Closing Bell - Closing Bell 12/29/23

Episode Date: December 29, 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.

All right. Thanks, guys. Happy New Year. Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner today. This make or break hour begins with a quiet close to a booming year on Wall Street. The benchmark S&P 500 wavering just below a record high, but sitting on a near 25 percent gain with an hour of trading left in 2023. The index still has a chance at a ninth straight winning week, a rare display of persistent strength for stocks, even as the small cap Russell 2000 slips, giving up about 1% on the day after a ripping 25% surge since November 1st. Almost everything went right for the markets in the fourth quarter. Oil, inflation and bond yields all falling while unemployment stayed near historic lows and the Fed hinted at policy easing ahead. Which brings us to our talk of the tape. Have investors been over-served with bullish news heading into a new year, raising the risk of a letdown in January?

Or can the rolling celebration of an expected soft economic landing carry on from here? Here to help us answer those questions is Charles Schwab's Kevin Gordon. Kevin, great to see you. Thanks for coming in. Thanks, Mike. Thanks for having me. There's the scene as we enter 2024. I mean, I guess the question is, has the whole economic cycle been refreshed with what the Fed has done, what bond yields have done? You know, the don't fight the Fed, don't fight the tape rules seem like they should be pretty encouraging right here. How do you see it? I would probably lean on the latter. In terms of the economic cycle being refreshed, you know, parts of it haven't. I think in the labor side,

it's probably too soon to declare that you've seen a total, you know, fleshing out of a labor cycle because in many ways, you know, labor has been really the resilient story of this year. What hasn't been as resilient has been everything manufacturing, housing, goods, you know, sort of sentiment related this year and sort of what tipped us into what we've been calling for a while now these rolling recessions. And now we're looking for them to turn into rolling recoveries. The question as you head into 2024 is how much of those are sustainable? Because we had some earlier this year, some sort of hints of recoveries. Those turned out to be head fakes. And then on the flip side, how much of the labor weakness actually comes into play? So I think that the good news about 2024 is that you probably get answers either way in terms of how much monetary policy actually affects the labor market,

whether it is long and variable lags this time that are going to hit or if they don't. If you get to, I would think, past the second quarter and you don't see a material pickup in the unemployment rate, you don't see payrolls go negative, then you could probably start to say and confirm that this cycle is probably the most unique when it comes to the Fed hiking. And so in that framework of rolling recessions and perhaps rolling recoveries, where are we? I mean, what are we waiting for to come back? Manufacturing, really not many signs. ISM indexes still pretty weak. Housing, I guess it's going to respond to rates at some point. Yeah, and that's the rub. With manufacturing, we've really been waiting for this revival.

And it's not as if the ISM manufacturing PMI has been down in the depths of recession territory. It's kind of been muddling along, still in contraction, but definitely not in a well-off expansion. But I think if we're going to take the cue from some of the regional PMIs that have come in, I think the only upside surprise was from one of them, maybe Dallas. But the rest of them, if you were to combine them and then with Chicago out this morning, it's not really that good of a sign for ISM, at least in the near term. But I think the good news for now is that you get a little bit of stabilization where you are right now. And if you start to see more hits to services, but as manufacturing eventually begins to turn, maybe in the first half of next year, that's probably best case scenario.

Maybe that keeps you out of a traditional NBER defined recession. But I would look for those signals because if you were just looking at something like ISM, or if you were just looking at something like the leading economic index from the conference board, you would say, yeah, definitively in a recession. But the unique nature of the cycle is that that's where all of the stress was sort of concentrated as you came out of the pandemic and all of the sort of excess associated on the good side and the housing side. But you've had the offsetting strength from services. So I would keep that dynamic in mind, you know, sentiment versus hard data, manufacturing versus services. You started by saying you would lean on the

latter factors, which would be, you know, don't fight the Fed, don't fight the tape. Now, the market has had a very strong response to what the Fed did and what yields have done in response. Oil, inflation, all the rest of it. Small caps really outperforming, not just small caps, but kind of the average stock catching up a little bit. So a lot of the complaints about an extremely narrow leadership of this market have been answered. Is that something that you would think of as just this little comeback phase and then we're going to go back to normal or, you know, quality has won this year? Basically, any way you slice it, does that continue? You know, in many ways, I think

it's sort of the market's second chance of this broadening out. I mean, this was kind of a lot of the signals we're seeing, whether it's small caps starting to do better, equal weight, outperforming cap weight. These were sort of the tides that had started to shift in midsummer, and then that proved to be a head fake. You had the correction from the end of July into October. So I think it's been a nice little refresh, and in many ways, maybe a better setup for areas like small caps because they took out their bear market low and did something they'd never really done before when you get a year off of a bear market low

like we did in 22, breaking through that low. So in many ways, not only has the valuation picture maybe improved for them because they sold off again, but now that you're getting more clarity on the monetary policy front, the tide seems to be shifting for the Fed and what they're signaling ahead. And also, I think, for the broader economy. I mean, I think that if the Fed is only cutting rates a few times next year and sort of comfortable with the overall growth backdrop, productivity continues to improve, unit labor costs come down, that's sort of a nirvana scenario for the real economy, but also for the market, because it would signal that, you know, this economy can handle a lot more than

maybe a lot of people anticipated. So I would look for that signal as you turn into the year. I mean, sentiment, sure, is a risk. I think, you know, we've been highlighting that for a couple of weeks. It was the same risk on the opposite end that we were talking about, I think, you and I at our impact conference in late October. And that sort of set you up for the rally that you have. But you need a negative catalyst to sort of tip you in that direction. Yeah, it's interesting because, as you allude to, there's a lot of stuff that seems like sentiment has gotten pretty bulled up. Some of the surveys, some of the positioning, some of the flows, things like that. On the other hand, you know, in a bull market, those things are unremarkable. So if we're calling this a bull market, although in a new year, I guess what would you look for to be the thing that trips us up

and exposes the over bullish sentiment? I guess the easy answer is probably some sort of backup in rates because you've had such an extreme negative correlation between bond yields and stock prices, although that's easing a little bit. But if you did get some unexpected surge in rates, whether it's from a hotter inflation report, whether it's from hotter economic data, I'm pretty sure that would probably be a catalyst. But at the same time, this trifecta of you know stronger dollars stronger oil stronger yields that sort of helped tip us tip us into the correction earlier this year that's subsided for now so if you if you expect the dollar to have some sort of resurgence next year I'm not sure where that's coming from I think resilience probably but a move back up to the rate that we saw earlier this year it's

probably unlikely just given where we are with you know the growth trajectory and the overall inflation trajectory. But I would definitely look at that in terms of Senate becoming more of a risk. But as you mentioned, I mean, you look at the breadth setup and the statistics there, it's a lot better than where we were, you know, in the middle part of this year. And if you have a, you know, sort of more resilience under the surface of the market, I think that's a lot better of a setup. Sure. Let's bring in CNBC contributors Bryn Talkington of Requisite Capital Management and Greg Branch of Veritas Financial Group to the conversation. Welcome to you both. And Greg, let's start with you. I mean, how are you viewing things right now into 2024? I know you're expecting a very different 2023. So how is that informed what your current outlook is? Well, I think Kevin hit upon the key points.

And let me first say, before going forward, that I was wrong about 2023. I expected the cycle to play out as normal. I expected a dearth in credit growth, which would considerably slow both business and consumer spending. And we just didn't see that last part play out. And the question, Mike, is not whether we are not going to see it. I guess that would be one answer. But the other alternative is we just haven't seen it yet. And so I do expect, as Kevin indicated, that we're going to see yields go back to an area where we saw them about two months ago. And I expect that because I do expect the economy to continue to plug along in a much better, much more vigorous way than we expected based on rate hikes. If the economy is going to surprise somewhat to the upside or reaccelerate, Greg, is that a because I think the economy will play into neither of the scenarios that the bull narratives are expecting. So there's really two bull narratives right now. There's the narrative that the Fed will cut because they can. And I don't feel like we've done enough progress on inflation. People can continue to see very high, very high services inflation. And I think that all the labor

numbers predict that we will. The other scenario is that the federal cut because they have to, because the economy is slowing to a degree that would force them to reinvigorate. And I don't think that the data points to that either. I mean, when we're getting mid single digits GDP, I don't see a scenario we can paint where the federal have to step in with cuts to reinvigorate the economy. So I think the key here will be the Fed. Much like I said in 2021, I expect that what they said recently, which was very different than what they were saying a few weeks ago, I expect that we'll see a departure from what they said or indicated in the dot plot and what they actually have to do.

Bryn, I know you're also focused on what the market has kind of implicitly taken credit for in terms of what might come next year with this game we've seen in stocks, with where yields are, and I guess with how people are projecting the current environment. So how do you view it? What's priced in and how do you think it'll perhaps be different? Yeah, I mean, what's priced in is the most important question, because you never know what multiple for a company, a sector, an index, the overall market will pay. Just this huge move you've seen simply because rates on the long end have come down. That to me is not sustainable because once the rates have come down, you actually need to have fundamentals catch up. So I do think within that area, that's overblown. But I think what's interesting, Mike, is as you were talking to Greg about the Fed wants the economy to cool or but really the Fed was trying to cool

inflation. And typically you get inflation because the economy is overheating because there's too much lending in the system. But this has been such a unique cycle that wasn't the case. And so we had all of these outside inflationary forces that we've all talked about. But so I can see now that you can see inflation is coming down. So it doesn't necessarily mean that because inflation is coming down because they were for different reasons that you actually have the economy need to cool that much. And so I mean, that to me is the big juxtaposition right now is that how much of the economy do you actually need to cool? Because we didn't have those same ingredients that we have in a traditional tightening cycle. So I still think that people need to look at a different playbook.

We also still have so much fiscal stimulus to me. And that's what I underestimated last year is the trillions and trillions of fiscal stimulus that will continue to make its way through the economy. Whether that's inflationary or not, it hasn't been so far. We'll see. It seems to me, Kevin, that part of the reason the market is celebrated, especially since the December Fed meeting, is that that came right after another encouraging inflation report. And it seemed to release investors to treat good news as good news, because if inflation is doing what we want it to do, growth is OK. And if the Fed is basically saying we no longer feel like we need to get

unemployment much higher to do the job on inflation, that brings up the nirvana 1995 scenario where, hey, guess what? We don't need as much labor market slack as we thought we did. And we can maybe tweak rates lower if not slash. Yeah, I think that's the key. And to the to the point about, you know, when we got the November report for and we started to get, you know, a string of good inflation reports, whether it's CPI or PCE, you start to annualize the data over a three or a six month period. You know, a lot of the core metrics are hovering around two percent, if not lower. And Powell made this really clear in the December meeting. You know, they want to get sort of to the point where they're not restrictive before you break below 2%

for their target. So there is the risk of sort of undershooting, but I don't think that the risk is sort of sitting right in front of us right now. But yeah, I think you need to keep in mind the fact that if you're going to look at a cycle like the 90s, you had wage growth that was relatively strong, kind of in that 5% to 6% range like we have right now, but productivity growth was really strong. Unit labor costs growth had come down. So the whole notion, I think, of real GDP growth sort of getting out of the bag again

and that inherently being a negative thing for the market or the economy, that's just one side of the story. If you have a nice offset of productivity growth that is doing a lot better, which we're pretty bullish on for the long term, and unit labor costs coming down, which they've reversed at a lower at a pretty quick pace, then that's a better backdrop. You don't have to get down to zero to one percent and sit at sub trend growth for GDP in perpetuity in order for the Fed to be happy. And Powell's mentioned all of this.

I think that the signaling they're doing now is sort of looking ahead to what is likely to be the case at some point in the middle of the year where you still have a better productivity backdrop and you probably still have OK economic growth, assuming you don't get more breakage in the labor market. And Greg, what are the ways that you would actually implement in an investment terms what you expect out of the macro here? I mean, what themes or what parts of the market feel as if they're kind of under or over levered to what you expect? So it goes back to something that Kevin was saying. I don't see an identifiable catalyst, a very clear identifiable catalyst in the first couple of months to support my bearish view. And so that means I've had to increase my exposure.

And so as I increase my exposure, I'm looking for things that haven't participated to some degree. I mean, there's really three buckets of things that we've looked at over the last couple of months. There are those things that are benefiting from generational secular tailwinds. Those are the things that were the darlings of 2000 and 23. But they are going to put up relative earnings growth that is stronger than everything else. There might be Microsoft's, theazons, Google's world. But there are those in the second bucket that benefit from those same strong generational tailwinds that haven't participated to the degree that those magnificent seven or nine or whatever you want to call it have. And so cybersecurity is a great example there. Yes, many of them are up 100% or more, but that pales in comparison to some of the clear identifiable catalysts in that AI and cloud ecosystems, even though they participate as well.

But the last category goes to what you're asking, Mike. And so when you look at financials, for example, we're playing this both ways. I do believe that yields will return. Financials haven't really participated in the way that some of these other things have. Yes, we've seen a lot of catch up. Kevin mentioned the Russell 2000 in the month of December. He mentioned the equal weight. And so I think investors, particularly investors like me, who need to increase exposure, are looking for those sectors that haven't participated. You know, like I said, financials, a better net interest margin environment, if I'm right, it will increase. But utilities, if I'm wrong, and we're a rate lowering environment because those dividend streams become much more valuable in a lowering

rate environment. Bryn, you called out the small cap growth, maybe some of the riskier segments of the market, less profitable that have had a run. Maybe that's a move to fade. What about stuff that seems like it still has a little more juice to it? I mean, I think part of it is you have to, you know, stick with your dance party, stick with your dance partner. And I think that NVIDIA will continue to dominate, you know, AMD, which I don't own. But once again, Jensen or Lisa Su, Lisa Su, I think will continue to move into that AI space. And so I think the area where there's strong leadership, especially like Microsoft, NVIDIA, and AMD, those will continue to be outperformers in tech. I also like generally, I mean, covered calls, a strategy wasn't a great

strategy this year because the market was up so much, you kept getting called away. I think 2024 will be a little bit more subdued. So a great time to sell calls against the tech stocks. And I think also putting together an overlay to look for companies with high free cash flow yield, that's going to put you in health care. It's going to put you in like AbbVie, Gilead, Bristol-Myers Energy the same way. So I think you have to be more strategic in picking your spots this year instead of just generally having, let's say, the S&P 500, I think, or the NASDAQ. I think there'll be some other ways and some individual names and some

strategies that outperform that. Yeah, I mean, if NVIDIA adding $800 billion in market cap this year and having its P.E. go down because earnings went up by triple is not a part of a long-term bullish productivity story for the economy. That's a pretty big misallocation of capital, I guess, as it is right here. And Kevin, what about areas of the market that you still would actually look to feel as if they're timely to play going into next year? Yeah, so I'm not sure it's as simple as just look at what didn't do well this year and then add to it. But, you know, if you want to take sort of the optimistic spin on, you know, you had this group of stocks leading the charge this year, although that's kind of faded

because it's not just seven stocks that are up, it's a good chunk of stocks that are up. It's just those from a market cap sense have contributed to a lot of the upside. But if you are sort of a longer term investor or have a longer term time horizon and are looking at areas that provide deeper value, look at small caps that have sold off a lot,

the optimistic point of the performance spread this year would be, yeah, move down the cap spectrum, not to the smallest of the small that can't handle higher rates, because one of the longer term themes from our perspective is that even if we're not in a higher for longer nominal Fed funds rate scenario, it's probably higher for longer in terms of real rates.

I think that's the goal of the Fed. And that's very different from the period that you had from the financial crisis up until the pandemic. So once you start to settle out of hopefully what we've called rolling recessions kind of into a more normalized economy, maybe the market becomes a little bit more normalized, too, and you start to see better participation down the cap spectrum. But to Bryn's point, being strategic and maybe having more of an active mindset, I think makes a lot of sense because even if you saw some of the air come out of those high flyers this year, that puts a little bit more downward pressure on cap-weighted indexes,

and it makes it a little bit harder if you're oriented around that index and not as much if you're oriented around an equal-weighted index. So a way to think about it, but I don't think it needs to be this binary outcome in 2024 where it's the high flyers losing everything at the expense of the rest of the market. I agree. We've gotten so used to thinking of it as a zero sum. And typically, the market doesn't quite act that way for very long. Kevin, Greg, thanks very much. Bryn, we will see you soon in the market zone. And happy New Year to all. All right, let's send it over to Pippa Stevens for a look at the biggest names moving into the close. Hi, Pippa.

Hey, Michael. Lyft and Uber are under pressure today as Nomura downgrades both rideshare stocks. Uber goes to neutral from buy, though analysts raise their price targets $3 to $62 per share. The firm is cutting Lyft to reduce from neutral, saying its growth could be limited due to shrinking market share and low profitability compared to peers. And Fisker is firmly in positive territory after the EV maker said it grew deliveries by over 300 percent from Q3 to Q4. The company cited strong demand for its Ocean SUV and says it will announce a plan to keep the momentum going in January. Shares up almost 20 percent today, but still down 75 percent on the year. Mike? Yeah, up 18 percent to $1.80. All right, Pippa,

thanks so much. We are just getting started. Coming up, an incredible retail run, one name surging nearly 300 percent this year, outperforming all of the mega caps, including NVIDIA's triple digit game. We'll reveal the name and find out how to play the sector in 2024 with one top analyst. We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC. One retail name has been a clear standout this year. Abercrombie & Fitch, handily outperforming its peers, shares up nearly 300%. The retailer even managing to beat out AI darling NVIDIA with its more than 240% gain. Abercrombie is having its best annual performance since going public in 1996 and is the best performer in the S&P 1500 index.

It is a sharp pivot from last year when shares were down 34% for the year. in 1996 and is the best performer in the S&P 1500 index. It is a sharp pivot from last year when shares were down 34% for the year. Abercrombie up about 3 billion in market cap. Nvidia, of course, up 800 billion, but percentage gains don't lie. All right, but Abercrombie, just one example of the strength we have seen in retail with the XRT ETF up about 20% this year.

So can the retail industry's resilience carry forward into 2024? Joining us now is Bernstein's Anisha Sherman to help discuss that. Anisha, great to see you. How are you viewing, I guess, the current state of the consumer and how it is creating winners and losers perhaps in the retail sector? It's very bifurcated. So this year, we saw the kind of stabilization of the low-income consumer who really suffered last year from the rise of inflation, from the rise of food prices, from the rollover of some of the COVID benefits. This year, we've seen more of a stabilization there. What we've seen is the middle-income

consumer is more squeezed and is trading down. So some of the more value retail names have benefited from that, like the off price names. But some of the more middle income stocks like department stores and vertical brands have suffered. So going into 24, I think we'll continue to see some of the trade down. I continue to like value retail. And I also continue to like athletic names and sportswear because they seem to be more resilient and more durable than fashion going into the next year. When you refer to value oriented chains, I guess, are they the standard names that we might expect? Is it the Walmart and Costco's or others? I think it's those. I think it's also the off price names. So TJX, Ross, Burlington.

Five Below has been another one that's outperformed. So any names that kind of focus on that consumer that's squeezed in the middle, that's offering them a better value proposition for holiday, for gifting, and for general purchase than what they might find at a department store. You mentioned athletic. Just to talk about Nike quickly, it's had a really minimal bounce off of that, I guess, sell-off after a pretty disappointing quarter in outlook. How are you viewing the story right now? Because there has been some questioning about whether the growth engine there is intact.

Is it just mostly China? What else might be happening? The sentiment has been so volatile for this one. It went from being a crowded short in September to a very crowded long into results in December. But really, nothing's changed in the story between December 20th and today. And yet the stock's down 11 percent. You know, the H2 guidance was cut, but it was cut about half that amount. So I think it's a little bit of an overreaction because it was such a crowded long and it was a bad setup into the print. I really like Nike into 24. I think the guidance that they set was prudent. I think they have a

good chance of beating it. There's more upside in some of the innovation pushes they're doing and some of the investment they're making into areas like running, women's, Jordan, and there is more upside in any macro improvement in the U.S. and China. So the upside is asymmetrical at this point. And I like Nike into the next year. You mentioned the macro. I mean, it's always tough to really tease out exactly how much is the environment, how much is about the company. But, you know, Lululemon, I guess on their call, they tried to be downbeat, even though they weren't seeing a lot of real evidence of current weakness. What do you think about that name and how it's positioned?

Lululemon is interesting because its core segment is maturing and is slowing down, which is the North America women's apparel segment. That's growing single digits at this point. But Lulu has done a great job putting new things on the map. Men's is growing. Accessories is growing. The China business is growing. You know, things like a belt bag and hiking boots. So they've done a good job continuing to innovate and finding high growth areas to offset the slowdown in their core business. And they've actually done a better job at that than Nike has in the recent year. And you can see that in the Delta and the performance. Right. I guess big picture,

if you sort of draw up the basics, the foundational elements of a retail trade and say we have unemployment under 3 percent, you have wage growth around 4 percent. It seems like you have the makings of a pretty steady spending environment. But then we have the kind of indebtedness in some areas of consumer having credit delinquencies go up. Does this feel like, you know, this vigil for a recessionary type outcome or is it just kind of a downshift? No, I think I'm more optimistic because I think, you know, especially the low income consumer that is really that their spending has really suffered over the last year and a half. They're more stabilizing. And as inflation continues to come down in wage growth, we see another statutory increase coming

in January. So real wages continue to be positive for low income consumers. I think we'll see more resilience there. And the middle income trade down, we're going to see another couple quarters of it and then we start laughing. So I think we see more stability there as well, kind of into the summer and into the second part of the year. So I think it will be a story of more resilience because we're not seeing a big downshift in spending. We're seeing more kind of stabilization and slight growth at this point. Anisha, thanks so much. Appreciate your perspective today. Thanks. All right. Up next, the major averages still in the red, though there has been a little bit of comeback from the intraday lows.

Today has pushed the S&P 500's quest for a new high slightly further away. But we do have one strategist who says history remains on the side of the bulls. He makes his case after this quick break. Stocks recovering a bit, hovering near the flat line for the day as we head toward the close on this final trading day of the year. Joining me now to discuss what is in store for stocks in the year ahead is Ed Klissel, Chief U.S. Strategist at Ned Davis Research. Ed, good to see you. Nice to see you, too. So, you know, we have all these, I guess, patterns we can seize upon. We have a market that looks like it's run a long way in a short period of time, you know, since

November 1st. On the other hand, we're just making about a two year round trip. What's your work telling you to expect, you know, out of stocks given this environment? So we looked at periods where we've gone a long time without making a record high. So we're about 500 trading days from that January 22 record. And it's actually only about six times previously that we've gone this long without that. Then what we did is we looked at cases when there was at least one year in between record highs, 14 cases for the S&P going back to 28. And one year later, actually, the market tended to be up a lot more often than it's not, up 13 or 14 times with an average gain of 13%.

So it's more of a case, Michael, of the market starting a new up leg and it's a technical breakout rather than the market's tired from having to climb all the way back and it's ready to start a new bear market. Right. So it doesn't necessarily tend to treat it as a ceiling being hit. And of course, we've had some growth in earnings. The economy's bigger. We're through a Fed tightening cycle since we had the last record high for the S&P 500 almost two years ago. What else is working either in favor of the market or against it with regard to the macro backdrop? I know we were just talking earlier about the don't fight the Fed, don't fight the tape rules. Seem like they're reasonably encouraging.

I think the biggest is there's been so much consternation about this recession. We've been talking about it for going on three years now. And it looks more and more like the Fed might actually pull this off and achieve a soft landing. And so there is still quite a bit of pessimism out there, though that's been relieved by the strong rally the last couple of months. But I think there are a lot of economists out there looking at some pretty reliable economic data saying there's still risk of a recession. So if the Fed can pull it off, I think there's still room for even more people to come off the sidelines. But I think even a bigger situation is what's going on with interest rates. For the first time in 15, 20 years, the bond market has been a reasonable alternative to the stock market. And the 10-year going from 5% to under 390 in a short period of

time is probably going to pull some people off the sidelines. And if the Fed cuts next year, you could see some people who are parking their money in cash, then maybe putting some of that money into the stock market as well. And in terms of what the Fed might do, and certainly they've hinted that there'll be cuts even if the economy remains OK and the market maybe is over extrapolating that into even deeper cuts. What do we know about how the market tends to behave either leading up to that first cut or thereafter? Because a lot of folks will say you don't actually want the Fed to be cutting because it has to. Well, it does depend on why they're cutting. If they're cutting because

they're going into recession, then it does tend to be pretty weak. And the market does tend to, on average, do poorly about five, six months afterwards. But if there's a soft landing, like we had in 95, like we had in 2018, actually, the market tends to do pretty well. And we're actually tracking from the last hike, which probably was in July. Since then, if you look at other pretty well. And we're actually tracking from the last hike, which probably was in July. Since then, if you look at other soft landing cases, we actually have some catching up to do. And it would support the case for a pretty strong 2024 to catch up just to the average soft landing scenario after that last hike. Interested to hear that you still don't necessarily think small caps are poised to lead in an enduring way here? No, actually, we do favor small caps over large caps. Yeah, we do. Yeah. Now, I would say,

Michael, part of the things we've been talking about is the best part of the cycle for small caps is actually coming out of a recession. As the economy matures, it's really more about large caps. So the economic cycle isn't great. But because small caps have underperformed for so long, they really acted like we were in a recession. There's some room for catch-up for a while. We've had a nice catch-up the last couple of months from small caps. So I think there's maybe some room for small caps to run. But if you're thinking about a really multi-year run in small caps, yeah, maybe it's better coming out of the next recession

than in a mid-to-late economic cycle period. Right. Yeah, that doesn't seem the way the script works usually. Ed, great to see you. I appreciate you coming on today. Thanks for having me. Happy New Year. Happy New Year from Ned Davis Research. Straight ahead, we're tracking the biggest movers as we head into the close. Pippa, standing by with those. Hi, Pippa. Hey, Mike. One group of stocks dropping today, but popping this year. We'll bring you the names right after the break. 18 minutes until the final closing bell of the year.

Let's get a look at some key stocks to watch with Pippa. Hey, Mike. Well, Bitcoin is pulling back a bit today, though it's been a strong year for the cryptocurrency, which is up over 150% year to date. It's still hovering above 42,000 and right around its highest levels since early last year. And it's a similar story with crypto related stocks, including Coinbase. The stock is under pressure in today's pullback, but it's still up almost 400 percent this year and heading for its best quarterly gain on record. Other crypto players like Marathon

Digital, Riot Platforms and MicroStrategy hit hard today, but still closing out the year with more than 300 percent gain. Mike. Thank you. All right. Coming up, Tesla shares stuck in park. The stock sitting out this fourth quarter rally. Shareholder Bryn Talkington is back. She's sizing up the setup ahead of quarterly deliveries next week. Closing bells back after this break. Up next, don't call it a comeback. Unprofitable tech companies staging a rebound this year with one highly shorted stock soaring more than 400%. The name and the details behind that big move when we take you inside the Market Zone. We are now in the closing bell market zone.

Bryn Talkington is back with a look at Tesla as we head into 2024. Scott Wren of Wells Fargo Investment Institute is here to break down the crucial final moment of the trading day and year. But first, we get to Kate Rooney, who has some news on BlackRock and its widely anticipated Bitcoin ETF. Kate. Hey, Mike. So BlackRock just filed an updated S1 for its ETF. It added two authorized participants. First one, Jane Street, the high-frequency trading firm. And then you've got JP Morgan, which some are calling out some of the irony there

based on JP Morgan CEO Jamie Dimon and some of his comments around Bitcoin. There's also an updated S1 from Valkyrie, which has Jane Street as an authorized participant as well. But again, this has been seen in crypto markets and Bitcoin especially as one of the big catalysts for price moves, seen as a potential step forward in some of the administrative side of getting a Bitcoin ETF approved. But BlackRock updating that S1 and it looks like JP Morgan, Jane Street are going to be involved in the back end there. Mike, back to you. Okay, Kate.

So essentially, just so folks understand, when you have an ETF or an exchange traded note or something, you have these middlemen who facilitate the creation of new shares and the redemption, things like that. So I guess, is there a way we can, in any detailed way, understand how quickly this might actually get to market based on this progress? Right. So this is another sort of the back end infrastructure of how this will actually work. You've got to have authorized participants, as you said, to sort of facilitate some of the trading on the back end.

It seems to be another miniature step forward. It's another administrative filing that we've gotten. No clear sense of if it means that it's any closer, but something that they would have had to figure out before getting this to market. It's seen as more of a January timeline based on BlackRock, Valkyrie, as I mentioned. Cathie Wood's arc has something to the work. So there's a variety of different Bitcoin ETF applications out there. No sense of if this particular news means that it's coming any sooner, but it's seen as, all right, they're working on it. They're getting something going. So there's just been a lot of froth and enthusiasm

around it. Also seen as a potential sell the news event. There has been a lot priced into Bitcoin based on this excitement. Yeah. As I've said before, I remember when the oil ETF came, when the gold ETF came, it wasn't quite this level of anticipation. Maybe a slight other piece of ironic news is that Sam Bankman-Fried, of course, used to work at Jane Street. Very good point. It is a big ETF market maker. Kate, thank you so much. Thanks, Mike. Appreciate it.

Bryn, Tesla. Now, of course, the stock has doubled this year, so no tears for the performance. But it has basically been flat in the fourth quarter as the rest of the market has run ahead. Some maybe concerns about overall levels of EV demand out there. How are you viewing the stock right here as it still sits on about an $800 billion market cap? Right. Well, I mean, this year has been a great year. It's up 1,000 percent over the last five years. So it's definitely had a big run. But with companies like that that are this size now, there's metrics that investors want to see. And I think right now it's a margin story.

And that while the U.S., the narrative around the U.S. is that clearly, I believe, people don't want EVs. They want a Tesla or a Rivian because they're fun, good cars to drive. China, though, is another story. China is 60 percent of the market. And really in China, there's lots of different EV makers, but it's really BYD and Tesla that really dominate that market. I do think with the EV credits potentially coming off in the U.S. and the competitive nature in China, I think the margin story is weighing on it. And right now, just looking at it technically, it continues to make lower highs. And so I think there's going to be some downward pressure on that over the next couple of quarters. And so that can be a good opportunity for investors because technically

it doesn't look good. And I think the margins right now will continue to have some pressure on the name. It's interesting. You mentioned the five year massive thousand percent gain over three years. It's about flat. So that just shows you what 2020 and 2021 meant for this step function gain in market cap and people basically embracing the long-term story. Any sense of what the market will need to hear out of the deliveries number? I mean, sometimes it matters a lot. Sometimes it doesn't for the stock. I think for 2024, I mean, if you look at it, they should do 2 million cars, which are really amazing. 2 million EVs. I mean, because you have

obviously the U.S. market, the U.S. automakers are in the single digits. I think we want to hear, the Cybertruck is interesting. I'm not saying it's a novelty, but it's not going to be mass produced and massively driven. You want to hear about the Model The model to per se right in a. Cheaper lower price car that can be mass produced I think that's going to be the next leg higher and obviously the full self driving we all know there's a but there's a. A

bunch of positives and negatives on that to me that's a longer term story that ultimately. Maybe in five years they could start monetizing. Right now it's about let's see a new model. And let's talk about margins. Yeah well Tesla's always been good at promising the next big thing

and working toward it. We'll see if that plays again. Brent, thanks so much. We'll see you again soon. Scott Wren of Wells Fargo here. As we wrap up this year, we're looking at a 24 percent gain or thereabouts on the S&P 500. Sure, it's been a little bit top heavy, but the rest of the market has started to participate. Is it too much too soon or can we now trust this as the trend? Well, Mike, I think there's a couple of problems going on or a couple of potential problems going on. One is I think the market has some upside here because, you know, let's face it, there's 150 or 170 basis points priced in in terms of Fed cuts. We're looking for two, maybe three, something like that. And then also the consensus estimate on earnings, in our opinion, is too high. It's about 245. You're hearing some 250 numbers

out there. We're at 220. So I think right now inflation is going to continue to come off. I think the market is overestimating how soon the Fed's going to cut and how much. And then I think they're also a little overly excited about the earnings growth for next year. Now, 245, I mean, it sounds aggressive, whatever. It's about a 10 percent gain off of what we're going to do in 2023. But if you look at where it's anticipated to come from, a lot of it is just big pharma companies that have massive write downs this year. They're going to probably not have those next year and gain it back. And then you have communication services, which is meta and alphabet. And you have tech, which is Microsoft. So in other

words, it's a lot of stuff that doesn't necessarily seem to rely on the macro economy being wonderful. Yeah, I think those big companies that have good earnings growth, clearly they've had a positive effect not only just on the earnings number, but also on the market as a whole. There has been some broader participation, as you mentioned, a little bit. But for us, if we look out at GDP and I looked yesterday, it looks like the consensus for next year's, you know, 1.4, something like that percent GDP. We're at 0.7. So I think that's part of it as well as the the the just economic growth,

the underlying economic growth is not going to allow a lot of companies in the S&P 500 to really increase earnings to the magnitude that the street expects. So, you know, as we move into the new year, certainly been a great year this year. Only three of 11 sectors have outperformed and they've outperformed dramatically. We don't think that's going to be the case next year. And, you know, if we have a, you know, modest single digit gain, something like that, that wouldn't necessarily be a surprise. But we have a lot of clients calling, asking if next year is going to be like this year. And I think that's probably a pretty low probability of that.

Yeah. I mean, clearly you can't pencil in 20 plus percent every year and many years in a row. Although if you're anticipating for GDP 0.7%, you're basically saying the economy is going to go towards stall speed. Presumably that would mean that the Fed has room to be more active. So is that not going to be a support? Well, I think I think here's the thing. If you look at the Fed's two mandates and that's basically low on unemployment, which let's face it, anything really below 5% historically is pretty low. And so we think the unemployment rate might tick up a little bit here.

But then also inflation, and inflation's moving in the right direction. So I think it's correct to think that the Fed's going to ease a little bit. But if their two mandates are really in line, Is the Fed really going to care that much if GDP is 0.7 or 1 percent? That just helps them keep keep inflation in check or is at least part of keeping inflation in check. So so we don't think that the Fed's going to in a slow growth environment where their two mandates are, you know, checked off, that that's going to give them a lot of enthusiasm by cutting rates, you know, 150 or 175 basis points. Yeah, no doubt they wouldn't relish the need to do that very soon.

Scott, appreciate it. Have a great New Year. Scott Renner, well, as we finish out the year, S&P 500 has regained a little bit of a loss. It's down about two-tenths of one percent at the moment. On a year-to-date basis, we're going to finish with a 24.3 percent gain for the S&P 500, also up four-tenths of a percent for the week. That is the ninth straight weekly gain for the index. That's going to do it for Closing Bell. We'll send it over to Overtime with Morgan Brennan.