think shes emboldened. I was hoping if Bernie Sanders drops out, she doesnt have as to worry about that flack anymore. But i think most observers suggest dont fault way ahead of widen in at least iowa and new hampshire. You are hoping she does the politically right think in terms of bolsters her candidacy in the general election should she be the nominee by moving more to the center more to the center my hope Means Nothing i hope for the eagles to beat the jets i think that hope can be real it can be a trap game im saying the people, the wall street people who live in fear and shake because of Elizabeth Warren, what lets get back to the trade war. You want the trade wars all right. Do you see this . Do we have a camera . You know what this is, this is an irmes tie they gave this an exception. This tie is more than the apartment you live in. It needs an exemption. We have a president he put 7. 5 billion i know. 245i exempt it irmez. By the way my italian wine and olive oil, exempted. Its about me, david, its auto about me impressive. When we come back, pepsico shares are aiming for a fresh record high, betterthanexpected results we will talk about strategy and advertising budgets. First on cnbc interview in a moment as we suggest, futures suggest a third day, but that most important number is about 50 minutes away, ism services ngo away. Obvious. Sometimes, they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. That could allow hackers devices into your home. Ys and like all doors, theyre safer when locked. Thats why you need xfinity xfi. With the xfi gateway, devices connected to your homes wifi are protected. Which helps keep people outside from accessing your passwords, credit cards and cameras. And people inside from accidentally visiting sites that arent secure. And if someone trys well let you know. Xfi advanced security. If its connected, its protected. Call, click, or visit a store today. Pepsico is popping at the bell snap giant helped fuel sales growth and an earnings beat, joining us first on cnbc is pepsico chairman and ceo Hugh Johnston thank you for coming on squawk on the street great to see you as well, jim, good morning. Lets get right to it there are a lot of people that say basically you did not raise forecast i see that you pivoted towards a higher growth rate than wall street expected and to me, that means its a very tough quarter. That you are being rosier than wall street thought yeah, jim, i would agree with that as you noted, earlier this the year we really made a move to pivot towards higher growth, investing back in business in a much more significant way than weve had previously were doing it across the board, advertising, selling campaignability, manufacturing capability all of that money is going back into the business with the goal of accelerating our growth for both us and our customers. Frankly, its working really well right now weve seen it over the course of multiple quarters at this point. Were seeing it across a broad base of businesses so we really feel good about the Third Quarter and how the year has gone so far. Thats why we raised our revenue guidance for the full year because as we look at things, we do see apositive picture all right so you know i walk the aisles in the supermarket, to me it seems like the aisle that is carbonated, you picked up share against cocacola. The aisle that is frito lay, you took a couple yards of share with some of these new hot products is my Square Footage right yeah, were certainly doing better in terms of space in the market both in terms of the aisles as well as the perimeter of the store as well where a lot of sales happen because our products are so impulse. I think whats happening more than anything is the increased advertising we have is causing consumers to shop us more aggressively and our customers are rewarding us with that space because they know that we can help them grow and thats a big challenge for them so the snack food business as well as the Beverage Business really has good momentum right now, competitively as well as supporting our customers. I hate to say this, you and i are old timers you remember when we used to focus on gator aid and the growth and how important that is could that be happening ago en i see big numbers gator ade . I think we have good momentum in that gator ade business right now. Its a combination of a couple of things. Number one, just the increased advertising level and the quality of the advertising i think its picked up quite nicely as well in addition to that, gator ade zero is a terrific new product its the biggest zero calorie isotonic in the marketplace so far. Even though the market is a little over a year old in addition to that, we bolted launch, for atmosphere tleets they can meet their hydration needs all day long that product is off to a great start. Im bullish on the gator ade business right now i think we got terrific momentum there. Hugh, speaking of advertising and marketing, do i have this trigger right tracking up 12 for the year how long can you sustain that . Thats correct. Yeah weve seen a nice pickup listen, as we see ourselves accelerate, i think you will see us continue to pour money into advertising and marketing. Its having a desired effect and importantly, were getting good returns on that advertising. Obviously as the cfo, i what up that pretty losely we are seeing good positive Financial Results out of the increase in advertising. Not just in sales. 12 is correct i think we will continued to increase as a good, healthy clip. And your Investor Base seems to get it. Would you agree . You obviously had the increase in sg a. Theyre not concerned about it because it does seem to be driving that organic sales that you are talking about. Thats exactly right. The increase in sg a is purely driven in selling capabilities to go along with our advertising and marketing increases as well. So the Investor Base understands, putting money into these areas results in a stronger more sustainable franchise. To put it in financial terms, it extends the duration of strong perform performance. Combine that with the fact that we got a billion dollar Productivity Program going on this year. So were reducing nonvalue added costs and investing in costs that drive the success of a business i think investors appreciate that, particularly in todays choppy and challenging environment for them hugh, you got about 15 seconds, eb tells me the economy is slow and look out how bad is it for pepsico . You know, jim, ki speak for our business what we see as a consumer that really likes our products and is buying them at an increasing rate as far as we can tell, the consumer is doing just fine right now. There you go. I know we are supposed to be hanging ourselves. It looks like we are hanging ourselves, we are drinking pepsico and having a couple snacks hugh johnson, thank you so much. A great quarter from pepsico thank you. I struggle to be as negative when these millennials like it hot. Some like it hot, david. I was waiting for it. We have a mad dash countdown to the opening bell take a look at the free market on this busy thursday. Ism services in 40 minutes dont go away. But were also a company that controls hiv, fights cancer, repairs shattered bones, and keeps you healthy your whole life. From the day youre born we never stop taking care of you. Take a look at fang performance over the last two days netflix actually higher, b of a says it will be a make or break quarter for netflix as they have not missed on the subguidance for two consecutive quarters eng ll in just about 8 minutes. You should be mad at airports. Excuse me, where is gate 87 . You should be mad at nonseasoned travelers. And they took my toothpaste away. And you should be mad at people who take unnecessary risks. How dare you, hes my emotional support snake. But youre not mad, because you have e trade, whose tech helps you understand the risk and reward potential on an options trade its a paste. Its not liquid or a gel. And even explore whatif scenarios. Wheres gate 87 . Dont get mad. Get e trade and start trading today. [ music playing all right. Were about five minutes from the opening bell lets get a mad dash were going to sit down today. Right david, but it wont matter are you still going to deliver what do you got . David, you know what . Its really interesting. Clorox yesterday had an analyst meeting. It wasnt talked about other than this morning j. P. Morgan lowered the price market heres what it was, this was a reset. Now we saw the same thing with mccormick. They reset, thats, of course, the Spice Company franks, mustard, after they reset, they beat iically clorox is doing the same thing. I think they go forward and they beat theyve got something new. A lot of Companies Come up to me these days, we got cbd do i want to use no name cbd david, betters bees is going to have cbd i think thats a good House Keeping seal of approval thats going to take share been the likes of the walgreens aisles. So i like color rooks here to the reset. Its been weak lately, they think playing back frankly is very easily mimicked, but if they can do betters bees cbd, its going to be the buzz that, oh, i didnt mean that, but the buzz that people need because all, right now lord jones is the established brand which is kronos but Everyone Wants to be cbd yet, most people dont trust the brands they see the name. Obviously 99. 9 . Some things that you would put on. Topical right. I know that larry merlot, by the way, manyer low included in the tariffs. Cvs ceo wants to have a lot of cbd in his stores which would he choose . Mr. You know joe blow cbd or owould they choose betters bees i think this is going to be a major issue even though they teased it. Wouldnt it be nice if we had some true studies of the effectiveness of cbd in terms of what it does best, what it really treats well what it doesnt treat well there is a lack of scientific study. In part, because a lot of these scientists arent able to work on this stuff. They dont know how to dose it i think its important it will start coming out its not necessarily going to be juul i think it will come out some things it does work for. Right. Now i am the chief spokesman for the american yes, you told me that. And it does help topically. A lot of people feel that way. My job is just awareness that migraine is a real actual illness, not like when i was in my hedge fund, someone says migraine, take two buff rin and get out of here. Its real. Cbd is one of the many things people are trying. There is some success, all anecdotal. Dr. Gottlieb who i have been tough on when it comes to juul has been very circumspect about cbd doesnt want it regarded as a cure all you have to get funding for these studies. People are coming around as far as clorox between that and delta and gopro to some degree, pre announce season has not been a barn burner no, gopro is interesting. There is a funny piece which says its not a downgradable offense they miss so badly five years ago, today, gopro had an unlocking, unusual unlocking of insiders. They sold 5. 8 million shares and that was the exact top i was in hawaii that day and i was, look, i went to a surf store. I stepped so much in surf. And there i was. There i was. A goat with a gopro. You tell everyone whenever this ticker comes up and it was the absolute even the moment that i saw it, david, just in the time zone, adjusting the time zone. It was the moment the stock was behind it never recovered. Its going lower see the chart. That was when i saw the goat i told them i saw a goat. I said it time to sell. It was time to sell. Never really its been a time to buy since there was obviously a decent rebound. Not really. You are right its been, lets say, suboptimal performer for the company. It added an ecosystem not. Remember the hero ecosystem . Yeah. Id rather have a philadelphia hero. Articles on youtube where you can watch people play golf they had it all that is the opening bell. Thats the cnbc exchange at the big board at the nasdaq. Biotech focused on treatments for autoimmune and severe and flamtory diseases. Everybody is negative you got to absorb the selling. What im looking for is when do we start getting bifurcated. We buy the pepsis and the progressor and realize everything is not going down but both you guys are right. You cant be an octave about tariffs. He is so happy about putting tariffs on europe, hes joyous he reviews it as a win today the Scottish Government comes out and says, see, we cant rely on a u. S. Trade deal with the you can touk offset a brexit fallout because now we have tariffs on Scottish Single malt its weird to have a trump argument in the remain camp, but this is going to have all kind of consequences. Diagio has really fabulous, theyve been hurt. It hasnt been a gait stock because of the weakness, i may have to go to will for that, scotch could be a lagar. A lagar you never, you dont watch this show . I dont know what you are talking about. It says laggard oh, a laggard oh. Laggard, queens he thought it was like sarah eisen, congratulations to sarah eisen, you thought it was pristine laggard. I didnt have any then again i actually do know i try and translate. Because of the podcast, you try to stump people. You say, what is he doing . Does he have his arms akim bo . By the way, yeah, peeking of, i dont know what, tesla shares down over 4 this morning. They delivered 97,000 vehicles in the Third Quarter, that was slightly below management guided tour lets sort of say it was inline. They will have to deliver about 105,000 in this Current Quarter to hit the lower end of their estimate for what they will deliver overall. There was this downgrade from jmt to a market perform. They had been outperformed i love the most interesting part of it is, they, yesterdays announcement was the First Time Since covering the stock, we found ourselves wondering whether demand crest for teslas cars might be leveling off look, we dont have any tweets so what do we have to base it on deliveries. Im saying he doesnt tweet anymore. Most of the deliveries were the model 3. Seriously, he would tweet demand is going to pick up really big in the First Quarter. I mean, he used to give us some piz as, now we are stuck with the facts. The facts. Yes this analyst amazing 15 time ebitda multiple on 220 estimates. Now that i are wonder if, in fact, that should be the case if demand is leveling off we talked about prospects of competition for the model three and for some of the other models as well. From some other makers who are moving aggressively into bmw area of bmw. Right . The tax credits. Yes. Going away. Look. I think its a once wonder stock that has really just become, well, its not like gm is bored. People just dont talk about it as a 2,000 dollar anymore. Money from five years yeah. But remember when it was like, people had such high hopes that it was going to be the next like you know ford. Based on automobiles, of course lets not forget, they do own solar city thats a part of this company that has slowed that business to a center e certain extent. Have you this idea of batteries becoming a huge potential market for them the ability to take in energy, store it. Right hes not bragging. There is from ug to hang your hat on. So you think though that his no longer using twitter to promote is having a real impact on the stock absolutely. I think one of the reasons why i said the law, the case would be so important is because this guy didnt play by the rules i happen to like him very much he got excited about his product. There was enthusiasm i dont think thats wrong there was enthusiasm created by him, now, eh, he was able to get you excited about the battery, get you excited about china. There is no cheerleader in chief anymore. I think it hurts and i got to tell you, you want to know who doesnt have cheer leader in chief but was done today by Deutsche Bank is google, alphabet a crazy price target increase. Wasnt that 1475 to 1,600 and listen, senator warren, theyre talking about some of the parts. Its almost as if its kind of, i think its like giving up a president , warren president. They say that listen if you take a look at the cloud business, its worth a huge amount of money away from the rest of the company because of le upon james. Thats what they call thomas kur iad. Its a positive piece. Its really positive. Speaking of positive, jim, your semis are going to help lead today. Where is micron thats all that matters. I say if micron bottoms, they sell of course seven times earnings micron destroyed the semis the stock was 51 a lot of the analysts got very, very excited i was not one of those on twitter that keep accusing me you remember when sanjay was on our show, the ceo, this is where he implied the buy back would be i know people dont think buy backs matter theyre wrong. Hes got about 7 billion in buying power i think hes standing there. Koa, micron, Western Digital all helping out today. Yes. We are able to watch that. Jim you want to mention a name you know way. Constellation brands . No, zoettas i thought that was so sad zoeti ze. He is being by kristen peck. We should have kristen peck on. She is married to bob peck. She will be sensational a long time, obviously, shes been executive vice president. Group president of u. S. Operations, business of development strategy, a member of the executive Leadership Team since it was formed 2012 a great cho is. And there will be a transition at the end of the year this stock has done very well. Juan ramone alaix has taken huge advantage of the humanization of pets they are the best scientists to whatever flu is out there. Im excited. When i spoke with him today i was a little bull marketed juan ramone is just such a great guest. He says those of us who had to suffer through dogs and wear the elizabe elizabethan hat. You dont have to put that on the dogs, theyre bouncing off walls and stuff like this. Now, its just like hey, i feel better at least you get the sense they they that. By the way, cannabis, nvidia could not jump on the bet. We put cannabis. Arthritis. On the knees, jumping all over the place right on the bet right next to me there you go there is some fda approved works for dogs. See what i thought you were going to talk about is bed and bath yes. Looks like it reported a bad incident but when you go underneath. You thought thats what i was going to talk about . I was trying to transition. When you look underneath. There was a lot of good. Including a strong end to the quarter. They will name a ceo my sources indicate we will be excited and say, you know what, they got someone big now, they laughed when i said, wells fargo can get a good ceo now you got charlie sharp. What would happen you said that, you were saying for the long effort time they cant get anybody all right yeah, you are right, kinda yeah, youre right. We got some wicked price target cuts on schwab, etrade, td america wells. They go from the 50s, jim, in tds case from 58 to 30 and they do take that to under perform. Ask would be and etrade they cut to market perform. Thats devastating that piece. Devastating, you started thinking it really is robinhood, robinhood is playing with Venture Capital money like airbnb just say no like whats what happened with door dash and grub hub. Look at dominos versus yum during this period dominos own delivery suddenly Third Party Deliveries are helping all these other guys so everything that is when you are up against a ven Venture Capitalist, its disruptive. Robinhood is disruptive like just ripped it into shreds speaking of machete, the media stocks, the old ones cannot get upset cvs, viacom. Discovery. Netflix, not a Media Company at all. Fox is, none of them are really. What is happening some of the multiples have come way down for some of these names they are trading at historically low multiples we are still waiting for the proxy there to take a closer looking. Pateing for bedough on that one. When is that one going down . Thats a good one a lot of people say they stop at zero my travel trust owns viacom. This may be the most painful position since valet i dont mean the guy that takes care of this beautiful suit. Its approaching 9 billion. I love lucy is worth 9 being. It is amazing there is a lot of concern, pe i pepsico is back to the big issues we have been talking about so long. Everyone says its the golden nature. The fact that it will continue to increase, do you, how do you compete with the streaming services out there if you are aa network and b you have all these other we mentioned that call on netflix. Heres the quote, while netflix never missed its own guidance two quarters in a row. We flagged the cfo transition as a risk at this point spends newman forecasting abilities remain unproven. Theyre only off about a gazillion. I dont know netflix has become a real bad stock like tesla i may have to pull it from fang. Ive come one a new one. What are you the do you jo en snoens jones . The dow jones . I have every right to be as capricious as i need to be i got to get microsoft in team pham. Team pham. You got to get microsoft in you should have thought of that when you came one fang phamg we didnt know how great pre satya will be. The faaang faang that could be a bottom. That happens. Do you remember what i did the night i picked fang what i said what did you say . Ugggg white fang. Like white claw. Which is so hot. You can say you want to do constellation really quick here i see him a little slow down especially the hottest sphere in the country. The main thing is its the canopy, you know again its cbd, whatever cbd strikes, it crushes. I think the market the can pip, look, ill speak to bill newlands tonight, the fastest beer growing company combine i wine is just okay. Canopy spent so much money what did they get . Its not clear. Especially if betters bees comes in i thought you liked the canopy deal. I looked it until bruce litton spent a lot of money. They bought that acreage i didnt think that was a big deal right the only problem Cannabis Company is afria which is run by our friend simon. So i mean the problem irwin simon. The problem is no ones been able to monetize it because its still illegal in a lot of states i have as to move on, someone in my ear said lets move on. What is difficult is to try to build a model when you dont notice we state. Can you still it here . Massachusetts, thats a real problem. Local towns the concern is frankly that you are banning and that the cannabis seems to be hurting people is black market and you are pushing more people into the black market by bank overall including the ones that are state certified. Unlike when i say things, you could not be more right. He says so few things. Dow is down 32, s p is basically flat lets get to bob mibob pisani lets take a look at the sector, nvidia is doing well fangs the yields drifted lower. Banks have been drifting lower oil is moving do you mean. Even retail a month ago, its also tending to drip lower so the thing were watching out for is whats the consumer and what is the state of the consumer we want to see obviously the ism nonmanufacturing at 10 00 we will see the jobs report, roll up for some idea about whats been going on here . You will notice, of course, the drill end has been weaker and the stockmarket is reflecting that, auto has been weak, steel has been terrible. Manufacturers very weak a while. The congrom rats, the 3ms and honeywells, ipger sol rands, doverers, the industrial side of thef stockmarket is really weak. But the consumer side is really doing much better. Thats why people are pretty happy because the consumer is 70 of the economy so Home Building stocks have been strong. Food retailer es have been strong Consumer Electronics are up, personal products. The consumer side is holding up very well, the stockmarket is reflecting that strength also, the Consumer Staples have been really strong we have been noting how much Procter Gamble is up 30 for the year walmart. Double digit gains for kimberlyclark pepsico, great numbers overall very good organic Revenue Growth there. I hope you heard hugh johnson, coke is pa little under warming, you get the point, the Consumer Staples are holding up the market you want to watch the big guys, costco, home depot, nike, ross stores all up 20to30 . They have been holding up very well you want to watch for any signs of weakness there, today indeterminate. Starbucks a little weakness in the last month down 10 or 12 thats only one showing signs of cracking here. Other things to watch, the 200 moving day average, thats 2839 right now. Here you can see were way way above that with 2890 so we got a good 50 points to go finally, you want to watch the earnings commentary. We want to get very fast, beginning october 15th, johnson johnson, they report the ones i love, honeywells and textron two days after that in a one him weeks well have Fourth Quarter guidance which is what everybody is caring about right now. That was just up, dow is down, 19 points down carl, back to you thank you very much market pmi not too bad at 51 ish holding tight. Lets go to Rick Santelli. Rick yeah, there is pa lot of different metrics traders like to use the cop contend we are waiting for. The ism number i can see it moving markets a bit we are seeing buying and treasuries at the end of the range. A couple things should jump out at you first of all at 145, open the chart up to september of 2017, that was the cycle low comp. In other words, on the 5th of september, we traded a close 143 which took us back to september 2018, very significant with the data points coming out over the next 24 hours. If you look at the july 20, 316, 10s around 136 you see on the far right, early september. We had a 146 cycle low close we were hovering 11 basis points above that there is your steep inner. We have steepened out to 12 basis points we are under performing a little bit today on the long end, short end down one or two. We want to monitor that dynamic and finally there has been so much talk with regard to securities markets, yields moving lower, how that reenforces the weakness next wickties, but barclays high yield index spread is still tame even though it definitely has been rising as you see now you see the spike on the far left of that cart, of course, that was the Fourth Quarter of last year to give you some kind of perspective, we all know that when Interest Rates now move lower in the world we live in, it definitely starts to flash a little bit amber and you are starting to see bits of that in the high yield sector. Jim, back to you see you in a few minutes. When we come back, goldmans chiefic with i think strategist david kostin is here we move into q4. Dow is down 23 we are back in a moment. So servicenow put your workflows in the cloud, huh . Mmhm. Your employees must love you. Thank you. Ah, you could say that. So how are things with you guys . Great. Thank you. Thank you, sir. Lunch next week . Terrific. Say hi to the team. Will do. Call my office, i will. Sounds good. Alrighty. Servicenow. Works for you. My gums are irritated. I dont have to worry about that, do i . Harmful bacteria lurk just below the gum line. Crest gum detoxify, voted product of the year. It works below the gum line to neutralize harmful plaque bacteria and help reverse early gum damage. Gum detoxify, from crest. S p gainers since the beginning of the month, obviously mccormick with the outstanding day the other day. Lennar has a slew of ireesncas this morning well get stop trading in a moment dow is down 26 to introducing products faster. To managing website inventory. And network bandwidth. Giving you a nice big edge over your competition. Thats the power of edgetoedge intelligence. Time for jim and stop trading. When the economy gets weak, we tend to look at supermarkets which walmart is the biggest and things like kroger, but kroger has been under pressure whether it be from amazon, whole foods or target which has a big supermarket with grocery my sources indicate they cut 1,600 people district coordinator level to try to get the table employment better and the stock is still down. It just shows you that no matter what you do, if youre a big unionized National Chain and youre going up against walmart, it just doesnt matter. Its already a tough margin business. It is a very tough margins about. Its a dicey day were four minute away from a number that could make me sound foolish, but i do have bill newlands on tonight. Lets fine out what theyre up to. I look forward to that. Do you . Absolutely. Last night you were spraying mustard. Yes, frenchs mustard i had to stab him with it because it was colonel mustard with the knife. Yes. You dont have a clue, do you . Jim, well see you tonight. 6 00 p. M. Eastern. Ism Services Just moments away and goldmans david kostin dont go anywhere. Announcer fidelity is redefining value with zero account fees for brokerage accounts. And zero minimums to open an account. At fidelity those zeros really add up. Maybe ill win saved by zero good thursday morning. Welcome back to squawk on the street. Im carl qui david of the new york stock exchange. Sara does have the morning off markets obviously tight range because were about to get a very important number. Ism services in the wake of the manufacturing number a couple of days ago lets get to Rick Santelli rick. All right everybody hold your breath well, its a disappointment. 52. 6 52. 6 we were expecting a number around 55. Sequentially follows 56. 4. But where does this take us back to actually much farther than i would have thought 52. 6 is going to take us back to august of 2016 when it was 51. 8. This series has held up so remarkably well that prior to this data 53. 7 for july was the low. Granted its over 50 its still in expansion territory, but nonetheless yields have dropped, stock market has dropped, so you can sense whats going on. Theres so much more data. Lets go through it. Factory orders, and these are august numbers, factory orders down. 1, about as expected if you take out transportation it improves to unchanged durable good orders, these are final reads. The reason its important is we take away the mid month read the mid month read was up. 2 the final read is also up. 2 if we look at transportation, similar dynamic, it was. 5 its. 5 on the final if you look at capital goods orders, nondefense aircraft, forget all those words, its a proxy for business spending, Capital Investment and it is not looking good it is down. 4. It was down. 2 on our mid month look, so its deteriorated and if we look at shipments versus orders, thats up. 3 thats a tenth of our mid month expectations the data here is not spectacular, but its pretty much a push on durableins and factory orders and a weakening number on the service sector, but still in expansion mode. Morgan, back to you. Rick santelli, thanks for breaking that down for us right now. Big move lower in the dow. Were down about 237 points after hovering near the flat line on the heels of those readings lets bring in steve for reaction to todays data steve. This is not what was expected there was some concern among some of the economists i was reading, if this would be a weaker number. It could be that trade is really playing a role here. Some of the people who answered these questions, i think there was a third or fourth largest waiting in the index are retail. You had those tariffs commonplace. That could be part of it it could be an overall sentiment among business its hard to know whats pushing it its a raeason for caution. Its not in contraction territory. We look for that to be below 50 and its not a level that would indicate recession its part of a slowing in the economy. Its a disappointment. I think the risk today was to the down side. I dont think anybody was going to get very happy or optimistic with an upside number here, but the risk to the down side shows that perhaps some of the manufacturing weakness thats been out there is going over and affecting the services sector. Now the question becomes does it affect the consumer. As you know, weve been reporting and ill be back at 10 30 to talk about really a growing pessimism among average americans in our all america survey. Steve, thank you for that Steve Leishman joining us with his take david kostin is with us as well as we continue to look through some of the internals. The employment component does hang in, 50. 4 versus a prior 53. 1 so what happens to the argument that the consumer is strong . Well, it would suggest on the Services Side the consumer is slowing in terms of the latest data we saw the Manufacturing Index drop at 47 earlier this week on the first of the month thats certainly on average the Third Quarter was below 50 manufacturing side of the economy clearly reflecting my view and my colleagues probably a trade issue and some of the slowing growth in europe and elsewhere. But the services ism has been notably pretty solid, mid 50s for a while. This certainly would be disappointing. The outlook for the market would be modestly higher around 3,100 at the end of this year youre sticking with that. Were sitting here today and starting next week well be having Third Quarter earnings releases, so for the next three to four weeks that will be the primary focus. It will be reflective of the Business Activity in july, august, and september and so really well be also looking at what is the indication suggests for Fourth Quarter to next year. Right now the expectations are for year over year decline in earnings it will be the first decline in earnings in several years, since 2016 which is notable because that was the last time you saw the indication of some of the services at that time oil prices were down and it was driven by the energy sector. Would that still be happening if buybacks were pacing at last years pace . Thats a fair point to look at right now the expectation is that buybacks were pretty muted. You did have authorizations, strong expect indications after Second Quarter is that buybacks would probably be at a more muted base that reflects the corporate uncertainty from Business Outlook in terms of tariffs. Tariffs and trade become the number one topic in my conversations with Portfolio Managers there would be concern about whats likely to happen. Pr it has certainly been winning on decisions about Capital Spending and probably uses of cash for buybacks. Which i think makes maybe viewers wonder how much faith do we have in any kind of corporate rat guidance that we get either preannounced or prints for 2020 . Its a cloudy outlook you have politics, trade, egt. What do you have you can look at the dividends. This is uses of cash in terms of giving the money back. Thats a strategy that were focusing on in this environment where there is urn certainncerty what do you see in terms of dividend growth. If you look at groups of stocks that have high dividend yields and growth, thaez a those are outperforming. Theyve got better growth, 9 dividend growth. The pay out ratios for the overall market, 32, 34 . Theres still plenty of Cash Companies can use to direct it back to shareholders thats a strategy in this environment. David, were showing a board right now of the dow its down 283 points weve just broken back below 26,000, but the banner on the bottom, the threeday loose is over 1,000 points for the douw. What do you tell people who dont check their poert folrtfo you focus on the s p 500, so i respect that weve seen big moves in the sapp as well. Its only the optics. The market has gone higher and higher over the years. The point number in the dow becomes more dramatic. But what do we tell people is we look at the fundamentals you need a framework to think about whats happening and how you direct a portfolio you have the economy youve got earnings. You have valuation you have money flow. What is the economy telling us its week or its weakening i should say based on lets look at some of the ism and manufacturing. On the other hand, the consumer Balance Sheets have been deleveraged and consumer is pretty strong in terms of a starting point, but thats an area of concern. You have earnings. What are earnings telling us this quarter were expecting for the first time negative Earnings Growth on a year over year basis for the first time in basically three years. Thats also an area of concern on the other hand, people are expecting negative Earnings Growth in the First Quarter and Second Quarter and it came in positive tax rates were lower than expected and then valuation of the market trading around 16 times forward earnings thats basically high but not extraordinarily high thats telling you that telling us on average the market is likely to move modestly higher and carl made conference to the fact that the buybacks have been more muted in this environment its not a terrific story. On the other hand, bond yields are extremely low. Thats actually what i wanted to point out we take a look at the tenure as we watch the dow the s p is down 1. 08 . Thank you for affirming its importance which i try to do here as well but youve got a tenure approaching 1. 5 again what does that do to your overall investors as they look to diversify or not. What are the alternatives in terms of the landscape equity would look somewhat more attractive than bond yields buying treasury at 1. 5 . Corporate bonds are pretty narrow it is a more challenging type of environment. We think out, although theres relatively less clarity on what the outlook is for 2020, there is a likelihood that if we have deceleration, it could actually pick up over time and as we look towards next year in terms of economic activity. So the economy right now is growing on a run rate basis somewhere around between 1. 5 . Which is slow. You mentioned something earlier. I think its always interesting. When you talk to clients, when you talk to the institution ap investors that you go around and market to and tell them what you think, what is the main concern that they have what are you hearing most often . Trade, number one the second would be on basically bond yields, growth, broadly speaking growth. The ipo market, what does that suggest . Antitrust what are some of the postures with respect to, you know, the policy and the administration and different areas . The department of justice and federal trade commission and things like that those are some of the things that basically get discussed what are some strategies in those areas . One of the areas on the economic slow down would be services companies, Services Providing as opposed to goods producing we talked about that in the past thats a way to, if you will relatively 70 of the economy is basically someone. Thats one strategy. The idea about trade, owning companies with domestic facing end markets and the third is basically in a low bond yield environment, what are some companies, what are the strategies involving, income based strategies earlier today pepsi would be a company that would fall into a basket of Companies Like that. Paychecks. You have a variety of companies, Different Industries that have a combination of yield plus the growth in the dividend yield and we would view those as attractive in this environment. Earlier in the year you came on and you screened out margin growth is that still even are there five companies on that list expect taegz ation is youre to have margin contraction its an interesting dynamic between the market and the median stock the market is skewed by some of the Larger Companies is going to have year over year Earnings Growth down around 3 , but the median company will be up around 3 its an important distinction if youre a stock picker and youre the audience to which youre referring and individual companies will actually have modest growth in their profits some of the bigger companies, semiconductors having a difficult time this quarter, year over year basis a lot of technology will be hard pressed on some of the hardware companies. Thats helping to unfortunately drag down the Earnings Growth overall. Finally, david, are you doing any reallocation u. S. Versus europe well, europe is having a lot of difficulty. The attraction there would be on the income front where dividend yields are much higher than here in the United States. Is it tempting you . One of the issues on europe is a lot of their Business Activity involves exports. To the extent that theyre exporting, the issue on tariffs, that would be tempering enthusiasm for that at the present time a lot to handle too much to get into five or six minutes, but thank you, david. Thank you interesting to watch that plunge in bond yields right now. We look at tesla right there when we come back, were going to talk about that stock which is down 32 for the year is moving lower plus pepsi popping or at least it was on earnings the stock is near an alltime high you can see it right there were going to dig touhrgh the numbers next when squawk on the street comes back devices are like doorways that could allow hackers into your home. And like all doors, theyre safer when locked. Thats why you need xfinity xfi. With the xfi gateway, devices connected to your homes wifi are protected. Which helps keep people outside from accessing your passwords, credit cards and cameras. And people inside from accidentally visiting sites that arent secure. And if someone trys well let you know. Xfi advanced security. If its connected, its protected. Call, click, or visit a store today. Welcome back to squawk on the street. Just want to get a check on markets. Weve seen big moves in the last couple of moments. Lower with the dow down 275 points right now breaking below 26 k the s p, the Broader Market is also down. 8 the nasdaq similar move lower as well of course, this coming on the heels of the much weaker than expected september ism nonmanufacturing number. Read of 52. 6 which is the worst reading since october. Every sector is in the red except for real estate and treasury yields have also been moving lower on this report as well lets talk about tesla the company did deliver a record amount of vehicles it still fell short of the target of 100,000 a little bit short phil has a lot more for us this morning. The question that a lot of people are asking this morning and clearly you see that the bears are having their way just a little bit with tesla shares is whether or not demand is leveling off for tesla vehicles. Thats because there are some who are saying they probably could have delivered more vehicles if there was greater demand there was nothing indicating that they were falling short or having problems when it comes to delivering vehicles. Here are the total numbers 97,000 delivered in the Third Quarter. The consensus was 99,000 elon musk said they had a shot at 100,000. Model x making up 17,000 and change what does that mean for the full year guidance . So far they have delivered about 255,000 vehicles thats the red line you see in the far right there. They mead to come up with another 105,000 vehicles in order to make the guidance they set earlier this year. They have not changed their guidance we should also point out, Jmp Securities out today moving the stock to market underperformed basically a sell rating. Has demand leveled off could they have delivered more vehicles if there was greater demand they are arguing yes, they could have thats why youre looking at a stock right now, one reason youre looking at a stock down greater than 6 . Phil, we noted that downgrade earlier about this demand question because the analyst did seem to sort of sense, almost give up or at least questioning his 15 times he put down multiple for 2020 estimates. Whats your take on the landscape, other vehicles now offered by major manufacturers i dont think thats a big the tax break i do not think is a major factor at this point its being cut from, what was it, down 3,750 down to maybe 1,800. At this point when youre buying a 60,000, the tax break is not a big incentive at this point. I dont think thats a big factor i also think the competitive landscape, while it is increase, that youre seeing more people, whether its porsche, other automakers coming out with electric vehicles, theyre not at a level yet where its seriously cutting in to the sales at tesla so it all comes back to what jmp bring us which is should there have been greater demand now, the bulls will counter look, they are smoothing out their delivery cadence and youre going to have china coming online theoretically, at least thats the hope of tesla later this year. And if they can get that up and its a smooth launch of that factory, youve got the World Largest market they are going to be directly manufacturing in and that should be a huge boost. Whats the capacity that . Have they said they havent said officially. When its all said and done, ultimately in a couple of years, theoretically i believe the capacity could be anywhere between 300,000 to 400,000 and thats a back of the envelope projection initially the deliveries and the production are going to be very limited, but then they hope to ramp up, especially as the model y comes online starting late next year. If its on schedule. Phil, thank you when we come back, we are all over this selloff. Take a look at the dow right now. Were down 240 points. The s p is down 20 67 is the level there. Strong in terms of selling here. The only sector that is in the green is real estate contract for b lsefoaligoss r l the major averages for end of the week more squawk on the street after this break american senior, or worse, that it was some way to take your home. Learn how homeowners are strategically using a reverse Mortgage Loan to cover expenses, pay for healthcare, preserve your portfolio and so much more. 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Its below 14 right now, so thats well below what the overall market is trading for, which is around 17 arguably this suggests the market isnt particularly surprised about the slowdown the growth fund iwf, its trading at about a 21, 22 times forward pe, so obviously thats where thats supporting the overall market valuation and it shows you that basically without confidence in Overall Economic growth theyre cueing to these large Growth Companies to me it suggests that yes, were talking about are we going into a recession, is the economy going to slow down much. Its obviously a relevant debate im not saying the market is priced for a recession, but the story has been running its way through the stock market for quite a long time right now. If you look at the value etf, its at a cheaper version, cheaper valuation than it has been for a long time. People yesterday argued bond markets been forecasting the ism collapse for a year november then look at what yields did today. Where does that argument stand you have to keep chasing them down i mean, bond market is dictating exactly how we view all this stuff, whether its fleeting, whether this is a trend we have to worry about i think the ten year at 1. 5, were again back in that zone of saying that the bond market is in a defensive crouch and stocks have to, you know, have to reckon with that. Dow is down about 300 points the lows of the session. Weve taken about 100 of that back off the table were now around 200 points lower right now. The fact that we seem to be starting to scale closer towards the flat line tells you what it tells me that after two days of pretty heavy selling, people were already leaning in the negative direction, and the ism nonmanufacturing number has never really know much of a market move. If it plunged below 50 you have a jobs number tomorrow so youre withholding evidence about what the weight of the evidence is telling us about exactly where the economy is headed we went up 100 in a few minutes and it can go down in a few minutes. Were going to get clarida, so the odds of another cut for october go to the 80s, well see if the fed exactly and then were talking about two cuts in terms of the market maneuvering. If you look at where the two year note has gone to, its kind of pricing Something Like that the problem with the stock market is it was hoping to get the cut without the pain i think that we lost that. Key things to look for in the jobs report tomorrow, i imagine the ante has just been upped now. It has. Obviously, you want to keep it into six digits, i think thats kind of the headline number you want to see growth somewhere in the zone of where the adp came in for private sector this is week. I think manufacturing employment week is probably a given to some degree right now, so that might not come as a big shock. All right mike san totoli. Diana has more this morning. Good morning, carl. Fall home bayers are getting a bonus to sell off. The stock market is causing an unexpected turn around in mortgage the average 30 year fix fell through the summer but made a jump back up in september. Now rates are headed back down again. Were down more than 10 basis points just since last friday, so youre already talking about a savings of about 25 on a Monthly Payment of a 300,000 lo loan were down about 1. 25. Thats about 225 less on a Monthly Payment for that same 300,000 morning that is real money for todays cash strapped buyers, especially those first time buyers, all those numbers thanks to Mortgage News Daily lower rates are clearly boosting the builders we saw a nice beat on new orders from lennar. He also said that despite all the talk of recession, lower rates for now are outweighing those concerns among buyers. Home prices are still gaining, but the gains are much smaller than they were a year ago. The only thing standing in the way of an Even Stronger Housing Market right now is still very low supply of Affordable Homes for sale back to you guys any thoughts as to when that will change or if its going to change in terms of supply side of this . Not really. Actually, its getting worse than it was earlier this year. We were seeing gains in inventory, but now were seeing lower inventory than a year ago. The builders are just not at that entry level price point yet and again you have so many investors at the entry level that for regular buyers it is tough competition. Okay. Thank you, diana lets send it over to sue herera and for a news update. Good morning, everyone. A 20yearold Police Employee armed with a knife attacked officers inside Paris Police Headquarters killing at least four before he was fatally shot. The attack appears to have begun in an office and continued elsewhere in the large police compound which is located across the street from the notre dame cathedral. Secretary of state mike pompeo meeting with pope francis at the vatican where they exchanged gifts. Pompeo is on a threeday visit to italy where he has found himself at the center of the news over his role in the phone conversation between President Trump and ukraines president. A powerful typhoon battering southern south korea leaving nine dead and five others missing. More than 100 homes and other private structures were flooded while more than 1,500 people were evacuated ahead of the storm. A trio of astronauts left the International Space station and entered a space craft for their journey back to earth. The soviet and american astronauts completed 202 days at the space station while the first arab in space spent eight days there you are up to date thats the news update at this hour carl, i will send it back downtown to you. When you come back, we will continue to watch the recovery from the initial selloff dow is down 116. Were going to hide from the volatility well talk aboutow t ho protect your portfolio when squawk on the street comes back at Southern New Hampshire university, we believe in education built for all people. [woman] snhu was the best experience of my life. [man] without snhu, i wouldnt be the leader i am today. [woman] i graduated high school 19 years ago. I still finished. [man] in the military, you feel that sense of accomplishment. Thats what snhu is. You will march from this arena and say to the world. I did it. [woman] you did it. I love you. [graduate] i love you too. Cnbc is out with the all America Economic survey with views on the economy taking a significant turn downward. Steve leishman joins us. Hes got all the results steve. David, good morning americans attitude towards the economy taking a sharp turn downward in the Third Quarter. 41 pessimistic about the current state of the economy and about the future the poll registered the highest level of pessimism since october, 2016. It represents a stark change from the heady days. This time last year when the index was hitting new records, we couldnt say enough about how people felt about the economy. The good news, attitudes about the comment state of the economy this quarter, little change. The big change came from a 7point drop in the outlook for the future that is the biggest drop since 2011 the decline in optimism registered across political parties, but the impeachment may have the biggest drop. This poll conducted last week and more than half the republicans said they were concerned impeachment could hurt the economy and the stock market but there was maybe more work than just politics other key Economic Indicators in the poll, they were down as well the percentage saying that wages will rise 32 . The lowest since march, 2016 the percentage saying its a good time to invest at 35 also the lowest in three years. Just 23 are saying the economy will improve, so that surge in optimism that came with the election of President Trump, it grew sustained over two years, now wiped out entirely its the first time in 11 polls weve conducted during the President Trump presidency that pessimists now outnumber optimists. Question for you. How big is the risk that all of the talk about recession and recession fears is spooking consumers right now . I mean, i think its a piece of it. They hear enough of whats going on it is interesting, morgan, a lot of the decline in pessimism, again, like i said, its across parties, but its also at the top among the wealthier people in the survey, among those with the most in the market we saw a decline in pessimism. Things like the stock market, weve known for quite a while the impact of volatility in the stock market has a negative impact on sentiment. Also by the way on the wealth effect but the headlines right now are not that great that come from washington theres maybe some indication in the poll that tariffs are a problem as well. That consumers are grabbing on to none of that stuff is saying you know what . Theres reason for increased confidence in the future although what is good is that the current state of the economy, 37 believe the economy will stay the same and theres only a very small decline of peoples assessment of the current state of the economy just a few seconds here, steve, until we hear from the president , but rate cut odds on october and december yeah. They just kind of spiked up. I was just looking here. Theyre near i think theyre even above 90 according to my old for october, its quite a bit higher than the old ism number and higher than it was earlier this week. Whats more interesting is theyre now starting to bake in another cut. Steve, forgive me, heres the president. Weve been doing a lot of work on health care. We were very successful at it so were going to be speaking to the great people of florida and i think theyre very happy with the job were doing. [inaudible what . [inaudible if you look at the whistleblowers complaint, its inaccurate because the conversation i had was absolutely perfect and most people that have read it say the same thing. The whistleblower never saw the conversation he got his information i guess second to thirdhand. He wrote something that was total fiction and now when people see that, theyre not happy. Were looking at a lot of Different Things china is coming in next week well have a meeting with them were doing very well. Some of the numbers i think are being affected, its all of the politics going on by the democrats. I call them the do nothings. They do nothing for this country. They dont care about this country. But the numbers really are looking very good going into the future so well see i have a lot of options on china. But if they dont do what we want, we have tremendous power what exactly did you hope zelenskiy would do well, i would think that if they were honest about it, theyd start a Major Investigation into the bidens. Its a very simple answer. They should investigate the bidens likewise, china should start an investigation into the bidens. Because what happened in china is just about as bad as what happened with ukraine. So sailed that president swr zelenskiy, if it were me, i would recommend they start an investigation into the bidens, because nobody has any doubt that they werent crooked. That was a crooked deal 100 he had no knowledge of energy, didnt know the first thing about it all of a sudden hes getting 50,000 a month plus a lot of other things nobody has any doubt and they got rid of a prosecutor who is a very tough prosecutor they got rid of him. Now theyre trying to make it the opposite way so if i were the president , i would certainly recommend that of ukraine [inaudible i havent but its something we can start thinking about because im sure that president xi does not like being under that kind of scrutiny where billions of dollars is taken out of his country by a guy that just got kicked out of the navy. He got kicked out of the navy. All of a sudden hes getting billions of dollars. You know what they call that they call that a payoff. [inaudible well, i leave that to the lawyers. I can say that schiff has been proven to be a liar. Weve known it for three years theyve been trying to impeach for three years. Hes a stone cold liar, soy leave that to the lawyers. Thats up to them to decide, but the whole investigation is crumbling. [inaudible i can, yeah i can. I can. [inaudible well, we have a real problem. Weve been hitting the taliban very, very hard. And as far as im concerned, they still havent recovered from killing 12 people, one that happened to be a Great American soldier from puerto rico they still have not recovered and they probably never will [inaudible no, but i read Mitch Mcconnells statement yesterday and he read my phone call and as you know, he put out a statement that said that was the most innocent phone call hes read and i spoke to him about it too. He read my phone call with the president of ukraine mitch mcconnell. He said that was the most innocent phone call that ive read i mean, give me a break. Anybody that reads it says the same thing and the only people that dont understand it is when they look at the false fabricated fraudulent statement made by shifty schiff. [inaudible well, i think biden is going down and i think his whole situation, because now you may very well find that there are many other countries that they scam just like they scammed china and ukraine and basically who are they really scamming the usa and its not good. And thats probably why china for so many years has had a sweetheart deal where china rips off the usa because they deal like people with biden where they give the son 1. 5 billion and thats why china has such a sweetheart deal that for so many years theyve been ripping off our country. [ inaudible question ] were looking at it were looking at it very closely. Its under study. Well see they want to talk and well be talking to them soon well see. Im going to yes . Why did yourecall the u. S. Ambassador to the ukraine . I heard very bad things about her and i dont know if i recalled her or somebody recalled her, but i heard very, very bad things about her for a long period of time. Not good thank you. Ill see you in florida. Ill see you all in florida. That is the president talking to the pool this morning on his way to florida to talk some health care. Obviously the main headline that the markets seem to react to, guys, was that china and the delegation will arrive for trade talks next week. Still on schedule. Says the u. S. Has a lot of options when it comes to china before speaking about interestingly asking the chinese to investigate hunter and joe biden. But session low was down 335 vix is actually down, so market heard something that it liked. Weve recovered almost all the losses that we saw after that ism nonmanufacturing number came in below estimates, carl. Were still down a third of a percent on the s p not sure if the bounce was due to some of those comments on china. We knew they were coming next week, so it wasnt clear what exactly might have been added there, but nonetheless, we are coming back. Just to put the week weve had in context, even as were hearing some of these losses, despite that comeback, its still the worst week of 2019 for the dow right now. In the meantime, were going to go to ahmen for more on those comments. A significant expansion of the president s request from foreign leaders. The president there suggesting that he wants xi jinping of china to investigate joe biden, the president s political opponent, and joe bidens son hunter biden that raises a host of interesting questions. One is has the president conveyed to president to xi jinping . We dont know the answer to that the other question, is the biden issue now playing a role in the trade negotiations between the United States and china . If xi jinping see this is request on television, could he get a deal with the president by throwing in a biden investigation and does that complicate the overall negotiation on china trade between china and the United States we dont know the answer to those questions yet, but a significant expansion here for the president to now say publicly in a format that xi jinping can see that he would like xi jinping to open an investigation of his political rival joe biden. Thats something were going to have to get a little bit more detail on here, guys. That would definitely open up the framework of talks well see if thats in the realm of the possible. That comes a day after navarro suggested hong kong could be included in the framework of talks. It does seem like the band width for next week is getting larger. Absolutely. The question is if youre xi jinping and you see President Trump say id like an investigation of the bidens, what do you do with that do you say you know what, we can open something on paper real quick. And does that get you to a deal or does that get you involved in this impeachment investigation up on capitol hill if democrats say thats an improper use of the president s authority to bring in that question even into his conversations with the chinese publicly or privately. Isnt that improper i mean, he has a history of asking a country that youre involved in, obviously negotiations on behalf of the United States trying to get a good deal to investigate your political opponent the president is involved in an extremely high stakes global negotiation is xi jinping and he just asked him for an additional favor. Publicly said he wants Something Else he wants an investigation of joe biden. Whether thats improper or not is really a constitutional question for congress to decide. But thats something were in unprecedented territory here weve never seen a president do this before. So this is something that i think investors as they look at this need to sort of get their arms around the fact that we just saw an additional complication, anyway, to the u. S. china relationship and its unclear where thats going to go from here. Thanks for bringing us the latest taking a look at the major averages recovering from early losses, the dow is only down 122 points right now the s p is down 7 or about a quarter of a percent here to give their thoughts are greg battle, and nancy tangler chief investment strategist. Good morning to you both greg, ill start with you. Your take on that ism nonmanufacturing number today . The drop we saw and now the climb back from those lows for the markets. Does that make sense to you . Yeah. Im not so sure whats drifb ve the bounce back, you cant get carried away by one number if we see the weakness weve seen in the manufacturing side start to show itself more on the service side of the economy, thats going to be problematic for u. S. Equities. Do you think this is just a pull back or correction were going through right now or do you think its the start of something deeper and long sner. Its hard to know, morgan i think we have to kind of Pay Attention to what the ism says on the manufacturing number, theyre kind of fish or cut bait is 42. 9 and were in 47. 8. On the nonmanufacturing were still expansionary yes, were slowing weve seen many indications of that through the summer. The question now is with an easier fed and some of the offset to really strong Earnings Growth in 2018 kind of calendaring, can we continue to muddle along in the Single Digits for equities and thats what we expect we have done that for the last 30 years thats a great place to be invested in an environment of uncertainty like this. Nancy, when you talk about an easier fed, given some of the data weve gotten, what are your expectations in terms of cuts and fed policy through the rest of the now and how is that factoring into your take on the market right now my disclaimer is im rarely right about the fed. Earlier this year we thought that they would probably hike in the summer and then of course weve seen the easings as the economy slowed so i will say this as a portfolio manager, when you cant find attractive names to buy, thats an indication that the market is overvalued we are still finding attractive names in the cyclical space. Weve been heavy into consumer discretionary. Those stocks have become expensive. So if the fed does ease and we do expect an ease at the next meeting, we think some of the cyclical names have washed out and are ready to have a fresh look at earnings and growth. Thats where were focused. Greg, are you looking at this market the same way . Given the selloff weve seen this week, where do you see buying opportunities, if any i think were much more cautious i wouldnt look for the fed to bail out u. S. Equities the last two cutting cycles were 2001 and 2007. The direction of the data is more more important and the data weve seen this week has surprised aggressively on the down side. We have earnings season in the u. S. That kicks off in a couple weeks time and we think the risks to earnings looking forward are much also to the down side. Wed be very cautious about stepping into cyclicals here now given the outlook of the data regardless of what the fed does. All right two different takes. Thank you both for sharing them with us, greg and nancy. Thank you what an hour of news weve had in just the past 50 minutes or so. Lets get to the cme and get the santelli exchange. Rick. Thanks, carl. The head of fx strategy, my guest Mark Mccormick were short on time. Lets get right into the dollar is epicenter for much of whats going on in the world. Central bank policies, wish it was stronger outside the u. S. And funding issues that have arisen, a lot of it is dollars, all about getting dollars. Your thoughts . Yeah. This is clearly i think the strength of the dollar coming from the rest of the world, china slowing, eurozone slowing. The u. S. Is slowing with a lag, given the manufacturing recession were in i think youre seeing defense is the best offense along with the u. S. Dollar, the swiss and yen are as the Global Economy cools, as big participants are cooling, this is driving demand for u. S. Dollars. Now, the demand for dollars signal issued like funding, would the dollar coming off its highs and moderating be the signal theres an all clear on some of the negatives in the marketplace . Zblt liquidity reinforces the risk appetite. Tighter liquidity conditions, equity sells off, but the setup here is about a bigger picture, about trade wars, about impact of trade on the Global Economy i think to see full reversal and risk sentiment where the dollar starts to weaken again, what youre going to need is reversal of the tariffs, not just a pause. You also need the fed to cut rates. If the fed introduces permanent overmarket operations, that will satisfy market conditions, cause a bit of a short squeeze in risk assets but wont reverse the trend in the dollar until the Global Economy stabilizes which we believe is still three to six months off. Mark, it is surprising to hear you say the dollar is going to benefit by easing, having the fed lower rates. I understand thats what the stock market wants, im looking at fed fund futures. At the end of the day, doesnt that make us another character in the manipulation theater . I think it is part of it. I think whats important to think about is to rate differential, look at the u. S. Versus g 9, the dollar is doing theopposite. Even if rates are rallying, the dollar is strengthening. That reinforces the biggest driver for currency markets, the state of the u. S. Economy versus the rest of the world. Think of why the fed is asing. It is easing from external risk. Thats a principal driver along the slowing. When you combine those, this is an environment, yes, it is slowing, the big concern is china and europe we have to leave it there i will get you back at the end of the month thank you for your thoughts. David faber, back to you thank you, rick. Lets is is send it to jon fortt for whats coming up on squawk alley. Hey, david. Signs of a slowing economy what do you do with tech stocks . 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We want to mention the newest member of the squawk on the street family, sara eisen, giving birth to Harrison James levine, congrats to mom, dad, big brother samuel, sara hope youre watching great photo. It is congratulations. I hope mommy and baby are recovering well and on the heels of this event. Expect to hear a call in on the pepsico. You know shes missing that cramer is not giving back. We look forward to taking time with her new baby and samuel as well and coming back soon. Sara, one of the hardest working people ive ever met so happy for you guys. Thanks so much for everything you do for us. We miss you. Dow down 156 we continue to monitor the selloff in the wake of the ism when we come back, is now a buying opportunity in faang. When i lost my sight, my biggest fear was losing my independence. Mmm. Good. So ive spent my life developing technology to help the visually impaired. We are so good. We built a guide that uses ibm watson. To help the blind. 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