Closing Bell - Closing Bell 12/21/23

Episode Date: December 21, 2023

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with high-flying stocks. So many names surging lately and questions now about what to do with them. Take some profits or continue buying and believing? We'll ask our experts that question over this final stretch. We'll also take you right up to Nike earnings in overtime. That name is on a one-month tear. Stephanie Link's with us today. She owns it. She'll give you her opinion on what might happen. She's a little nervous, too. In the meantime, your scorecard was 60 minutes to go,

and regulation looks like this. And let's be honest, we're bracing for anything now as we head towards the close. That following what happened late yesterday, so far, so good. As you see, we're green across the board. How about small caps? A standout again, the Russell outperforming. Yields their mix today as we wait for tomorrow

morning's PCE report. That's the Fed's favorite inflation metric. Takes us to our talk of the tape, the state of the rally and whether things have gotten a little too comfortable for investors. Well, let's ask Cameron Dawson, chief investment officer for New Edge Wealth, with me here at Post 9. Welcome back. Are we too complacent? Has things gotten a little too easy? The VIX is now approaching 14 at least. It's not under 12. Yeah. What say you? I think that we're getting close to that level where complacency is a risk, but we're not there yet. We can see in sentiment measures that you are stretched, but you're not extreme. Positioning measures, you're stretched, but you're not extreme. So it means that there's still probably some room for people to get pulled into this market to get even

more joyous into the end of the year. And then we'll have to judge it very closely in 2024 to see if those measures become a risk in and of themselves. Do you think the market's in pretty good position for a pretty good year in 2024? Well, I think a lot depends on the economic outcome. A lot depends on the path of things like liquidity. Liquidity was really powerful for valuation expansion this year. Valuations are up 20% for the S&P 500. They're up over 30% for NASDAQ and tech stocks.

That's unlikely to repeat in 2024. So then we turn our eyes to earnings. And that's where the economic story comes in to say, we have 11, 12 percent earnings growth and consensus right now. Can we deliver on that or is there upside? Do you think we can? Is that is that achievable? Is it a realistic number? It all comes down to that. We're going to have to place our bets. So you're going to push your chips into the middle of the table long before we get the, hey, the economy is just fine,

or the Fed's going to start cutting, right? The market's going to place its bets ahead of that. And I do think that the number of 11% is achievable. The upside to that really comes from two key wildcards. The first one would be productivity. Is there upside to margins from things like AI? That really remains to be seen. We'll watch it closely. And then it's from M&A and IPO activity, more capital market,

capital deployment. The fact that the Fed could be easing rates could enliven animal spirits and allow for more activity in capital deployment as companies feel more confident. That could be that wild card of an upside driver than your downside wild cards or things like recession. What about this broadening of the market? Do you believe that it can continue? And if so, why? I do think that it can continue. But we want to make a big distinction between broadening of names that were quality but just left behind in 23 just because they weren't tech and the names that are low quality that have been rallying lately on this idea of a Fed pivot and lower interest rates, that if you see the Fed not able to deliver on those interest rate cuts or interest rates move higher, those bad balance sheet names would be

most at risk for reversal. So maybe they'll outperform over three months, but likely not outperform over more than that. Can you differentiate those with more specificity for our viewers, like the kinds of stocks you're talking about? Yeah. So what we do is we screen names based on quality factors like free cash flow generation, return on invested capital, as well as balance sheet leverage. So what you've had lately is that a lot of names with the most leverage on the balance sheets going up a lot. Take a name like Boeing. It's rallied 50 percent over the last two months. It's not to say that it's not a, you know, has great drivers because of the global aerospace rebound. However, a lot of it's coming from the fact that it has 58 billion

dollars of debt on its balance sheet and 18 billion of that having to be refinanced in the next three years. So how much of that is about the Fed, not necessarily the company? What about lagging sectors like energy, things that, you know, some think are going to have a rebound year? Do you not? You're laughing, you must not. Well, I think that we're all a little bit bruised from calling for energy to be a great place to be in 2023. And it clearly was not. I think it underperformed energy by nearly 70%. So I think that there is an allure of going overweight energy because it has been so beaten up, but maybe the more out of consensus play is something like REITs where people have tossed those to dead and the charts are actually starting to look a little bit better. What gets us to the point where equities are viewed as the best risk reward asset class?

Because that's been in question over the last 18 months or so. Are we almost at that point? I think the forward returns, the higher we push up in valuations, that they actually lose that crown of being the best risk reward asset class broadly. That doesn't mean that there's still not great opportunity. I think that you have places like in healthcare, for example, that have been beaten up a lot, really lagged the market, where you can start selectively picking. But overall, we have to note that the market is at the very high end of prior ranges of valuations. That's not a good timing tool. It doesn't necessarily mean that they'll underperform over the next year,

but you look out 24 plus months. That typically is consistent with weaker forward returns. I mean, you know why I ask you the question, obviously, because there's a debate over, well, is money going to come out of money markets and into the stock market? Money going to come out of bonds into the stock market? Should money come out of money markets and go into bonds which is a debate as well we think that there is room for money to come out of money markets into the stock market now it's not the whole balance of what's in money markets a lot

of that was in savings prior to it so consider it more as incremental but you can measure and look at aaii stock allocations they're sitting at about 65%. They were 70% back in 2021. So if you're trying to measure how much more can be dragged in, I would watch that measure. All right, let's bring in CNBC contributor Stephanie Link of Hightower into the conversation now. Welcome, Steph. What do you make of some of the things that Cameron said? We don't have to debate Boeing yet, because I know she was mentioning Boeing. I was looking over at you like, uh-oh, uh-oh, pick a fight over Boeing. We don't want to do that. What about the market?

Well, I think you're going to continue to see a melt-up. I think you're seeing massive chase because you have so many portfolio managers that are losing this year relative to their benchmarks. And so I think you're going to continue to see kind of Santa Claus rally into the first quarter of next year. I think the rally can continue because it looks like we are actually achieving a soft landing. All the economic data points to that. Last week, we got better CPI data, better inflation data in general. Scott, as you know, we've gone from nine percent inflation to three percent annualized. Tomorrow, core PCE, big, big number. I think it's going to be fine.

That was last week. This past week, though, really good housing data across the spectrum. You had 18% growth in housing starts, single-family housing starts and permits. Single-family is leading indicator, permits leading indicator. And there's a multiplier effect to housing. So, to me, I think you're going to see better growth. And all of it, coupled with lower inflation and lower interest rates, I think you will see better earnings as a result.

I'll come back to you in two seconds. I do have some breaking news regarding Apple. Our Steve Kovach is joining us with what's happening here that's sending Apple shares lower. Steve? Yes, Scott. So Apple has removed the Apple Watch from its online store on Apple.com. This was expected.

They said earlier this week that because of this patent dispute they had with the health tech company Mossimo, International Trade Commission has ruled that they can't, they have an import ban on these devices. Deadline of Christmas Day. So here it is. You're looking at your screen right now. Currently unavailable. This is only for the Apple Watch Series 9 and Ultra 2.

Those are the two newer watches that have the oxygen sensor or blood oxygen sensor that is at the center of this patent dispute. Now, of course, the Biden administration can come in for a last minute rescue, overturn that ruling and allow Apple to start importing it again. They have until Christmas to decide that. No word yet from the USTR, who is ultimately going to make that decision. But they do have until Christmas. I wouldn't be surprised, Scott, if we heard something from them one way or another by tomorrow afternoon. But look, this is big. I think Morgan Stanley predicted this could impact up to 2% of their revenue

for as long as they have to ban these watches from being sold here. I will also note you can still buy them in-store. So if you go to the Apple retail store, the physical locations, they will be selling them until the end of day Sunday. That's Christmas Eve. And then other third-party retailers like Best Buy or Target or what have you can still sell it as long as they have stock. But, look, they have pulled it from the website. Just another beat here in this big patent dispute story.

The other story of note on Apple today, Steve, and I think you saw that new Barron's cover, which has just dropped. It's out, obviously, this weekend, which is negative. I think you can only suggest that it was the tone was negative, suggesting is the multiple justified. The stock's up 50 and a half percent on the year. And is the trajectory of the stock, along with the multiple, justified for the pace of growth or lack thereof that Apple has exhibited over the last few quarters or so, they argue it's going to be tough for growth to match what the multiple and the performance has been. That is bang on. And that is what everyone's watching. I saw your story on that today on Halftime. You guys were kicking this around. What are the catalysts that

can return Apple to top line revenue growth after that full fiscal year they had four quarters in a row of declining sales? There's a problem with iPhone demand, of course. Having the Apple Watch off the board here in the U.S., its most important market, its most lucrative market, that's going to make it that much tougher for them to return to growth. The Vision Pro also likely going to come out early next year, but that's going to be a niche product, not planning a huge sales push for that, only available in the United States, only available at Apple stores. And of course, $3,500 is going to turn a lot of people off. So it's not that. The one bright spot though, Scott, we're getting some interesting data about the App Store and how that has returned to growth. So

that's good for the services business. But again, more headwinds coming there next year with the European Union putting more restrictions on the App Store, forcing Apple to open it up to other App Stores and other payments. That hurts their margins there, which are already super high within their services business, Scott. Yeah, good points. I appreciate you jumping on with us, Steve. Thanks at Steve Kovach. Any more news, of course, you'll hear from Steve before the end of our program and the bell rings today.

Steph, what about mega caps? The perfect segue for us to talk about that area. Apple's not the only one that's up 50% or better. Your meta is up, Alphabet up a ton. What about these? Well, I like them for the long term. I'm not sure I like them for 2024. And, you know, I have been selling meta. I'm now actually underweight relative to my benchmark. I still want to have a little piece of it because I still like

the story very much long term. But it's extended. It's over. I mean, I know it's cheap on an absolute basis, but it's had such a nice run. I mean, up 185% year to date. Everybody owns it. Everybody loves it. A year ago, I was sitting in this chair and everybody, it was the actual opposite. And you don't really make a ton of money when everyone's on the same side of the boat. And I think everyone is on the same side of the boat with FANG Mega 7 across the board. I like Amazon long-term. That's the bigger position. I like Google kind of. It's more of a market weight position for me. So I want to have a little bit of exposure. I don't want to be overweight these things. You know where I'm overweight. I want to be overweight. Wafer fab equipment recovery,

right? I want to own something that has lagged this year in cybersecurity, which is Fortinet. We talk about those two names all the time. I think the total addressable markets for those two stocks are huge. And there's a lot more upside. The valuations are also, there's more upside there. So I just feel like you want to be a little bit more choosy in mega seven. Does it make you nervous at all that, you know, everybody in quotes seems to love small caps. They love the Russell. We talked about it already. Tom Lee was on with us yesterday, says, I like mega cap, but mega cap's not going to lead next year. It's still going to do really well. It's still going to outperform. But small caps can go up 50 percent. He's super bullish. That's not a big shock. But I want you to listen

to what he told me yesterday. We can kick it on the other side. Valuation isn't really why anyone should ever sell a stock, nor why they should buy a stock. It really should be whether earnings momentum is accelerating. And next year, it looks like capital spending is going to pick up. There's a lot of surveys showing this, and there's a gap between the hard and soft data. So there's a capex cycle. Now, you could juxtapose that against what Eric Johnston, the, you know, King Bear, told me two days ago, sitting in that very seat seat that this hype about earnings is not going to live up to the hype. Lag effects are still going to take effect. And that's why

he remains bearish. So what what side would you sort of lean into? I think that Tom's point about earnings momentum is really important because it raises the question for those mag seven that see their earnings growth go from one hundred and sixty percent this year to twenty six percent next year that's still a lot more than what the S. and P. is going to do but that's a heck of a deceleration I think the question that we have about the earnings forecast really is on the revenue line if you look the street has revenues accelerating next year yet we should have a fairly meaningful

deceleration and nominal GDP growth just because inflation is decelerating. So what does less pricing power? What does a slower top line mean for margins? And thus, is there really that much upside to earnings estimates? What's your reaction, Steph, when you hear Tom talk like that? And I tell you what he said about small caps up 50 percent potentially and 2025 earnings as high as 280 dollars 280 dollars well i do think earnings have a chance to be better than expected and that's because the economy is going to be better than expected i think we can have a two to three percent economy which by the way we have in the fourth in the fourth quarter right now according to atlanta

tracker we can have two to to 3% GDP growth, and we will still see good, solid top line. Margins, I think, are going to hang in there, not necessarily from pricing, but because interest rates are coming down, because inflation is coming down, because input costs are coming down, freight costs are coming down. All of that is very positive. And oh, by the way, maybe they get a little bit of pricing power, but I'm not banking on that, not based on what we just saw. So I do think, I'm not sure it's 280 next year, but I sure do think it's going to upside surprise, especially in the first half of the year, because the economy is going to hang in. And that's why I always refer to the economic data points and the soft landing that we were just, what I just mentioned. In terms of small caps, if you like small caps, you've got to like financials.

That's a big part of the small cap index. I like financials, but I can get Bank of America 0.9 times book value with better transparency, better operating leverage than a small bank, which actually I think some of the small financials, they're going to lose market share to the larger cap. Well, you like Schwab was a new position for you. I do. Recently. Yeah, I added it a couple of weeks ago. I owned it, sold it, made money, and? I do. Recently. Yeah, I added it a couple of weeks ago. I owned it,

sold it, made money, and then I added it again. Because I do think as interest rates come down, maybe as the curve normalizes and maybe it steepens a little bit, we'll have to see. But you're going to see less cash sorting. You're going to see that $6 trillion on the sidelines in money markets come out and go into other parts of the market, other parts of asset allocation. And I think that will help someone like a Schwab, especially since they have the Ameritrade deal. You'll see synergies as well. You know I love debates. So let's just have one about Boeing for a moment. Do you want to retort, rebut anything that Cameron suggested about that stock? And she can

tell us again if we need a refresher. It's all about free cash flow. It's all about free cash flow. Free cash flow is going higher, especially after the Chinese news last night. Deliveries. Deliveries. Well, yeah, right, because we've been waiting for two years for China to open up again.

So that just happened. And now there's a chance that the company can do 5737 maxes a month, which will increase free cash flow substantially. This company is going to do $10 to $12 billion in free cash flow by 2026. I think there's a lot of momentum there. And I think they're also just better executing. And people are still skeptical that they can execute because they didn't. And obviously, I know why the stock did what it did over the last couple of years,

but now they're starting to turn. Yeah, I think for the first time in five years, you actually have the stock price trading above the analyst price. And so all the analysts are chasing this recent move. I think that analysts are rightful to be doubtful and dubious that they can get to that $10 billion just because of the past few years. But I think the other point is, is that a lot of this move, 50% in just two months, is really related to the balance sheet dynamics, which is why it was down so much. So maybe you're at a more reasonable valuation now. You just said something which I think is, I set it up at the top, chasing this recent move. Now you said it about Boeing,

but I could find 200 names probably that have had this incredible recent move. What am I supposed to do with that? Am I supposed to trim some of these winners? Am I supposed to buy and believe, as I said at the top of the program today? Because there are so many stocks that have incredible moves since November 1st. 30, 40, 50, 60, 70 percent. Yeah, I mean, they're overbought. Maybe the mantra is pigs get fat and hogs get slaughtered, which is that don't get greedy. And that if you're looking and re-underwriting the position today at today's valuation, do you still have the same conviction? A lot of names are still trading well off their prior highs, well off prior valuations, which means that there still could be room to run.

But those that have weak fundamentals but are just caught in this everything rally might be an area to trim. Steph, I have to ask you that same question. Fundamentals matter, right? And so even though you've had a lot of companies and stocks broaden out and participate, some of them are still down substantially. We're going to talk about one in a couple of blocks from now that's barely up on the year, even though it's had a huge move off the lows. So I think that you can continue to see a broadening out.

I'm not saying to sell everything tech. It's not that. It's broadening out your portfolio, diversify. There are valuations and very attractive ones to be had. Energy, industrials, financials, discretionary. There's a whole list that we can talk about. Great stuff. And we'll talk more with you, Steph, in the market zone. Cameron, thank you for being here. Good end of year to you. We'll see you on the other side of that, I'm sure. We're just getting started here. Up next, shaking up the mega cap.

CIC Wells' Malcolm Etheridge makes his case for why big tech is set up for another banner year. Plus, he'll reveal two names he thinks should be added to the MAG7. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Let's get back to Steve Kovach, this time taking a look at the biggest names moving into the close. Steve.

Hey, Scott. Yeah, Ford and General Motors are moving higher today thanks to analysts over at Morgan Stanley. The bank is reiterating both stocks as overweight heading into 2024, which is giving a slight bump to both automakers. Morgan Stanley believes both companies can generate strong free cash flow from their internal combustion engine business while also continuing to invest in EVs. And let's stick with autos here. CarMax shares jumping after the company posted an earnings beat for the third quarter. CarMax also said it would reinstate its stock repurchase program, which has the stock moving about 4 percent higher right now this afternoon. I'll send it back over to you, Scott. All right. Back to you shortly. Thank you very much, Steve Kovac. Yet again, the Magnificent Seven up 106 percent this year.

My next guest thinks that the group could add two more names to its ranks in 2024. Let's bring in CNBC contributor Malcolm Etheridge of CIC Wealth to further discuss. Good to see you again. What are the names? Yeah. So to me, AMD and Adobe are those two names that could actually make their way into next year's mag seven or whatever jim kramer decides to call them tell me why yeah so i'm looking at amd and i'm looking at the fact that their mi300 chip has already been validated by the likes of microsoft uh and meta who have already agreed to order the chips as soon as they're ready for delivery which basically says to the rest of the market the rest of the mega caps that their ai uh compute chip is actually ready to take on that of NVIDIA. I won't say that it's actually ready to overtake it the way AMD has come out and claimed. That's not my area of expertise, but I will say at least that it shows that it's comparable. And then on the Adobe side,

I think their creative cloud tool is ready and positioned to actually start to show positive momentum near term, ready to apply across the board with creatives. And Adobe made the really smart choice earlier in the year to lean all the way into AI instead of running away from it, since all of the products that they create are for the creatives that are starting to make noise about the large language models that have scooped up creative works from authors and illustrators and everybody else. Adobe's products are actually now proprietary. All of the images in their text-to-image tool are proprietary to them. So as people look to sharpen their elbows and protect their moat, Adobe's treasure trove of images just becomes that much more attractive. What's the Mag 7 going to do in the new year? Yeah, so I think we're going to have to call it something else.

I think a couple of names are going to fall out of favor. I think potentially Tesla, I think potentially NVIDIA, and you guys just got done talking about Apple. I won't belabor that point. No, no, no, hang on, hang on, because I'm going to ask you about Apple in a minute, but you're telling me NVIDIA is going to fall away from the Magnificent 7 on what basis? I don't say that NVIDIA won't actually still be a growth name, but I think the 3X return that we saw from NVIDIA this year and the return that we expect to see from them, they're going to actually start to seed some ground to names like AMD potentially, maybe even Intel, right? So right

now, NVIDIA is seeing something like a $15 billion year-over-year growth rate in the AI compute space specifically. And I think Intel is something like $3, $3.5 billion. You've got AMD that's something like a billion, billion and a quarter. Those names have a lot of room to run. And NVIDIA has already shown that they're having trouble keeping up with all of the orders that they've been receiving. And so they're going to end up ceding some ground to those competitors, those challengers that I just mentioned, and some other names that we may not even be thinking about yet. I mean, I don't think anybody expects them to have a 200 percent return in 2024. That doesn't necessarily mean that they're going to cede a whole lot of ground to a Broadcom or an AMD. They're going to lose this leadership role that they have in in any way. And thus, you know,

the substantial part of the market cap that has put it in the Magnificent Seven. Well, part of what I'm making this argument for 2024 based on, though, is that I think investors' appetite for AI is going to shift from companies promising growth three, four, five years from now to companies that can prove where the revenue is going to come from in 12 months or less. And so I think NVIDIA is on that list of companies that they've been able to grow market cap, at least solely based on excitement over where they're going to be going three, four or five years down the road. And eventually, as investors make that shift to what have you done for me today? I think NVIDIA starts to seed a little bit of that ground is what I'm what about Apple? I'm sorry. Let's go to Apple. You heard the news from Steve Kovac today. It's not a big surprise, but it seems to be taking shape. Stocks at just

shy of 195. Looks like it's on track for 200 bucks a share. I think Dan Ives yesterday or the day before said 250 is the right number on it. As he reiterates his outperforming, he's not the only bull on it. I mentioned the Barron's cover earlier, which is going to get a lot of people talking as we head into next week. What's your thought? Yeah, I read the Barron's article and it felt almost like I wrote it myself. I think Apple adding something like a trillion dollars of market value in a year where to quote the article, it hasn't actually done anything meaningful since 2016 when we got the AirPods. Right. We haven't seen any major release of a hardware product since then. And Apple's actually managed to go up in market share because it's the

knee-jerk reaction. It's sort of Pavlovian, right? Anytime the market started to get shaky this year, we jumped into Apple and Microsoft as a knee-jerk reaction. I think that that's going to change next year going forward as investors, again, are looking for what are you going to provide me that shows me where you're able to generate revenue today based on what you're selling today. And so for a company that's actually seen decreasing revenue four quarters in a row, I think Apple is going to have to have something magnificent show up in 2024 that once again gets people's attention and makes us say, OK, they're serious once again. So we'll see. I know better than to bet against Apple,

but I just don't feel like it's the party's going to continue solely based on what we're seeing right now. OK, we will see. And we will see you soon. Malcolm, thanks. Malcolm Etheridge, CIC Wealth, joining us from D.C. as you see there. Up next, Miller Family Offices. John Spallanzani is back, tells us how he's managing the recent volatility in the market, what he thinks might be in store for investors in the new year. Just after the break, closing bell right back. All right, we're in green across the board today as we edge towards the close. We're rebounding, obviously, from yesterday's late day selloff. That was the S&P's worst day since September. My next guest, maintaining his bull thesis for the new year, John Spallanzani of the Miller family office,

joins me now with his 2024 playbook. I mean, what a difference 24 hours makes. Yesterday, you graciously called in to try and make sense of what was happening. Here we have a nice little reversal. So let's just cancel each other out these last 24 hours. What's in store for the new year, do you think? I think good things are in store. Right now we have, we obviously have a bull market in the S&P, the NASDAQ. It seems like the Russell just entered a bull market. We have a bull market in bonds that nobody seems to be talking about. And that's globally, as inflation seems to be going down faster than many central banks even anticipated themselves. So every day, not only do we have higher highs in markets, especially here in the United States, but we also see lower yields across the globe.

And that's really what's powering the rally right now. And that'll be a positive going into 2024. You're talking about an everything rally i mean that's what it sure sounds like it feels that way yeah remember right now the fed is at uh five and three eights basically on fed funds and twos are about four and a half and and tens are under four so they have to do a lot of easing just to stay kind of where they are, not even getting into an easier state. So in order to get into an easier state, the Fed would have to cut Fed funds all the way down below the twos and almost 200 basis points, really. So that would be a lot of easing.

And I'm sure Jay Powell does not want to have a soft landing turn into a crash landing going to election year. So that's that's what we're facing right now. But again, you know, break evens are on two percent. So to stay this tight, this is the first time the Fed hiked into a financial crisis like we have with the regional banks in the spring. So that was a big thing. And that was one of the first times they ever did that. So they did a good job getting inflation down. Obviously, supply chain helped a lot with that. It was not the 1970s, as so many people said.

And also, inflation seems to be transitory around the world. Again, we're seeing good numbers in the U.K. Some people, PIMCO said that United Kingdom was going to go into a recession possibly in 2024. So central banks around the world are speaking dovish, and that's good for markets. Yeah. I mean, you don't think we're getting ahead of ourselves in any way about what might happen with these central banks and rate cuts? No, I don't think so. I think basically Powell validated where the market was in the future. So he just basically kind of validated that. And remember, we go back to the super tanking analogy. You know, they can't wait until they see unemployment tick up or some other thing on the horizon that's not what we're seeing going to the data.

They kind of have to react before the data and to get the market back to where the market's pricing. You know, the Fed, they're just basically put themselves in line where the market is. So, you know, again, we spoke in October. If, you know, if the Fed cuts 50 basis points twice, is that four cuts or two cuts? Right. So when they cut, they cut usually in larger increments than when they tighten 25 basis points a shot. And again, you know, where they are staying with inflation falling so precipitously, that makes them even tighter and financial conditions get tighter as

they do nothing. So they're just valid for the market pricing was. And remember, the futures market vacillates a lot because in the easing cycle, they're going to price the future rate hikes to come into the market. So that's why people get so panicked. They go to pricing so much. But in reality, they're not. So that's the other part. I mean, you know what the bear case is, right? There are still bears left. It feels like, you know, some have obviously turned into bulls as the market has ripped. Eric Johnston, for example, Kenner Fitzgerald, he's sort of sticking to his point of view that we're still going to have problems. I want you to listen to what he told me a couple couple days ago and get your response since you're so bullish. Here's what he told me.

I would not be able to come here and say high conviction bullish based on the current multiples, where we are in the cycle, where earnings are, where positioning are. It's just not even close. What I would need is to see either a recession or close to a recession where people think that it's coming. We've got a big growth scare. And the unemployment rate starts to go above 4%, a little bit of a cleansing, and lower prices. How do you counter that?

I think bond guys always want a recession, basically, especially bond salesmen. So that's not a surprise. He's been bearish for quite a long time. I think that, you know, you really have to what are the markets telling me? I don't care what he's saying. I care what global yields are telling me. So global yields right now, again, you know, every every morning we come in, there's a whiteout, which means lower yields are happening across the globe. So the market's telling us something. If we if we say, well, you know, that's just hubris. If I'm going to say, well, I'm not going to listen to what the market's telling me. I'm just going to believe in my mantra.

Then that's problematic, and that's how you lose money. So basically, the trend is your friend. Right now, the trend is up in stocks. We're in a bull market. It just started. The Nasdaq bull market started in March. The S&P bull market started in June. And we're just on the verge of a rustleable market that's just about to happen.

So small caps really like, and mid caps really like, easing conditions by the Fed. A lot of people expected a recession. They were talking about the recession for two years, so I can't believe he's saying that again, that they're still holding their hopes on a recession. Are you suggesting, I mean, because look, let's be honest, it remains to be seen whether earnings are going to live up to the hype, whether we're going to get the cuts we think we are and whether the economy is going to continue to stay out of the mud. Are you suggesting, though, that we could get double digit gains out of the S&P next year? That's what usually happens in bull markets. Good things happen in

bear markets. Bad things happen. So I don't know the expansion that we saw in the breadth from the October lows and into November. You know, we had a huge move in the Russell, but that was kind of like back to even. So it wasn't it wasn't they were trailing the whole year. Everybody's talking about Magnificent Seven and the breadth expansion is actually positive for the whole market. The more stocks that are involved, the better it's going to be for everyone.

So value is obviously favorable in that environment with lowering rates, as well as small and mid-caps, which really have trailed for a long time. You see the equal weight S&P is obviously doing better since the lows in October, November. Well, that's a positive because you had the cap weighted index really taking taking the lead early on. And that's what usually happens in a bull market. Right. You see the best stocks, the most powerful stocks kind of get us to that 20 percent. And then as we go forward, as the bull market ages, you see the rest of the market come out. And that's that's where we are right now. And that's why we see the small and mid doing so much better. You may disagree with Eric,

but just so we're on the level, he's the head of equity derivatives and cross asset. He's not a bond salesman. OK, he said he said that. OK, well, Cantor, Cantor likes bonds. I know that whether they like it or not, I mean, I just want to make sure we're on the level here. All right. Well, yeah, he's a bear and he's been wrong. So let's be on the level where the bulls have been right. And that's that's where we stand. So until he's right and the recession comes, you know, we'll see what happens. We'll see you soon. Thanks, John. Great. All right. That's John Spallanzani joining us up next. We're tracking the biggest movers as we head into the close.

Steve Kovac standing by with that. Steve? Yeah, Scott, hope you're hungry because we got one name behind your favorite falafel bowl and another known for their namesake desserts. Making moves as we head into the close. We'll reveal all those when Closing Bell returns after this. All right, we're 15 from the close. Let's get back now to Steve Kovach for a look at the key stocks he's watching. Hey, Steve. Hey, Scott. Yeah, Kava and Cheesecake Factory getting a boost today as Wedbush analysts upgrading both restaurant chains to outperform. Wedbush believes Kava can overcome incremental headwinds in the coming year. Those analysts also highlighting Cheesecake

Factory's exceptional transaction growth compared to its peers. And outside of food, let's talk about Salesforce trading higher thanks to an upgrade from Morgan Stanley, the firm is raising the software company to overweight as it sees attractive risk reward for Salesforce in 2024. Scott, I appreciate everything today. Steve, thank you very much. Up next, the future Morgan Stanley. As outgoing CEO James Gorman wraps up his tenure as the head of that bank. We have a shareholder ready to size up the impact of the leadership transition, what it might mean for the stock as well. Back after the break. Well, we're less than 15 minutes away from Nike earnings.

We're going to run through the key themes to watch when those results hit the tape and OT when we take you inside the Market Zone next. What was my ambition when I was starting out? Survival. I love the word ambition. Ambition is passion. It's a key ingredient of greatness. To me, ambition is being undaunted by the impossible. I'm ambitious for the nation. I'm ambitious for its people. I'm ambitious for my people. My ambition has always been to seek the truth. To learn as much as I possibly could. To make an impact.

I believe in dreaming big. I always have. My ambition is to show gratitude. Ambition. It's got America written all over it. Ambition really is the foundation of capitalism. I wanted to do great things in this country. My ambition is to do very well in business and to take those profits and recycle back in society to try to make the world a better place. Everything can be a reality.

I see ambition everywhere. In many ways, ambition, human ambition, is what drives the world. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, well, we've got a lot of stuff to talk. Stephanie Link's going to talk about. Stephanie Link's going to talk about Nike. We're going to talk some banks. Mike Santoli, I'll begin with you first. What a difference. What a difference a day makes. Yeah. I guess the conclusion being over the course

of the day, nothing really broke yesterday with that air pocket, that decline, although we are rising right now exactly to the scene of the crime, which was 47.50 in the S&P, 4800 in the S&P futures. So we'll see if there was really anything lasting. I think that the conclusion of, you know, you get to a 52-week high, you lose more than 1 percent. People have gone back through history and said that's not really how major market peaks tend to behave, that type of interplay. So all that, you know, is to the good.

I still think it leaves the question of people have become bulled up. You've got the soft landing now being in the consensus. You've gotten the help from lower treasury yields. So it makes perfect sense for us to back off a little more. But it's not happening in some kind of messy, disorderly way where there's forced selling and sort of machines run amok. No, but, you know, by the dip, we're learning today very clearly is still in play. The Russell got creamed late yesterday, back up 1.5%. NASDAQ was down sharply.

Apple's been down for much of the session. Kovac had the news about the watches. Apple's now green. Mega cap's strong again. It gives you a little idea of the psyche that still exists here. It does. Now, again, you know, it doesn't prove anything. It just does mean that nothing, it didn't change anybody's mind, really, what happened yesterday,

except the idea that we're not going to sleepwalk higher indefinitely. But you're right. Russell 2000 back above the 2000 mark is something that people have been watching for a while. Everybody knows tomorrow begins the sort of seasonally strong year end period, all the rest of it. So, so far, so good. All right. Well, outgoing Morgan Stanley CEO James Gorman telling David Faber earlier today why he thinks we could see more consolidation in asset management. There will unquestionably be consolidation in the asset management space for the next decade. It is one of the last non-consolidated parts of the whole financial

service spectrum. And it is inevitable because scale matters. We, of course, wish Mr. Gorman very well in his next act, whatever that may be, golf or otherwise, as he said on our air today. You own the stock. I do. What do you think about the consolidation? Well, I will tell you, first and foremost, it's been a great stock under him, up 141% since he became CEO. So he's done a great job. I'm not surprised at the comments.

Asset management and wealth management are two areas within financials that the big banks are gravitating towards because they need to diversify. They need to get away from the spread business. You don't get a multiple for spread business, but you will get a multiple for higher growth, more diversification, better ROE. And that's exactly what he has done. Oh, I was going to say that. They've given you the playbook about how valuable that franchise is for their business it's been been the differentiator one of the reasons i actually added to the position uh was because of the e-trade acquisition back in 2020 and i really kind of understood what they were what they were going after but he did such a good job explaining it putting out the strategy and then executing on

the strategy and that's why the stock has done so well relative to other bank stocks in the universe. And arguably, I mean, he was talking about asset management itself. The company also bought Eaton Vance about three years ago. I think you can quibble to say that maybe Morgan overpaid for it, but it did give him more capacity. You know, there's greater scale, and it's an industry that obviously is struggling to grow on its own to some degree in a secular way. Yeah. All right. Nike in OT. You said you told me the other day that you were scared to death going into this.

Those are the words you used. I'm not paraphrasing. Quoting. And that's because the stock is up 37 percent since the end of September. And you've had a number of upgrades. You've had a number of analysts come out and because the stock is up 37% since the end of September. And you've had a number of upgrades. You've had a number of analysts come out and support the stock. Even just yesterday, the number one I.I. analyst at J.P. Morgan raised numbers. So the expectations are quite high. That being said, it's up 4% on the year. I think they're going to probably have flat revenues this quarter.

The big question is what happens to gross margins. And we learned from Costco that when their margins expanded, lower freight, lower input costs really helped them. And in addition, better inventories. A year ago, inventories were up 43 percent. I expect them to be down. That will help markdowns. That will help margins and DTC transition. Now, going forward. I thought you would say China was the most important thing we need to hear for going forward here. Well, I think on the revenue line, China is the question mark. Is it going to grow 10%, 15%? But it's going to grow.

I think it's the margins. Can they... So they're guiding 100 basis points of expansion, but there are whispers at 160 basis points of expansion. The real key is going to be guidance. Second half of the year, can they get back to low double-digit growth in revenues, margin expansion, and all about their new product cycle? So there's a lot of question marks, but I am, yeah, a little nervous. Mike? I mean, the stock, they had a 20% upside surprise last quarter. I

think for like three of the last four quarters, it's been massive upside surprises off of reduced expectations. And then the stock kind of doesn't do a whole lot point to point. So that's been the pattern. All right. So they're cheering a little lot point to point. So that's been the pattern so far. All right, so they're cheering a little bit early, but I guess there's good reason because we look a lot different than we did yesterday at this time. Remember, we went out near 500 points to the downside. The Dow Jones Industrial Average back above 37,400. That's because we're looking at a 326-29, 330-point gain here.

Russell, the outperformer yet again, up 1.5%. Now we've set the stage for Nike in OT. Steph's going to be watching. You know that. Hope all you will be, too tuned with Morgan and John.