Soaring 60 this year. And it just got a huge upgrade. Its our call of the day. The Investment Committee is ready to go. Halftime report starts right now. Good monday. Happy columbus day. Your Investment Committee today is joe, john, jenny harington, mr. Ron, cnbc contributor. And also with us is keith banks, bank of americas vice chairman, head of the Investment Solutions group. Welcome. Safe to say that the friday euphoria over a partial trade deal, socalled phase one may be fading fast. Our sources saying that china wants another round of talks before signing any kind of a deal phase one or otherwise. Secretary mnuchin saying he expects tariffs to go up in december if there is no deal in place with china by then. So guys, thats the big story. The markets doing well. Today not giving it back, but were not doing much. I know the bond markets closed. Take us out where you see things headed im not sure. If the market is not noes honest answer ever. Im under whelmed about the trade deal. I think it needs a lot more work. It does look like it was more of a pr event than a sign of progress thats being made. China came out this morning and said more talks are necessary. Hold the champagne was their quote. They didnt commit publicly to anything the president said they committed to which is agricultural purchases. I dont know that there is anything definitive over the course of four or five weeks. Pen will be put to paper and well see details. So heres the dirty question. Does it mean this is all about fundamentals will earnings matter here . Not just on an individual day trade but matter going forward, will we still have the overhang of the trade guillotine . Will earnings matter . Earnings will ultimately always matter. Earnings can be somewhat confusing. I think on the top line you will see a little struggle here during the earnings season. As far as Revenue Growth you will probably get five percent or six percent. That is probably where the numbers will come in. Some sectors will disappoint. Certainly financials look like they will disappoint. I think the expectations have been lowered and have been lowered just enough to keep the positive momentum going for the market overall. As it relates to the news that we got on friday, truce, that seems to be the word. That seems to be enough. If you are a trader or investor, whatever your focus is, you cannot get too involved in these headli headlines. It is going to disrupt you from what is going on in the markets. And the markets continue to for whatever reason, maybe it is a limited supply of investment vehicles and strong demand. Whatever the reasons are, we continue to see multi assets performing well in 2019. Look at apple as an example. 238. Could be the proxy for the entire u. S. Chinese trad dispute, but yet pressing towards all time highs. Sky wurks solutions has done great, as well. It wouldnt be a show if we didnt have an acronym. M. E. T. E. R. Monetary policy. E is earnings. We can talk about trade in a minute. You believe earnings expectations are a little too negative or pessimistic. Right now we believe the consensus is somewhere between negative two percent and negative four percent. We dont see areas coming in in that manner. We expect earnings to be more flat if not up a little bit. Joe made the point, right now the sentimentin the market is so negative, whether its on trade, whether its on earnings, whether its on the fed. I think what that has done is set us up for nice moves in the market which we saw friday when you get a little bit of positive news. Friday with the trade was a little bit of positive news. We never thought we would get the grand deal. We always said it would be a truce. The one thing you have to recognize, we went from escalation to deescalation, step one in a multiple step process. That was enough to give us a nice pop in the markets. How much of that earnings pessimism comes from energy . Which has just been decimated . The numbers are going to be terrible. I think that is certainly part of it. I think people are expecting the glass is half empty. So i think thats the lens through which most investors are looking at it. We have had continued major negative flows in equities. We think we are setting up for positive news not to mention the fact we think the fed will continue to do what its doing and thats very important, as well. I thought that the statement from the whatever china global times editor where he said break through and he said doing things he basically said dont view our lack of enthusiasm that we are not optimistic, because we are. As soon as that came out, we jumped from negative 10 to unchanged. The messages are almost now as confusing coming out of china as they are from here. That is their main mouth piece. We had hold the champagne, that theyre not going to sign the deal. Kala is reporting that they want to have more talks. Nothing is done. He said they have to have a deal to have a deal. He said the initial reaction is moderate, but that is where we are. That is what we do in china. He said until the ink is on the paper, were not going to pop the champagne. But as soon as he said that we had a quote break through, thats not paraphrasing. That is when the market turned. Thats why there is optimism again. Thats why theyre not erasing the nearly 400 point rally. Last week we sent out our quarterly letter to investors. We realized in the last maybe five letters that we put out, we thought we were nearing the end of a trade war. In this letter we said who knows . All we have seen are threats, retractions, partial implementations. We stood back. That was just last week. That was just last week. It was six months ago, a year ago. I think keith categorizes it well by saying its a slight deescalation. From an investment perspective, were taking a step back and saying like this is noise. Were going to live with noise. We would be foolish to try to predict where its going. You should make your Investment Decisions based on the specific language from a chinese newspaper. It depends. If its the official chinese newspaper then maybe you do. You want to look at those companies that might be most effect effected. Unless the headline is we have a deal, im not sure how much else. We have been talking for months about buying quality, staying with that for a longer run period. It may be a deescalation. The one thing thats still true is that the tariffs are in place. Theyre just not going up. We are still living with tariffs which is suppressing cap x and global manufacturing. If we goat to the point december 15 where tariffs are pointed at consumeroriented goods, you have a different set of problems. You dont live headline to headline. You have to take these things into account. I keep coming back to it. We spent a lot of time talking about it and i know johns brother disagreed with us on what was most relevant. The federal reserve, the liquidity that they told the market that they will give you in q 4, 2019 is a completely different fed versus the fed in 2018 which was hostile in taking the liquidity away. Thats something that cant be lost if you are an investor or trading in the markets. I think the other thing that is important is the strength of the consumer. Outside of the u. S. And now its becoming more imminent here in the united states, but youve got the consumer that remains strong. This week you will get rooetail sales. Is it seven executive months if it is, that continues to suggest the consumer is powering the economy. If we see something very ominous in the rooet sales, to me thats more troubling than the back and forth we are having. If tariffs go up on european goods or china goods, at some point. Those are a lot of ifs. If the consumer is beginning to pull back, that is a concern, but lets get those retail Sales Numbers first. I would say you also have to factor in were finally seeing a fiscal response globally. We saw it in the u. S. , obviously. Now you had china, india, france and were hoping well see something in germany before they not waiting for a recessi recession, but being more proactive. Thats a big shift. That brings a lot more fire power on top of all the monetary easings we have seen all across the globe. That brings potential capital flows to parts of the globe and Asset Classes that have been so distressed and so undesired, emerging markets, emerging Market Equities or debt. Europe. Is europe potentially for a trade investable we are getting back to this debate that i feel like we have probably had for 25 years which is which one i know, exactly. Can the stock market and the economy are not the same thing. Is a quarter basis point going to help mom and pop. If the cost of certain goods comes down, then there is a transmission mecmism. Having said that, with respect to fiscal policy being discussed in germany, they are more worried about the capacity to spend than the ability to spend. The thing that i like about the fed last year to this year is to me i see that as a fed thats responsible and acts accordingly and stays flexible and adjusts to different environments. I love that theyre cutting rates now. I do think that that trickles back. Jp morgan put out an interesting slide that shows Something Like the top 10 of earners spend 63 of their discretionary income. The other 90 spend 101 . If you put a few extra dollars in peoples pockets because their car loans and mortgages are linked to interest rates, that does have a lagging but pretty significant Multiplier Effect on the economy. I think they do effect a positive economy. The other thing we havent talked about is housing. Thats the big thing. People are afraid is the fed pushing on the string . Are we lowering rates and nothing is happening i think housing is the best example. Were seeing significant improvement in the Housing Market its not going to drag dramatically. Was it you . Love it. Rates are going down still. 2018 rates were going up. That was not good for these guys. Then you change that picture 180 degrees right in the First Quarter of 2019 and the Home Builders have been off to the races. Theyre up between 40 and 60 and its the only one that i kind of back off from a little is tol only because its a different animal with the high end. You have a also very exposed to new york with the high end of real estate. We have a 360 something 30year fixed. Its about as cheap as it gets. Prices are up. We are having this discussion again. Its not 2007 right now, but it may be 05. Depends on where we look. Two percent of the population can afford a house based on the actual affordability. I think there are always head winds in the market. There seems to be more head winds or maybe because we talk about them more on a 24 7 basis. If you tell an investor where you are sitting right now, i think people look at the market, they look at investing as almost like an entitlement. You have 20 on the total return. If i fold you we were going to go flat, i will take flat. Thats fine. You have been flat from january in 2018 in different components, different strategies. So ron is right, cyclicals peak in january of 2018. I get that argument. We hear it all the time. People write in were flat for 18 months. Cut it in half, its still ten percent a year. Thats not terrible. Thats only for those just buying the etf. Most of us here do some trading. If youre doing some trading, youre doing much better than that because you were picking up facebook at 1. 25. Do you know anybody who trades or written pobooks on trading . I do. I know guys who give that book away. Follow the smart money. Com. Bank earnings. Im not going to ask you about your own bank. Dont worry. Look at the wall. Look at the logos out there. Low yields, good for housing. Are they bad for banks one thing i cannot comment on are Bank Earnings. Thats why im asking you. Not even generally the industry. When you think of banks you think of value. In the month of september you had the period where value had the best performance. Are you seeing clients are saying i want value wuns again i think what we will start to see is a slow shift maybe even arguably accelerate with all the fiscal and monetary activity going on. If you begin to believe that i think you see a shift. You put the call and you can comment better than i can we have gone to an extreme. As people get more comfortable, we are quietly, the big concern was an inverted yield curve. Global rates have become less negative. Its now minus 40 something. Still minus. Its almost those rates have almost been i dont want to say cut in half, but raised in half relative to where they were. Hopefully you sold out when it was minus 70. Rates are creeping higher around the World Without much discussion. Which takes pressure off our ten year. You see the bund less negative. We always look at these numbers when they come out. Its always trading and the fixed income commodities and currencies that have not been good. John, do you have a view on how trading desks are doing . I dont believe i dont want anybody getting hired. Actual desks. Not the physical desks. This isnt a Herman Miller commercial. Im being funny here. Were talking about all the models are algorithms right now. Thats whats being driven. I think one of the struggles for the big banks is the loss of proprietary trading. Theyre not as active in trading. Ipo business is not good. Thats why i wonder why if you did say you thought earnings expectations might be a little weak. I wonder what would be the argument for better earnings from these companies we highlighted a couple reasons to be nervous . For me it has to be on the lending side, commercial, industrial. You have to see loan growth. I think thats important. You have to see momentum on the Digital Transformation that a lot of these big banks have been spending a lot of money on. Are they getting momentum behind that when you look weve hammered this several times on the show. We havent had a Single Person that comes on except for mike mayo who comes on and raras the banks. They are right in line with the dow, 18 on the year. To joes point, he said i would love to have flat for the rest of the year. Im not saying hes wrong. These 18 is phenomenal for a sector that is hated. When youre seeing two to one utilities valuations versus some of these banks, thats a gift. The fact that they are 18 is pretty telling. Ill give kelly evans a second tease. Hes the financial guy. The Regional Banks have done great. That will be a big interview. The exchange, you guys owe me lunch. Heres what else is coming up on halftime report. Western digital shares surging 60 this year. One firm thinks its going even higher, upgrading the stock to buy. One of our experts owns it and, well debate it in our call of the day. We want to hear from you. Send us your questions. Go to cnbc. Comalimorwe hfte tet us. Halftime report is back in two minutes. 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. It is already working in cities like tokyo. My dream is to help millions more people like me. It is already working in cities like tokyo. I am totally blind. And non24 can make me show up too early. Or too late. Or make me feel like im not really there. Talk to your doctor, and call 8442342424. Western digital. Shares are higher. Loop Capital Markets upgrading it to a buy with a 75 target. The stock is just under 60. You have to do a little pat yourself on the back, because you bought it at 37. We added it this past january. This is one of the rarest occurrences in our portfolio. We bought it a couple years ago when it was trading at about 40. It had a five percent dividend yield. Thing goes crazy, about a year and a half later we sold it. Thats unusual for us. The reason i say this is because i think in this hdd Storage Space people forget that these are real assets and products. Every time you back up your phone, its not going into the cloud. Its traveling through fiber and ending up in a data center. That storage is super valuable. Its never priced at zero. Thats the way these stocks swing and get priced. Because it gets viewed as kmaudatized. There are opportunities when people lose their mind. So when i brought it back in january, it was the same kind of thesis. They think that average selling prices are finally going to firm up. Right. It has a 2 dividend. It was secure three years ago and this past january. Earnings i think are coming in and storage flash is never going to zero. Thats a great trade. What do you say to an investor that says from december of 2014 into 2016, stock went down 60 and then it did it again in 2018. It went down 68 . How does an Investor Trust management that theyve got a degree of control on the Business Model why would i invest i dont think thats on management as much as the investing public who gets wild expectations. I think earnings have been like reasonably in line with what i have expected when i bought it. I think with this, most of my portfolio my intention is to hold a stock. You buy western digital. You sell it if it gets extreme. You have to almost i think you need to be careful with timing. Youre swing trading the stock. Maybe with year and a swings in it. You have to be aware of the fact that it swings. Is it a Better Options trade . I dont do options. I think when you see it on 102 and it is a two percent yield, you have to know its time to sell. Were going to talk about the four etfs. First, your s p sector check. Got two up. Health care and financials. The rest are down. The dow is actually up 16 points. The bond market is closed today. Volume will be light. Were back after this. Make fitness routine with pure protein. High protein. Low sugar. Tastes great high protein. Low sugar. So good high protein. Low sugar. Mmmm, birthday cake pure protein. The best combination for every fitness routine. Welcome back. Here is your cnbc news update. Queen elizabeth making a formal speech to parliament. That speech is used to detail all of the bills the government wants to enact in the coming year. My governments priority has always been to secure the united kingdoms eparture from the European Union on the 31st of october. My government intends to work towards a new partnership with the European Uni