Closing Bell - Closing Bell 12/27/23

Episode Date: December 27, 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. A make-or-break hour beginning with stocks on the hunt for new highs and whether Jeremy Siegel thinks we get there and even more. We're going to ask him in just a moment when he joins us right here. Can't wait for that. In the meantime, your scorecard with 60 minutes to go in regulation looks like this. S&P, as I said, within striking distance of a new record close. We do have a new milestone today for the Nasdaq 100, even as several mega

cap tech stocks a bit muted today, including Apple falling even as an appeals court grants a stay in that closely followed watch band story. Interest rates, always a big story, falling slightly on the long end. That's after a decent Treasury action, 10-year 378. Wow. Takes us to our talk of the tape, the road ahead for stocks in the final stretch of the year, and of course, beyond. Let's welcome in Professor Jeremy Siegel of the tape, the road ahead for stocks in the final stretch of the year and, of course, beyond. Let's welcome in Professor Jeremy Siegel of the Wharton School. It's so good to have you back. Let me first wish you a happy new year, healthy one. And I look forward to many conversations with you next year, which will hold.

What do you think for stocks after this incredible run we've had since November 1st? Yeah, I'm still bullish. I think the setup for next year is very good. I, you know, I said January 1st and it was we last January 1st, right before different than consensus that we were going to have 10 to 15 percent. I didn't even expect it to go beyond that. But I think that we could definitely get another 10, 12 percent in 2024. Earnings estimates, you know, usually they're too high going out. I think 240 for the S&P might be too low from some of the things that I am seeing and what is happening. So I, you know, I see and it's a tale of two markets. I mean, the S&P is, yes, 19.5 times earnings,

but value stocks are 14 and 15 times earnings right now. And if we're going to get that soft landing, which looks increasingly likely, that's a real buy in the market, in my opinion. Well, I feel like the bulls are coming out of the woodwork right now, which is concerning to some. Ed Yardeni, for example, 12 reasons why stock investors will see the S&P hit 5,400 in 2024. I'm not going to read you all 12, but among them, consumers have purchasing power, housing going to recover, inflation turning out to be transitory, high-tech

revolution is boosting productivity. What do you make of that number? 5,400 by the end of next year, 6,000 by the end of 25. Well, that's even a little bit above what I think, but it's not impossible. I mean, you know, I've often said that, you know, a lot of people think 15-16 is the right P-E ratio for the market. I've often said it's 19 or 20. And if we're going to get good earnings coming in next year and 2025, you know, enthusiasm can definitely bring this market a lot higher. I mean, the whole implication here, is it not, is that the Fed pulls this off. We have this off landing. The Fed cuts multiple times, maybe a handful, because it can, not because it has to,

because inflation's come down closer to target. And then Jay Powell feels, the Fed chair, feels comfortable enough that they can cut rates because inflation's come down close enough to target. Yeah, and it should cut rates because as inflation goes down, you don't want the real rate, which is the rate they said at Fed funds minus inflation to keep on going up. So you need just to keep the same stance of of tightness. You would want it to go down.

And by the way, I think a lot of people say, you know, the only reason the market could go up is if the Fed actually lowers, you know, tremendously. That's not right. What what was bullish about Jay Powell's December Fed meeting was showing flexibility, saying, listen, if I see a slowdown, I'm lowering rates because the last thing you want to happen is him to be as stubborn on the way down as he was on the way up two years ago. And I think that it's more than whether he lowers rates or not, but he's prepared to lower rates. That is what I think is the great comfort level of the market. The Fed, in a way, has the economies back in 2024 in a way that you weren't so sure of, let's say, three or six months ago.

You're making the argument that's very simple. It's just don't fight the Fed. You just believe that they're your friend again after being a foe. Yeah. I mean, you know, after messing up terribly in terms of keeping rates way too low for way too long, you know, they finally got it. I was worried they got it too hard, but they did stop raising it. But what we have to do, because, you know, I look at liquidity, I look at that money supply, and very honestly, it has been stagnant over the last six, nine months. So why? Well, another reason we have to lower rates is not just to keep the degree of tightness from increasing, but also we've got to get liquidity moving again. We have to get the deposits moving again, bank reserves moving up. In other words, we have to supply 5%, 6% liquidity to get a nominal GDP rising at that rate.

Right now, we've had really no growth in liquidity over the last six or nine months. And that will bite if if he doesn't lower rates. I mean, Goldman says they're going to lower rates five times. That's one of their 10 forecasts for 2024. When do you think the first cut should happen? Well, I think the first cut should happen in March. And I think it really is completely data dependent. And the Fed, as we've talked about, Scott, is completely data dependent.

It depends on what that inflation comes in, what the economy is doing. So they're just, I mean, they're smiling now because basically they say, hey, look at maybe one of the first soft landings on a half a century. So, you know, in a way that they're satisfied with what's happening, but they really are looking at what all the debt is. I think it's impossible to just absolutely predict when that cut will come. But if they see any slowdown, either jobless claims rise, you know, so far, you know, I think Christmas sales were not great, but not disastrous. But if anything accumulates to the downside, basically, Powell says we're ready to lower rates. That's the comfort level of the market. So, Professor, what grade are you going to give

the Fed chair over this stretch? Right. They may have waited too long, but we don't grade at the beginning of the term. We grade at the end of the term. So what do you give him? You know, I've been asked that, you know, should you just give the final and forget everything in the middle? The problem is he caused a lot of inflation. Why are people unhappy? Because we've had 15, 20 percent and more inflation. That's not going away. Remember, we keep on talking about the Fed is not going to bring prices down to 2019 levels. It's just going to stop the bleeding. So in a way, we can't just say I'm just going to grade on the final exam. I'm just going to grade on what I see in the last six or nine months. The Fed, in my opinion, put us through

far more inflation than they should have if they increased rates earlier. I'm not saying we wouldn't have had any inflation. I'm saying we would have had less inflation, less unhappiness, I think, with so many people. When they look back at the last four years, don't forget, a lot of people still have not kept up with inflation. And so in a way, you know, I really can't give him more than a C. A C? And that's only because he's basically done pretty well in the last six to nine months. A C? I mean, how are we grading him on a C if we're having a conversation that they may arguably have pulled off a soft landing without crashing the economy?

And here we have the S&P 500 near a new all-time high. The unemployment rate never went up to what people expected it might. The economy never went down to where people feared it might go. How could he possibly get a C? Well, you know, you're talking about, you know, what's happened recently. How did we get into this situation? I mean, you're saying, you know, here was a reckless driver that mowed down a passenger, and now we're giving

him a name because he got him to the hospital in time so that he didn't die. I mean, I mean, I'm not going to forgive him for getting into this situation just because, OK, he's got us back to a two percent range, you know, sometimes later. You can't forgive the damage that was done from 2020 to 2022. Professor money supply increased incredibly when he never raised rates and put us through that inflation. I'm not suggesting that I'm not suggesting that they didn't wait too long to start raising rates. I mean, I think it's pretty obvious that they did. But we did have that thing called a pandemic. And not to mention, he's not the one who passed the Inflation Reduction Act, which arguably overstimulated an already stimulated consumer.

So don't you give him any passes on that? Well, I don't give him passes because he didn't have to hand the money to the Treasury. Yes, I agree with you 100 percent. The government overstimulated. There were, you know, four packages of almost $10 trillion. The last two or three were unnecessary. But what Powell should have said, hey, guys, you pass those laws, you get the money, go to the bond market right away, you borrow it. Interest rates would have gone up earlier, and we would not have had the inflation that we had. That's what he should have done.

That's what an independent central bank is supposed to do. People are saying right now that they're being too political in what they're trying to do leading into an election year. How would you address that? Well, I think politics is never out of the Fed. However, I do think it's appropriate just on economic basis to lower rates. So I don't see I don't see them lowering rates too much at this point to say, hey, I'm going to try to help the, you know, incumbent administration, you know, how independent they actually stand. Remember, we all remember. And I said this, Scott, many times, the Fed is a

creature of Congress. It was created by Congress. It has to do the bidding of Congress. So you can never separate the political from that. But we had an independent central bank. And that's when the independents back in 2022, Powell should have come in and said, guys, you've overexpanded. You get the money. You that would raise interest rates back then. And I guess I really cannot forgive the Fed for those two and a half years. All right. You're a tough grader. I mean, I know a lot of people who graduated from the Wharton School. I'm going to have to talk to them about what it was like, because that sounds like it was tough, Professor. Let's bring in Cameron Dawson of New Edge Wealth into the conversation.

All right, Cameron, I'm not going to ask you to grade the Fed, because I want to know more of your market view here after this incredible run that we've had and what it means not only for, you know, as we turn the calendar, but more substantially into 2024? Yeah, I think that Professor Siegel's base case of that 10 to 11 percent isn't unreasonable at all because that's effectively saying that we get earnings growth, that earnings going from 24 into 25 of 10 to 11 percent, and then acknowledging the fact that from a market cap weighted basis, you're already at the high end of prior ranges of valuations at 19.8 times. If we look on a forward basis, there's only been two times in history over the last 30 years, meaning that we've been over 20 times, which was during the COVID policy era kind of bubble and then the internet tech bubble. So we don't see a lot of upside to valuations. We think that you could possibly see some upside to earnings growth. We are thinking that there's upside to

GDP estimates for 2024, which could lift earnings estimates, which just means that there could be volatility in trading through the year, depending on where valuations go, depending on where liquidity goes that provides opportunities for additions. But needing to remain disciplined, if things get too exuberant, too overextended, valuations get too high, it could be an opportunity to lighten up. All right, Professor. I mean, Cameron is a student of market history. How do you address the comments about valuation, which you suggest are justified at higher levels? Well, again, I'm going to bring out the two markets. You have the Magnificent Seven selling at, what, 30, 35 times earnings, NASDAQ at 31. And then you have

those other, what, 493 stocks selling at 15, 16. You have mid-cap selling at 12, 13, small-cap selling even lower. You have Europe selling at 12. I mean, I'm not going to go around the world, but really, yeah, when you add in the Magnificent Seven, valuations are on the high end of history. When you take out those seven, which is everything else in the market, I think, given the outlook, they're at the low end of history. Do I want to bet, Cameron, on the seven or the everything else? Because the everything else is outpaced the seven, at least since this rally got turbocharged in the end of October until now. So what does it mean for where we go next? I think you have such a lower bar in the everything else, both on valuation and on earnings, because we do know that the Magnificent Seven really earned its outperformance this year

because earnings were so strong. They do decelerate a lot next year. I do wonder if we're making an everything else argument, are we implicitly making a growth versus value rotation trade argument as well? Because growth has absolutely trounced value this year. A lot of it is because 50% of the growth index is the magnificent seven. And so if we start to see those names give back some of their outperformance or at least not go up as much as the other names, could this be the year that value does a little bit better? We're going into this year balanced between growth versus value, but it's something that we're keeping in the back of our mind, given the distinct outperformance that growth has had over the last year and questioning if it's sustainable. Professor, what do you think?

Is it sustainable? What do you think about this? I think she called it the way what what was amazing about this year is it absolutely reversed almost penny to penny from what happened in 2022, where value outperformed growth by a huge amount. They reversed. And I looked at the two-year, and they're both exactly equal. S&P, Russell value, and Russell growth are just about at zero or plus 1%. So we had a tremendous value surge, 2022, big growth surge, unusual for such a fast turnaround. But now when I look at those relative valuations, I'm saying again, hey, I think it's values turned for 2024. Yes, I think when you say, I think when you say, you know, the other 493 stocks,

you are saying you're betting more on value than growth next year. Well, I mean, it's just because of the makeup of the market. Cameron, of course, all of it comes down to what earnings are going to be. We're not expecting gangbuster earnings growth for fourth quarter numbers, which we get in the middle of January. But they do need to live up to the hype or a lot of what we're talking about is moot. Yeah. And it is interesting that even with this rally we've had over the last couple of months and these feelings of a better economy and having the soft landing, avoiding a recession,

you've actually seen earnings estimates for 24 and 25 get slightly cut. It's not enough cuts to be a bright red flashing light saying, danger, Will Robinson, we have an issue. However, it's something that, to your point, it has to deliver. And I think the other interesting thing is that this year we have seen big upsides to GDP estimates. They started the year at 0.25 percent. They're ending the year for 23 at 2.5 percent. And yet earnings estimates for 23, 24 and 25 have not budged at all. So if we get the better economy than what is currently expecting,

which we do think that there's upside to GDP estimates, does it translate to earnings estimates or are earnings already well calibrated? But Cameron, of all the laggards, right, since we're talking about the everything else trade, and we're going to, I guess, refer to that that way for the time being, which of the everything else that lagged is going to be

the surprising winner or certainly one of them that outperforms in 24. yeah we would look to the three areas that have seen the most outflows from the sectors as kind of fertile ground for picking those everything else winners that would be financials health care and energy because you've seen such huge outflows from those sectors of people giving up on the sectors. And what we're finding in those areas is idiosyncratic stories from an earnings side, but as well not having that high bar of valuations. You contrast that to tech. It's not to say that there's not great opportunities in tech. We've had some great AI catch-up trades that we've benefited from. But we think there you've seen such huge inflows as well as much higher bars on earnings expectations that we just prefer to look in some of the areas for new buys with low bars.

Professor Tom Lee was on with me a week or so ago, said small caps up 50 percent in 2024. The Russell's been amazing of late. What do you make of that prediction? Well, I mean, not impossible. I probably don't think it's going to be that high. But yeah, I mean, what the small caps are selling for 12, 13, 50 percent increase would bring it up to 18 or 19. And that's pretty much where S&P is today. So even with that, and that also means earnings are going to go up because the earnings, listen, I think a lot of those earnings for the small caps were predicated on a recession that they just haven't changed. Oh, my goodness.

It's going to be a recession that they just haven't changed. Oh, my goodness. You know, you know, it's going to be a recession. And those recession hype earnings have just kept on being pushed quarter by quarter forward. If that recession does not materialize, I think the upside is pretty strong in those stocks, to be sure. We'll make that the last word. Happy New Year to you both. I look forward to many more conversations like this one in 2024. Cameron Dawson, Jeremy Siegel, we'll talk to you soon. Thank you, Scott. All right, let's send it over to Christina Partinevelis now for a look at the biggest names moving as we head towards the close. Christina. I'm going to stick with bio themes today because we're going to start out with Iomant's biotherapeutics. It's down about 19,

about 20 percent after the Food and Drug Administration put the company's drug trial for lung cancer therapy on hold after reports that a patient died. Switching gears now to shares of Regeneron. They're about 3% higher, or almost 3% higher after winning a patent infringement suit

against a pharma company, Viatris, over drugs used for macular degeneration. The West Virginia ruling actually came out just right before 2 p.m. So you can see that stock pop that happened right after that. Lastly, shares of biotech firm CytoKinetics are up about 77 percent after posting encouraging data from a late stage trial. It's treatment actually for a form of heart disease. And that's why you can see shares actually 79 percent higher today.

Scott. All right, Christina, thank you. Back to you soon. We're just getting started. Up next, the dose of reality for the health care space today. Former FDA Commissioner Scott Gottlieb sizes up the recent M&A spree in that sector, tells us which companies he thinks could be ready to make the next move and whether any of the deals are actually likely to happen.

That's a big question. We're live in the New York Stock Exchange. You're watching Closing Bell on CNBC. Back in Closing Bell, been a busy week for big pharma, AstraZeneca, Bristol-Myers Squibb, both announcing multi-billion dollar deals in the last 24 hours. Here to break down what this all could mean for the industry is former FDA Commissioner Dr. Scott Gottlieb on the boards of Pfizer and Illumina, also a CNBC contributor. Dr. Gottlieb, great to see you again. Welcome back. Thanks a lot. Thanks for having me.

What to make of this spending spree by Bristol, AbbVie, and Astra? Well, when you look at the deals that got done this year, and certainly the larger deals, the deals that were over $5 billion in valuation, a couple of themes emerged. A number of them, three of them, three of the seven deals that were done that were over $5 billion were done in the neurology field. And four of the seven were in complex formulations, particularly biologics, including the two deals that were done in the last 24 hours. I think the fact that companies are looking to do deals with more complex formulations

and biologicals reflects some influence of the recent policy changes in Washington, where the Inflation Reduction Act is going to impose price controls on pharmaceuticals sold within the Medicare system. And those price controls will be implemented at nine years for small molecules and 13 years for biologicals and complex formulations. And so I think companies are now starting to shift investment capital into those areas and looking for areas in particular where there are formulation challenges and manufacturing challenges that create natural barriers to entry.

So you're not dependent on patents alone. As Washington starts to erode the monopoly conferred by patents, you want to look for other ways to protect franchises. And the dealmaking and the venture capital flows, for that matter, reflect that. Was this a mistake by the government that's led to this? Well, I think it's certainly a mistake to create such a large differential between small molecules and biologicals. That's going to change incentives, and it's going to force people to try to shift capital

into those areas where they can protect their franchise for longer durations of time. The problem is that the CBO doesn't do a really good job of modeling how changes in incentives will change behavior when it comes to flows of investment capital. They never have historically done that. So this was really a blind spot for Congress and for the administration when they crafted this legislation. There was a perception in Washington that the biologicals represented the more innovative side of the industry, and so therefore they wanted to protect it better. But that, I think, was short-sighted. And you're seeing, certainly with the deal-making and the venture capital flows, that change in how people are now starting to use their capital.

I think you're going to start to see it also reflect in pharmaceutical pipelines. They're a little slower to react because of a company's leverage to a particular area of discovery. If it has a good small molecule franchise, they're not going to shut that down overnight. What they're going to change overnight is the kinds of deals they do. And what's also going to change overnight is where venture capital allocates their money. And so they're starting to allocate in places where you have complexity, where you're going to have more protection conferred,

not just because they have 13 years of protection from the price controls, but they're harder to copy once they go generic. If you look at the biologicals, once they become generic and are subject to competition from biosimilars, the price reductions are on the order of 40% versus small molecules, which is 95%. And that's why you see drugs like Humira, which face competition from biosimilars, but still maintain a pretty robust franchise. It's just less competition in these markets. And that's where you're seeing capital flow. Unfortunately, I think consumers are going to lose out, patients and public health, because there's a lot of drug

targets particularly intracellular targets and mental health that just can't be attacked with things like monoclonal antibodies and so you're going to see capital shipped out of those modalities we mentioned the deals and then we say the caveat if they happen from a regulatory environment what's your outlook there well look I'm on the border fires are they close the deal with saddle genetics i think that the companies do have some guidance in some perspective on what deals are able to close if you're certainly investing outside of your core area we don't have any direct competition within your pipeline i think

we're just seeing companies do and people who are contemplating deals and i'm certainly seeing it uh... in some of the conversations I'm having, is impute longer periods of time to close a deal. You know that the FTC is going to have a first and a second review, and you may have to litigate. And so you have to structure these deals to give them a longer time horizon to close the deal. And some of the deals won't get done because of that,

but I think now companies are eyes wide open on what they need to do to get these deals closed, and they're going to start to structure the deals that way. We've made what I think are just such incredible advancements in so many different areas. The last frontier, of course, is the brain. You referenced the number of deals related to neurology. Where are we in this last frontier of substantial drug developments that become as groundbreaking in that area as drugs have become in some of these other areas and issues that people have. Yeah, look, it's the last major organ system that we really haven't figured out the underlying biology of the organ itself until recently. I think that we're getting much better at understanding how diseases in the brain arise,

not just mental health diseases, but also neurodegenerative diseases like Parkinson's and Alzheimer's disease. And you're starting to see major investment capital flow back into that area after a decade when it really came out, when people had a perception that it was hard to drug the brain. Now you're starting to see people make investments back into that space. And the small molecule deals that got done this year, the large ones, the ones over $3 billion, $5 billion, excuse me, we're all in neurology. If you look at the deals over $5 billion, except for neurology, they were all in biologicals and complex formulations.

And so I think you're going to see bids start to get put under assets in that space because it really is a perception that we're about to crack the biology of the brain and yield some fundamentally better therapeutics for patients. When people ask you about the weight loss drugs, the biology of the brain and yields some fundamentally better therapeutics for patients. When people ask you about the weight loss drugs, the obesity drugs, whether the whole space is overhyped or not, how do you answer that? I certainly don't think it's overhyped. I think

that we're going to see data start to accrue showing secondary benefits of these drugs, particularly in cardiovascular disease. There's going to be some important readouts this year. Lilly has data coming out in June that's going to look at whether or not their drug shows the same kinds of advantages that Novo's drug showed in reducing the risk of cardiovascular disease, secondary cardiovascular risks like stroke and heart attack, by use of these weight loss drugs to lower the weight in patients who have cardiovascular risk factors have already been subject to a heart attack or a stroke in previous years. So I think as these studies start to accrue, as we get more readouts, you're going to see substantial benefits from these drugs, not just in reducing weight, but also reducing

the risk of all the diseases that are associated with excessive weight. Novo also is going to have some milestones this year. Their drug, Wegovy, is going to be probably before the FDA, and the FDA will make a decision on that drug, whether or not it's going to expand the label for cardiovascular risk reduction. That's going to be an important milestone, but I think ultimately you're going to start to see other benefits of these drugs, not just in reducing cardiovascular risk, but also things like potentially reducing Alzheimer's, reducing the risk of neurodegenerative diseases and other things that are associated with inflammation and poor glucose control and excessive weight gain.

What would your input be if you were still at the head of the FDA as it relates to Wagovi and that decision you expect to be pretty important? Yeah, look, I'm not close enough to the data. I'm sure FDA is going to look very closely at that. We've seen the studies published. We've seen the readouts. And the data certainly looks convincing. Those patients in that trial were properly treated. They were all on hypertension medications. They were all on statins. They were treated to goal for their other cardiovascular risk factors. And they still showed a substantial reduction in the cardiovascular risk from the weight loss that they achieved from that drug. So being able to reduce cardiovascular risk on top of already optimized therapy, that's

a substantial breakthrough in my view. And it's going to give cardiologists another tool in their armamentarium, a whole new way to try to reduce the risk in patients who face cardiovascular risk from a prior MIS stroke, or even primary prevention in patients who are overweight, who face cardiovascular risk from a prior MIA stroke or even primary prevention in patients who are overweight, who face the risk of a heart attack, a stroke, who haven't yet suffered such an event. Let me lastly ask you about COVID. There's obviously COVID fatigue. There clearly is vaccine fatigue because uptake of the latest has not been great. What can you tell us about this variant that seems to be predominant now,

JN1, and the vaccine about that variant? Yeah, look, it seems to spread more easily. It seems to pierce the immunity that people have acquired from prior infection. The vaccines are partially protective with respect to that new variant. You're right, vaccination rates are low. A lot of people don't have immunity. They haven't had a recent infection and they haven't been vaccinated coming into this year. So they're vulnerable to it. It does not appear to be any more dangerous than prior strains. It's just more contagious. Cases are picking up. We're at about 25,000 hospitalizations right now, concentrated in the Midwest and the Northeast. But we're going to see that spread across the country. And we are going to face a second wave of infection this winter. It's building right now. I don't think it's going to be anything near like the

Omicron wave last winter, but cases will get higher from where we are right now. Dr. Gottlieb, happy new year. You'll be well. We'll see you soon. Thanks a lot. All right. Appreciate your time today, Dr. Scott Gottlieb. Straight ahead, momentum mayhem. NASDAQ 100 looking to lock in its best year since 1999 on the back of outsized gains by each of the MAG7 stocks. Is the tide, though, set to turn for those names in the new year? We're going to ask one top tech investor how he's positioned. We'll do it next. NASDAQ slightly higher. The index fights to stay above the flat line in the final hour of trade today.

My next guest remains bullish on tech heading into the new year, keeping his eye, though, on names outside the MAG7 to outperform the market. Let's bring in King Lip of Baker Avenue Wealth Management. Welcome back. Hi, Scott. How are you? So I'm good, thanks. So which ones are you watching outside of the MAG7? Well, you know, we think Magnificent 7 stocks are going to do fine in 2024, just not at the relative performance that they saw in 2023. We think a lot of there's a lot of mean reversion opportunities.

We think small caps will do well with lower interest rates. We think financial sector would do well. We think even real estate will have a bid in 2024 due to lower interest rates. Does that mean you think there's going to be a rotation out of mega cap into those areas or is this going to be just cash from other areas? I think it's going to be a rotation and I think it's going to be a combination of both cash coming off the sidelines. We saw evidence of that really starting in November. Microsoft for example and shares of Apple have actually

underperformed the market since the end of October, whereas small caps, financials, real estate, a lot of these industries that have underperformed in the past year have started to outperform. Which of the MAG7 do you think is going to be the biggest surprise in terms of gains in 2024? And then I want to ask you, which do you think is going to be the biggest surprise in terms of gains in 2024? And then I want to ask you, which do you think is going to be a big surprise to the downside? That's a good question. I think Meta will actually continue to outperform on the upside as a surprise. I think a lot of the company's AI initiatives are not yet fully recognized by the market.

To the downside, it could be NVIDIA. And the reason why we say NVIDIA is because competition is starting to heat up from the likes of AMD, from companies starting their own AI chip initiatives from Intel, for example. So NVIDIA may be the company that may see some underperformance, if you would. What about Apple? I mean, I think it's fair to say there are still significant questions about the sales growth of that company, even as the stock still is above $3 trillion and it's approaching $200 a share. Yeah, Apple is a name we continue to like. We think perhaps the fastest growth phase in the earnings growth and the fastest phase for the share price appreciation may be past the company without new initiatives.

Some of these new initiatives could be the company's AI, generative AI business, if there is anything sort of materializing. We do think the iPhone next year could be a catalyst as well. I think the refresh cycle is going to be strong. But Apple is getting into some tough conditions with this recent Apple Watch conundrum that they're facing, for example. Who has a better year, Microsoft or Alphabet? Because I think what the narrative was at the beginning of the year is not necessarily what the narrative might be into the new one. I say that for obvious reasons. All the hype around the open AI investment. Everybody just said, well, Microsoft has stolen the thunder from Alphabet

and thus it's not going to give that up. Stock performance year to date has been nearly identical. Alphabet's been trying to catch up, and they've probably been doing a fairly decent job in doing so, and the street remains reasonably optimistic that they continue to do that. But which has a better performance next year and why? We think it's going to be Alphabet. And the reason why we think it's Alphabet, first of all, is because of valuation. On a relative basis, Google's valuation, Alphabet's valuation is actually cheaper than that of

Microsoft's. I think the company's AI initiatives so far hasn't gotten a ton of recognition as much as Microsoft, for example. So out of the two, we do think that it's likely that Alphabet would be having better gains than Microsoft in 2024. King, take care. We'll see you on the other side of the new year. Have a good one. This is King Lit, Baker Avenue. Up next, tracking the biggest movers as we head into the close. Back to Christina Partsenevalos for that. Christina. Well, SoftBank getting a double win today and reports that Tesla is cooking up a new car revamp.

Details right after this short break. We're 15 from the closing bell. Let's get back to Christina Partsenevelos now for the stock she's watching. Christina. Thanks, Scott. Well, Tesla shares are up 1.6% and one of the top S&P 500 winners today after Bloomberg reported the EV giant was gearing up to launch a revamped version of its best-selling Model Y car and Let's switch gears now better late than never right Japanese tech investor SoftBank getting about seven point six billion dollars worth of T-Mobile

Shares after SoftBank sold Sprint to T-Mobile back in 2020 Yes a few years ago SoftBank did agree to give up those shares on conditions that they would get them back if T-Mobile T-Mobile back in 2020. Yes, a few years ago, SoftBank did agree to give up those shares on conditions that they would get them back if T-Mobile shares hit a certain threshold. And of course, that level was hit, which is why they're getting the windfall. And then another win for SoftBank as well. Chip design company Arm hit an all-time high today.

It was, yeah, just above $74, well above the $51 IPO price, which is not even on the screen right now. South Bank owns 90% of ARM, and that's why we care. Scott? Yeah, and that stock's been up a lot lately. Thank you, Christina Partsenevelos. Coming up, the Apple doesn't fall far from the tree. The company's lead iPhone designer reportedly departing to join Johnny Ive

to work on a project with OpenAI's Sam Altman. Those details with Closing Bell comes right back. All right, coming up next, Apple shares bouncing off today's lows. We have new developments in the ongoing legal battle. Over the latest edition of The Watch, we're going to break down those details, what it could mean for investors. That and much more when we take you inside the Market Zone. All right, we're now in the closing bell Market Zone.

Here to break down the crucial moments of this trading day, Emily Rowland of John Hancock Investment Management and Steve Kovach on two developing stories around Apple this afternoon. Emily, I begin with you. I had a conversation top of our program with Professor Jeremy Siegel, who is bullish. I want you to listen to what he told me, and we can talk on the other side. I'm still bullish. I think the setup for next year is very good. I think that we could definitely get another 10, 12 percent in 2024. Earnings estimates, you know, usually they're too high going out. I think 240 for the S&P might be too low. Well, what say you? Yeah, Scott, I heard him saying that earlier. And, you know, I think it's a little bit optimistic, frankly. It's amazing to see what happened this

year. The S&P 500 now, of course, up about 26 percent. That's on zero percent earnings growth. You think about U.S. tech stocks, which have clearly propelled the market higher this year. Their earnings were up five percent. That's not bad. In fact, it's some of the best earnings we've seen across the globe for equities, but their stocks are up 58%. And now you look into next year, analysts are expecting 12% earnings growth, and that's on top of the multiple expansion that we've already seen. So we came in at this year at 16.5 times forward earnings. We're sitting at about 19 times forward earnings right now, which is sort of the ceiling that we're bumping up against that high from over the summer.

So I think there's a lot of optimism that's already baked in the markets. I'm not saying that we can't do OK. We can't chop around here, but we're not starting from a great place. So you think we pulled a lot forward? Yeah, absolutely. You know, it's amazing. I think really markets have rallied not only on the Fed pivot, which has been absolutely critical. The Fed's played a huge role in this, especially over the last month or so with this big 360 from Chair Powell. But you've also seen markets rising on the expectation that we're going to see double digit earnings growth next year. And think about

it. We're going to have less fiscal support. We have a much higher cost of capital. And we still have the lagged impact of the Fed moving from essentially the loosest monetary policy we've seen in four decades to the tightest over the course of 18 months. We still haven't really seen that bite the economy yet. Maybe it doesn't bite it to the way that, you know, it traditionally might because of all the stimulus that was in the system to begin with. Inflation is coming down fast enough that the Fed's actually going to be able to cut rates reasonably quickly and head off that at the pass. Yeah, so that's the narrative now. It's the soft landing narrative. And we've had this incredible fiscal stimulus that's been extended and it's causing these long and variable lags to be super long and variable, for lack of a better word here.

But we still think that that higher cost of capital is going to hurt corporate margin. It's going to cause a lot more cracks in the labor market. And then we'll have to really see how that plays out. The challenge with that soft landing narrative is that it's already baked into the multiple and it's already baked into the earnings estimates. Again, the point that there's a lot of optimism there on the bond side. I think there's some more opportunities here as you've actually seen some value created, not the opposite, which is what we've seen on the equity side. How's it already baked in, though? I mean, I know the market anticipates things, but the Fed hasn't even cut once yet. The economy's hanging in there. What makes you think that all of it's already in the market?

I think I could easily suggest that it's not. Well, I just think the idea that earnings have been flat this year. I mean, look at small caps, for example. They're up 18 percent year to date. We've seen the biggest rally in small cap equities that we've seen in decades over the last couple of months. And their earnings are actually down 17 percent this year. So I think we've completely ignored the fundamentals here. And I think fundamentals are simply going to come back into the picture and play a much bigger role. This Fed pivot party is going on and on. We're all still standing around the party. It's late at night.

There's a lot of risk happening. High-yield bond spreads have collapsed. Bitcoin's rallied. We've seen the VIX at the lowest levels over the course of the year. I'm not saying we can't have a decent year for stocks next year, but we've come a long way really, really quickly on this Fed pivot. And maybe the Fed's not going to cut six times next year. And we've got a little bit of a challenge on our hands.

Emily, Happy New Year. We'll talk to you soon. I'm sure that Emily Rowland, Steve Kovach looking at Apple shares down modestly today. A couple of big stories around the watch and then Mr. Johnny Ive. Hey, Scott. Yeah. So, look, here's what's going on right now with this Apple Watch. They got this kind of stay from the federal appeals court, which they put in that appeal yesterday. Basically, this means they can't be, you know, any kind of legal trouble with the government if they do, in fact, decide to bring those watches back in. It's only till January 10th until some more legal things get figured out. And I just looked on Apple's website and I've asked Apple a couple times today. It's still not on sale

So they're not despite this minor legal win Scott Apple not selling the Apple watch right now in the United States So things are pretty much status quo until like the next beat in this legal drama plays out So what the other story that we're following all day of course is Johnny, Sam Altman, and then the former head of iPhone and watch design. Yeah, that's right. Yeah, so with that, this is really interesting, at least thematically. It's not like OpenAI is poaching folks over from Apple. This one lead Apple designer who was in charge of the iPhone and Apple watch design is now going over to join Johnny Ives' independent design firm called Love From. He started that after he left Apple.

And they're working on some kind of mystery AI product. What that looks like is anyone's guess, but it is so interesting to watch the hottest company in Silicon Valley kind of take Apple's design playbook at a time when Apple was, frankly, bleeding design talent since Johnny Ives' departure about four years ago, Scott. Well, I mean, it is simply because, I mean, Ivan Altman, you know, together along with this other person, who knows? But there's a lot of optimism around it, I guess, for obvious reasons. Steve Kovach, thank you.

I'm going to let you bounce. Downs up triple digits. And the bell's going to start ringing in a minute. They're already clapping. S&P 500 inching closer to a new all-time high. There is the bell.