Whats at stake for them and tech investing the Halftime Report starts right now. Welcome good to have you with us on this tuesday. Our Investment Committee with us lets start with the markets theyve been up for three straight quarters. The s ps largest gain over that period since 97 the question is what comes next . You tell me what comes next, pete the economy doesnt look good. Looks like it slowed down more and slowing more. No doubt about it. I think the interesting thing is tony dwyer had a nice note out talking about the mini recessions hes talking about this one continuing to be a mini recession and looking for opportunities. Saying it looks like maybe this is an opportunity in terms of buying after this selloff today. Have we had a nice start in terms of September September was absolutely fantastic. Financials were rocketing to the upside technology continues to be a strong spot except f. A. N. G some of those f. A. N. G. Names, especially netflix leading to the down side. But you have to be slelective we have to navigate these difficult times whether you are talking impeachment, trade wars, fed, whatever. Some of the slowdown is something that stands out today. Steph, market was up more than 100, dow was, then this nasty ism manufacturing number market reversed. This is what were talking about. Weak economy getting weaker, at least on the manufacturing side. You have a recession in manufacturing, no question ab t manufacturing. No question about it. Honestly, the manufacturing numbers were ugly. But we have been seeing a slowdown since last january in manufacturing. So its not really a surprise. My biggest question is when does it stabilize we have not seen it stabilize here its not stabilizing in the eurozone it is stabilizing in brazil and in china so its something to watch in the meantime, yes, consumer is still strong. Thats where you want to be for sure i think you want to pick at some of these cyclicals that get beaten down. I like the financials. Housing is quietly making a huge comeback you had pending home stales, the best in 32 months. Permits up 8 . The consumer is doing just fine. Doc, if the data gets worse on the manufacturing front, but the consumer remains okay, can the stock market go up in the Fourth Quarter if that is the dynamic . Well, 70 of the economy is the consumer so were going to focus on the 30 that isnt not me also, judge, i would say look at thor industries. What do these guys make . Air stream rvs or whatever, trailers that you tow behind you. A lot of steel in those things yesterday they came out with earnings the earnings with blowout earnings, the stock jumped from 48ish to 57 still hanging in here over 56 today. Thats both consumer side and impact of the tariffs. Steel prices went up, input costs went up. Yet thor beat all metrics when it came to posting up year over year and what they expected for the quarter. So my answer to you after that longwinded explanation is, yes,s the cyes, the consumer can carry this and most businesses can. Joe, is that true you have 90 days tell me what the next 90 days will hold from stocks. What is the most important thing in that . Sentiment Consumer Sentiment . Business sentiment is no good. Investment sentiment is different from this time last year this time last year we walked into the Fourth Quarter. Everyone had the overattraction to the f. A. N. G. S, tech, growth, what happened . The s p reversed it was up 9 by the end of the Fourth Quarter of 2018 you were down 6 for the year from a sentiment standpoint there is this fear, this caution, that the same thing will happen once again now you walk in this morning, you have an ism manufacturing report that highlights two conditions number one, export orders come in at 41 thats the lowest level since march of 2009. That tells you the value of the u. S. Dollar is too high. Secondarily the employment component of this is awful it suggests on friday the labor report could be weak that ties it back to the consumer. You walk into the Fourth Quarter. You get this you ugly employment report what do you need . The Federal Reserve once again no chatter about whether theyre going to cut or not cut. They have to come in, give the market the cut and liliquidity theres another gentleman who agrees with you. He happens to reside at 1600 pennsylvania avenue. He was tweeting today about the dollar and the fed which has no clue from. The fed has to give liquidity. They have securities, they need to reinvest them that has to be given in the form of a commitment on october 29th. Whatever the number might be, they need to throw out an actual number and tell the market heres what were committing to. Jim, you told me everything matters, begins, middle, end on a trade deal if i dont get a trade deal any time soon, are the next three months in the market shot . Lets define any time soon. You are correct in summarizing how i feel i think its by the end of the year that doesnt mean a signed deal. It means you have to have clearly a road path to resolving this situation its not just the ism. The regional fed surveys have been terrible for the last few months fedex numbers, truck orders. There are cracks forming, albeit in the manufacturing part of our economy, but those cracks will take hold. They are a more coincident indicator. What turns it around the only thing i can see that turns it around is a trade war resolution we will not talk about earnings coming up having an effect its not its all about trade war you have to have a path to it. When . You have 90 days yeah. You just answered the question 90 days. What happens between now and then you need to set a path in place. When does that start it starts next week. Both sides are meeting we knew there wouldnt be a resolution this week, not with the 70th anniversary of the communist party, blah, blah, blah next month theyre meeting we dont need a tweet at the end of next week saying im putting on more tariffs, im getting into a trade war with europe we need our president to have a strategy to end this thing if he doesnt, we will be in recession next year andhe won get reelected you have to get on the path now. Steph, if youre not pessimistic, if you think the consumer will hold up enough to carry the market higher, where are you buying d. R. Horton is a fairly new position for me. I like housing thats the heem theme on housing i think some auto parts sectors, that group has gotten hammered, hammered hard. I like aptive, they are the electronification story within auto and auto parts. I like that theme. I like a lot in consumer like under armour nike had a great quarter i have been trimming mcdonalds, its had an enormous run there was a cautious note on mcdonalds yeah. I dont know if that was warranted. Even home depot. Ive been adding to it, but im holding it mcdonalds, expectations have gotten high. You know who sold mcdonalds . Two seats to your right. I did weve been talking about that for a while. Unfortunately i didnt listen to you when it was 217 and 218, you said trim some up here, now i had to sell some at 209. Too negative on mcdonalds now . No. No lets not say too negativement you sold it,s not me. Neutral there are other places to be in the market that look better. I have not sold lululemon or dunki dunkin. Mcdonalds, certainly the rate of appreciation has slowed down. I will give you anotherppointedy disney is trading. Its universally loved i dont know many have sat on this desk and said no. Why the weakness . Maybe numbers are coming down its competition. The whole sector, if you look at the media sector in general. People want to lump netflix in there and should, but theres competition for the content being distributed, even as everybody comes out with apple tv and disney plus and cbs over the top streaming. No kidding. We knew that thats why the stocks are down you think it was too much euphoria around the new service, pricing. And around the catalog. Its a fabulous catalog, but whats the under knoknown in th . Nothing. We know how popular these disney titles are for kids with disney plus, will parents be subscribing . Of course. But theres a lot of other places that people can go for content. Disney, if you dont have a lot of kids in the house, you dont want to just watch comic book characters in marvel movies if youre not in disney, netflix is not going up at disneys expense netflix was getting hammered we classified disney as best in breed we paid the premium for it im guilty i jumped in like everyone else on that story. Theres some that had you had disney for a long time long time a lot of us got in later on the announcement but we all got in on the theory it was best in breed it was the jpmorgan of the media segmentment what do you think mcdonalds is a great name. But some of these names do get stretched. Mcdonalds is in that category the huge run at disney, it didnt do anything for a long period of time, traded around 100 a bit towards 110, then shot up towards 140 this is the september effect. Theres been a definite rotation we talk about it all the time. The rotation from this area to this area. September, great month for financials maybe it pushed some of these stocks too far not the financials home depot, i love that name im not in it now. Why . I feel its been getting stretched. Ive been selling on those calls to get dividend and create my own dividend yield by selling calls against it there are names out there, one name joe likes a lot but i wonder when this thing slips. It will take one news headline in chipotle. A great name we know they had a fabulous run to the upside. We all love the ceo. Done a magnificent job at some point someone will look at that pe and go hold on. Look at that now . You wonder. They havent done it yet im not in this name are you . Im not heres the problem with the pe, you were nerve buyiver buyi stock. This was a huge stretch from the day that ceo the right ceo, but that pe is stretched. You look across this table who could look at that and not say this stock should be trading 600, not 830. At the same time you cant fight it do you own it back again . I do not. I think the even larger conversation goes back to when did disney peak . Disney peaked july 24th with the rest of these s p growth names scott, you could lump in there mcdonalds, you could lum americlump American Express in there. Walmart might be a little rich i think it is if youre worried about the dollar, youre worried about some multinationals, why did you sell the small caps . Small caps are largely financial orientation. Okay. On that ism best group in september it was, but you have to acknowledge that ism report was bad. Hold on i want to make sure i understand you sold the small caps today based on ism reports absolutely. Tenyear goes from 175 to 161, 14 basis points in one day the lift that the Financial Institutions got in the Third Quarter was largely on the back up in yields from 144 up to 1. 90 ill acknowledge that. Im holding a lot of financials, usb, jpmorgan, added wells fargo, American Express, mastercard, kkr, which is another nightmare in the last couple of days you have to take a look then when you get an ism reading like that and say i have too much exposure now Everybody Loves wells fargo. I like it its a special story i bought it you bought it. Joe bought it. A lot of people said they didnt want to buy it its a very large name in the s p 500 benchmark. A lot of people are underweight. They might own a bit, but theyre underweight. If this new ceo can deliver on anything, on anything, i think the stock can work its almost like a selfhelp story. I realize it will trade with rates, but its a special situation. Its trading 11 times forward. 1. 2 times book its not extreme to me, i think theres more room there. And i actually sold blackstone for it which whaell talk about lat on hold that thought. You want another reason to be optimistic even though the ism number was bad the Market Manufacturing pmi number was great best in five months. So, you know, am i just trying to parse and fine the one thing thats germany. It was good for the first time in five months i mean, we worry about the largest economy in europe, right . We talk about it all the time. But im saying the market pmi was like i say making a turn and it seems to have made that turn rather than just keeping to the down side. In china, numbers were better than expected. In brazil they were better than expected pockets in the world are seeing stabilization. When will we see stabilization i dont know how can we see manufacturing stabilization without a trade deal im not sure you can. The president today again tweets about the fed and the dollar causing weakness for the manufacturing conveniently doesnt mention the trade deal remember that china put in over 100 stimulus programs for the last year and a half eventually you have to think that stimulus will kick in and help thats why youre seeing stabilization. You need a trade war resolution or detente or something for it to start to see growth im looking for stabilization at this point i want to point out, we have a tentative economy. I will call it tentative there is strength in the consumer, its tentative it could crack like it did last Fourth Quarter so im looking for those companies and sectors currently returning cash to shareholders that leads us to the financials and the industrials. Im looking at you, steph, we quite often march in lockstep on this if you can get citi group and Goldman Sachs buying shares back below book value, thats accretive on the Balance Sheet it doesnt mean stocks wont go down Marathon Petroleum is buying shares back at book value, but theyre returning wash cash to s i want to get to the financials again before we bust out to a new topic. Youre telling me they had a great month, so that now the story has turned financials are back. No. I said there was a rotation. The rotation was financials were one of the leadership roles, they were up 7 in september had a nice run across the board. Is it lasting yesterday we had a debate she says you throw out berkshire. Throw it out wells fargo with the new ceo is up 8 . Did you have a nice move out of the financials you sure did. If you look yeartodate many names performed far better than what it sounds like for people at whom who say geez, the financials cant get out of their own way. Fullyear, theyre right its all Interest Rates right now. Sure. You can see it today. I mentioned citigroup and Goldman Sachs earlier. They were both up a per scent earlier today. You get the ism, tenyear yield plummets who will pull back . After you have gone up 7 , 8 across the board, people will say well take some of this off. Yes, youre right it doesnt mean its a bad investment because these companies are generating so much cash and returning it to you its not a great trade its a good investment but not a great trade. Lets talk about the big news today that will impact the way you trade stocks schwab announcing it will end commissions for online trading in u. S. Stocks and etfs beginning october 7th. Options will continue to cost 65 cents per contract there are the major broej rajke getting crushed. Great for the trader great for the person who is doing the trading. You can see what the impact is likely for those companies no surprise by this at all. Interactive brokerages made a move like this last week sofi, merrill its like a race to the bottom its a competitive situation. Whats the shakeout on the other side you have to look at it in terms of trading revenue exposure. Schwab is the ightest, less than 10 the reason Td Ameritrade is down, they are higher, around 25 revenue exposure etrade comes in around 17 . I think the resolution is if you look at etrade and Td Ameritrade, it begets the question is it time for these two companies to merge thats a possibility thats an interesting thought. This sort of thing causes, doc, companies to have a little marriage and if they did, they would have a huge headcount cut. When you look at these versus the competitors, these are the legacy brokers so, people might think they bought this. They bought our old company. Etrade bought trade monster and so forth most of these guys technology, scott, is legacy it causes them to have to have i looked up schwab today, 19,000 employees. Its an awful lot of people moving paper and Everything Else that are going to be, you know none of us are ever happy when someone loses their job. Theres a lot of folks that will be pushed out with this price compression that you just cited. A lot of folks will be hurt by that lets not forget, these are Asset Managers as well thats really their business this is affecting them, but this has been going on for a while now. Zero this. Zero that. Everybody is going to the same spot of zero with options, it might be different. But the rest of it in terms of etfs, vanguard, they have gone to no fee. So is that the biggest deal in the world . No, these guys are Asset Managers they are accumulating assets those with the wiggest tra biggg exposure, theyre getting hammered but you need a steep yield curve. Youre right. I wonder if morgan get beaten up enough to try to diversify away thats something im watching. Well step away for a quick break. Heres whats else is coming up on the Halftime Report. Blackstone shares surging 60 this year. Wells fargo thinks its going higher our desk debates it and the rest of the finals in our call of the day. Plus Venture Capitals now not so secret meeting to warn startups on how they plan to go public Investment Committee is ready to discuss. Plus well be joined by Venture Capitalist Richard Heitzman for farmers here, this is our lifes work. But when a recall happens, perfectly good food goes to waste. Now, weve got away around that. Looks good. Were on target. Blockchain on the ibm cloud helps pinpoint a problem anywhere from farm to shelf. Its used by some of the biggest retailers everywhere. A nice wedge. So more food ends up on your table, is that daddys lettuce . Yeah. And less food goes to waste. Wells fargo getting bullish on black