Closing Bell - Closing Bell: A Sign of Something More Serious? 01/18/24

Episode Date: January 18, 2024

Is this still a routine and needed pause after an overheated rally at the end of 2023? Or is the pressure building toward something more serious? Our all-star panel of Solus’ Dan Greenhaus, Virtus�� Joe Terranova and Crossmark’s Victoria Fernandez break down their thoughts. Plus, Doug Clinton from Deepwater Asset Management is bracing for an AI bubble. He explains how this factors into his 2024 tech playbook. And, top technician Jeff DeGraaf thinks it’s time to buy the dip in small caps. He makes his case. And, Humana shares getting hit today. CNBC’s Bertha Coombs reveals what is behind that move. 

And welcome to closing bell on Mike Santoli in for Scott Wapner we begin this make or break hour with stops finding some traction thanks mostly to big tech once again supporting an otherwise somewhat wobbly tape- you see the S. and P.

five hundred up about three quarters of one percent again largely on some of the big tech names and Apple upgrade upbeat results from Taiwan semi they have the Nasdaq up again in the lead more than one percent to the good on the day, while investors elsewhere unsure what to do with the run of pretty solid economic data

that has Treasury yields firm near their five-week highs. The Dow and Russell 2000 getting a modest lift in the past hour or so, with the majority of stocks across the major exchanges still in the red, and that's been a pattern for most of the days of the last couple of weeks. That leads us to our talk of the tape. So is this still a routine and needed pause after an overheated rally at the end of 2023? Or is the pressure building towards something more serious? Here to discuss is Dan Greenhouse of Solus Alternative Asset Management, Joe Terranova of Virtus Investment Partners, and Victoria Fernandez of Crossmark Global Investments. Joe, of course, a CNBC contributor,

and thanks to you all for being here. So, Dan, the S&P 500 is almost literally flat year to date. You know, we're two and a half weeks in. Yep, the majority of stocks have had a pullback. Small caps lost a little bit of their momentum, quite a bit of it, actually. So I don't want to make too much of the fact that we've had some payback after last year's rally. But there is a little bit of a rethink going on. You know, the pace of the economy, is it really hotter than we thought? Inflation expectations ticking a little bit, bond yields testing. Where does that bring us? Listen, I don't think anything is really too surprising. You had a tremendous rally to end the year, as we've discussed on the show ad nauseum.

November, December, one of the strongest end of the year rallies that we've seen in a couple of decades. And with it, some of the economic data that's come out has been stronger than expected. And you've had a backup in yields a little bit at the short end, like let's call it the two year, but more pronounced 25, 23 basis points at the 10-year. And if you told me that was going to happen in this period of time and the stock market as a whole would be, call it, 2%, 3% off its highs, I would take that in the context of the 15, 7% value that we experienced to close the year. Sure. Although, Joe, I mean, every nasty pullback starts as something that feels pretty routine and necessary. And so I just wonder what you'd be looking for to try to figure out if this is going to be a little bit more of a broader reassessment of whether it's

the pace of the economy, whether it's whether the Fed gets friendlier quickly or more slowly, or any of the rest of the factors. So I rely a lot on historical data and the probabilities where a particular quarter might lie in terms of a calendar year. And this quarter has the highest probability to be the weakest quarter of the four quarters in 2024. That doesn't portend that it's going to be a negative quarter. And coming into today, Mike, the clear answer to your question would have been Treasury yields, because it seemed as though the market was afraid of a continued backup in yields. But I have to tell you, the price action, and I think today

is the first day that you could say this, you have to have really strong comfort on a lot of the fundamental conditions that are in place today and how the market and the price action is responding. The market seems OK with a 10 year above four point one. Oh, the market obviously is applauding that. Yes, the economy is in a good place. And it seemed as though we wanted to hear that the economy wasn't in a good place because that, in fact, led to the Federal Reserve coming to the comfort. Just look at the SMH. The SMH at an all-time high. All of us, we've all said chips are the new oil, right? Chips are really what the economy is. The chips are the transports. Well, the economy is doing pretty good if you have semiconductors at an all-time high. So I feel particularly good about the way we've traded today, the resiliency with

some good fundamentals. I thought, wait, I thought data was the new oil, chips were the new railroad. I don't know. We have to figure out exactly what bellwethers we're going to really try to elevate for this modern economy. Victoria, do you think that, I guess, this somewhat cautious start to the year, does it make sense to you? Are you bracing for anything worse? And do you agree that the bond market itself is in a zone where stocks can still be OK? Yeah, well, I think it makes sense that we're in a little bit of a risk off phase here with the markets. Obviously, you guys have talked about the rally that we had at the end of the year. But look, we're repricing Fed expectations, right?

We talked about this at the end of last year, Mike, about how six cuts was way too optimistic. We knew some of that would get priced out. That's why I think you're seeing some of the elevation in the yields. And so I think it's okay for yields to move a little bit higher as the market becomes more aligned with what the Fed expectations are. But you've also got financial conditions index. Look, Goldman Sachs, as we've already seen, a 25 basis point move in that index. You've got geopolitical issues going on. We're repricing earnings, too. I think a lot of people, as we had talked with our clients about over the last

couple of quarters, 12 percent growth expectation is too high. We need to bring that down. And we've seen it come down a little bit and set a little bit of a low bar here but i also think it's important mike to note that i think buyers are on the sidelines a little bit because you've got some money in money markets that is sticky right now you're earning 5 30 5 40 percent on these um holdings there's no rush for people to get into the equity market and i think they're holding back a little bit. Plus you've got the blackout on buybacks that expires in a few weeks maybe that'll be a little bit of a

tailwind to the market there. But how. The consolidation right here makes sense especially when a buying opportunity for the market. When it's in an overall up trend you're looking for around 50% of the names. In order in

the S. and PP to hit 20 day lows right now we're about 36 37 percent of the names so people may be waiting a little bit waiting for a little bit more of a pullback on this revaluation that we're having in the market and then we'll see some maybe positive momentum yeah I mean for sure the index is outside the S&P. You've already seen a little bit of some of those oversold conditions, tactical potential dip buying opportunities in the Russell, things like that start to develop, but maybe not quite a real fat pitch at the moment. I do want to get into the Fed expectations and kind of the, you know, the cash on the sidelines type argument just a little bit. Victoria, you said that maybe six rate cuts,

which is on a given day what's priced into the Fed funds futures curve, is a little optimistic. I would say that's probably pessimistic based on what the economy might have to do to get us there. I also can't find an actual living, breathing human being who is saying, yep, I fully expect six rate cuts. So it seems to be a little bit of an exercise in a what if might happen down the road at the end of the year that might cause the Fed to have to really open up the easing gates as opposed to people investing today's dollar based on that assumption. Yeah, part of the problem here, obviously, the markets were priced to perfection, right? And they had those six expectations and they're based on the dot plot that we had

previously. And they got, you know, the market got ahead of itself. So I think it's repricing that. But where I think some of the misunderstanding is the Fed, in my opinion, is not afraid that they're not restrictive enough at this level. I think they believe they are in restrictive territory. They have said that. I think what the Fed is afraid of is reigniting inflation when you've got potential supply chain issues that are going on because of what we're seeing in the Red Sea and the extra cost that it's costing companies for that. Because the consumer remains resilient, we saw retail sales. The demand is still there. You've got a labor market that is supportive of

that consumer. Even though we're seeing more layoffs being announced, it's still pretty supportive. We saw the weekly jobless claims number today below 200,000. So I think the Fed's fear is that there could be a reigniting of inflation. So they want to take it very slow. Bostick said, look, maybe third quarter of this year. I'm thinking probably at the June meeting where you get a new dot plot, perhaps that's when they start easing a little bit. But that's where the Fed lies right now. And I think the market is making its way to kind of meet the Fed in the middle on this. Yeah, we see what some of what Bostick had to say today. Of course, Atlanta Fed President Raphael Bostick speaking. He says third quarter is his working assumption, but he pulled it forward from the fourth quarter. He's also essentially saying, look, let's not lock ourselves into a certain path right now.

Right. So we have to essentially preserve a little bit of flexibility and see what comes. But it seems like they're pretty confident that inflation is going the right way. This is I'm struggling for the right words to describe how I feel about this conversation. I do find that I have found them. And now I gave you four minutes to come up with the right words. So listen, this idea, I couldn't agree more I have found them. I gave you four minutes to come up with the right words. That was a long time. So listen, this idea, I couldn't agree more with what you said, that there is no living human being who thinks they're going to cut six times.

The market, there's binomial outcomes that get priced into the Fed Funds futures market, which itself is illiquid and you shouldn't really draw too much information from it. But no one thinks they're going to cut six times. And this idea that Fed members keep coming out and telling us they're not going to cut six times as if that's new information. I completely reject that. There's no human being actively trading who thinks they're going to cut six times. I disagree with a whole portion of what Victoria just said, not because it's wrong, per se, but for other reasons. But I will take issue with one specific thing, and that's this idea that there's, quote unquote, cash on the sidelines. First of all, there's no cash on the sidelines. It's always in something. I think we would all

acknowledge that. But more importantly, the amount of money in money markets went straight up the entire time the market went straight up. There was no limit. There was no governor on equity market appreciation because more money was going into the market. And the idea that somehow that money coming out of mutual funds will somehow reignite the market to a degree that we haven't already seen. I would take issue with that as well. Yeah, no, fair enough. But I mean, clearly there is a sense in which you need to have confidence that the economy is going to hang in there and earnings are going to come through, whether that means people take money out of their money market funds or not, whether it means they

just remain invested in stocks and ride it or allow their equity allocations to go higher, Joe. So I think the question really is, whatever the Fed might do and whatever it might do it, can we take heart in the unemployment claims below 200,000 today? Maybe it's a fluke on weather. The retail sales reported yesterday, B of A, saying, actually, maybe it was overstated by seasonal factors. To me, the of A saying, actually, maybe it was overstated by seasonal factors. To me,

the concern would be if you think all of this really encouraging data is a complete head fake and it's actually we're actually decelerating faster and the Fed is not going to be there to catch us. Well, if that is the case, then it's very clear to me that in terms of the way you think about allocating towards risk, specifically equities, that not very much changes from 2023? And I think that's the story so far in 2024. Where is the broadening out of the rally? It's not happening. So far year to date, we have seen an overwhelming desire on the part of investors to stay with quality, to stay with quality. And with quality and those quality names are represented in mega caps and semiconductors and in other areas of the s p sectors as well you can find names it's not just

specific to technology but i think that's clearly the playbook that's going to be in place if in fact we're not going to have the soft landing we're going to have a firm land by the way i wasn't necessarily advocating for that position but i think that is what's in play. Once you finish a year like 2023, Victoria, where you had really huge consensus opinion that, in fact, the soft landing was in hand, we were taking credit for a lot of that. And so anything that sort of deviates from that a little bit maybe raises an alarm. And I wonder, Victoria, what you think that means in terms of the way you would implement a portfolio strategy this year based on some of those unknowns? Yeah, so we were actually out of consensus most of last year. As you well know, we had many conversations about it. We actually think you do get a mild recession or a larger

pullback this year because of some of the things that we already mentioned. And the fact that a lot of those funds that are in short term fixed income instruments are sticky and probably won't roll in to the equity market as much as many people anticipate that they will. So when you look at your portfolio allocation, we want to have some exposure to some defensive names in there. You look at stuff within health care, obviously, We saw Humana come back today because of their announcements that they had. But health care in general, we've seen momentum shift a little bit, see a little bit of an uptrend going there. Cigna's a name we like there. So have some exposure to some of the defensive names, to some staple names and sectors that have come back. But we think you need to broaden it out.

Have some fixed income exposure for income generation, have options in your portfolio to generate income, have absolute return strategies, long and short portfolios. You need to be very tactical when you're going to have volatility in the market. And we think we will have volatility over the next few months until we start to get rate cuts. And then you're heading into an election where you could have some changes in policy. That's just more opportunity for more volatility. Yeah. I mean, obviously, it's always always the hazard out there. Now, Dan, if you look at how credit has behaved through all this, it's one of those touchstones you can just return to and say, if something nasty was in the was was in the works, is it going to sniff it out or not? Because if it's if it would, it's not yet.

Yeah, I mean, we've talked about this in the past in the show. For viewers who don't follow credit regularly, it's important to recognize that at least in the high yield market, which is the area to which people are looking for some signal that something is wrong, that market is more higher quality today than it's been in recent history. There was a big story about the investment grade market and how about half of the investment grade market was its lowest credit rating. The exact opposite is happening in high yield, where about half the market is its highest credit rating. And there are a number of other things to which you can point to illustrate the point. But that all said, no, there is nothing in the high yield market from a spread standpoint or from an EBITDA or a revenue

standpoint that suggests anything other than what the stock market, which is what the stock market is telling us, which is that more or less everything is doing just fine right now. Yeah. And I mean, you even absorbed the usual January flood of new supply. Right. So we keep kind of worrying, Joe, about this idea that, well, people locked in rates, companies locked in rates when rates were near zero and then they're going to have to pay up. It doesn't really seem to be working its way through that quickly. Well, the great refinance is real. And if you observe S&P 500 companies, over 70 percent of those companies have existing debt that will mature beyond the second half of 2025. So it's not a story for 2024. The dislocation that would occur in the credit markets would come

from significant defaults. And I don't know that you have the economic conditions in place right now. You may have them. OK, but right now you certainly don't to suggest we're going to see a significant rise in defaults. To be clear, we have seen some defaults, but they're idiosyncratic. It's Party City. It's Serta. It's a company called Envision Healthcare, Diamond Sports, which had the big headline with Amazon the other day. But these are one-off idiosyncratic issues. There's not a sweeping wave of defaults because the economy is doing something. Getting back to the main point, and Victoria brought it up and we alluded to it, you've got jobless claims at exceedingly low levels, multi-multi-decade

low levels. The retail sales number was very strong. Consumer sentiment is starting to turn up. Gasoline prices are approaching $3. Like, there's a lot of tailwinds coming into this year that are incredibly encouraging. And that's not to say that the Fed's definitely going to stick the landing or there aren't things under the headline that are going to peek their head out. But at least the way that you should approach the investment landscape in the economy entering the year is no different, as Joe said, to how it ended the year, which is more positive than you would have thought. Yeah, there's a troubling element to the defaults real, real quickly. It's got to be in private credit. And just think about the desire, the overwhelming desire for investors to get allocated towards

private credit in 2023. That's where I would be looking towards it. I mean, you're talking about creating the credit problems of five years from now, maybe. Listen, let me add on just on private, like this gets a lot of negative headlines. It's a relatively new class that people are aware of. There's a lot of positives that nobody talks about with respect to private credit. We're not going to get to them now. We'll put the viewers to sleep. Oh, trust me, a lot of people talk about the positives. They're on here all the time talking about why it's a wonderful asset class. Well, what I mean is like beyond it's the golden age of private credit. No, I get it. I get it. And plus, what's interesting, too, is one of the

reasons people think there won't be as much of a default cycle, it's just private credit sitting there looking for one off opportunities to be a potential buffer and a backstop. So, guys, thanks very much. Appreciate it, Dan, Victoria, Joe. We'll see you again in the market zone. Appreciate the conversation. Let's send it over to Kate Rooney now for a look at the biggest names moving into the close. Kate. Hey there, Mike. Yeah, let's start with Spirit Airlines. It's been down double digits today. It's now off around 7 percent, heading for its third major day of losses after that proposed merger with JetBlue was blocked. A judge said a deal would have harmed cost-conscious travelers who

rely on Spirit's low fares. Also, the Wall Street Journal reporting Spirit is exploring possible restructuring options after that JetBlue deal collapsed. And then you got Birkenstock, also a laggard today. The German footwear maker disappointing Wall Street in its first report since going public. Management warned about a 2024 outlook, talked about modest headwinds as the company ramps up spending. Birkenstock reported a loss of about $30 million in the quarter. Still, the CEO says last year was the company's most successful year yet. Says he's optimistic about growth and undeterred by the macro landscape. Mike, back to you. Thank you, Kate. We are just getting started

here. By the way, the index is pretty much at session highs. S&P up about eight tenths of one percent. Up next, time to brace for an AI bubble. That's the message from Deepwater's Doug Clinton. He'll break down how he's playing the tech sector and the names he's betting on right now. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. Taiwan semi-spiking after topping fourth quarter estimates and sharing a bullish 2024 outlook thanks to strength in AI. Our next guest says it's one of the best ways to play a bubble he sees forming. Here to explain is Deepwater Asset Management Managing Partner Doug Clinton. Doug, great to have you on.

So talk about what you mean when you say you believe that we have an AI bubble ahead of us. How is that expected to play out and how would you try to benefit from it? Mike, I think we're in basically 1995 if we comp the AI boom to the dotcom boom in the 2000s. So in our view, we have three to five years of kind of stocks continuing to work higher, those stocks that have AI exposure getting higher and higher multiples. In many cases, I think we'll see higher and higher revenue and earnings as some of these companies build out infrastructure, TSM included. And then we'll get to a peak at some point. That's what happens with every bubble. I think we're three to five years from that. And I think that's where things get hard as an investor. It's always fun to play bubbles on the way up. It's easy to cheerlead, but you need to

find liquidity when mania takes hold in the market. And like I said, I think we're not there yet, even though we've seen companies like NVIDIA run 200 plus percent in the past year. Yeah. And it's interesting because NVIDIA clearly is benefiting from this huge step function increase in revenue and earnings off of this build out of AI capabilities. But it also seems to be benefiting from the fact that it's the one widely acknowledged pure play on this trend. It's so visible in terms of how it's going to benefit there. Does the market lack for other good ways to play this at this point? I think it is hard. I mean, you look at the Mag 7, all of those companies do have real, legitimate AI exposure. They have good products and they will benefit from that. Outside of the

Mag 7, TSM is actually our favorite name. It's our favorite way to play AI. They obviously are the company that fabricates chips for not just NVIDIA, but also AMD. Apple's a customer. And so if you think about AI compute, I mean, we really wouldn't have the AI revolution that's happening right now without TSMC. And when you look at what the stock trades at, it's about 18 times next year's earnings. NVIDIA is around 28. AMD is over 40 now. It feels cheap. Part of that is because they do have geopolitical risk.

But I think part of that is because they just haven't gotten the same credit for their AI exposure. And they did talk a lot about that last night on the call. So I think the market will probably start to recognize that a little bit more from here. Yeah, I mean, I guess it's always a struggle when investors realize one component of a company's business is riding the big trend that everybody wants, but it's kind of diluted by other other areas. I mean, that's arguably what's going on in some of the other semiconductor stocks. I mean, no other semi charts really look like NVIDIA or AMD at this point. That's right.

I'll tell you, from our perspective, one of the toughest things to do is to find sort of smaller mid cap public stocks that have, to your point, really true and significant exposure. So at Deepwater, we invest in both public and private markets. We've been spending a lot of time actually in the private markets where we are finding more companies, particularly in later stage venture, that do have almost all of their revenue, all of their business exposed to AI. Companies like Anduril, who I would argue is the leading defense tech company in the world, they are a leader in AI for military application. And then also companies like Hugging Face, who's really leading, I think, the open source charge in terms of powering developers, enabling them to kind of create their own applications with these many open source models that are now available. On the other end of the spectrum,

Doug, I mean, Apple is getting a little bump today on this upgrade, and it pulled back maybe 10 percent or so from the highs. Not really viewed as being particularly highly geared toward the AI trend. But how do you think about the stock at these levels and and how it might exploit some of what's going on? We still love Apple, the company, and I know my partner, Gene Munster, he has talked a lot about his expectations for Apple and AI this year. We do think that they will talk more about AI throughout the year. And I think in particular, we're looking for a catalyst June at WWDC. It would make a lot of sense if they did perhaps update Siri at that time, or maybe talk a little bit more about their plans for large language

models and how they will integrate AI into their products. From a portfolio perspective, we sort of put our money where our mouth is, though. TSM, Meta, Google for us, I think, are better AI exposure right now, even though we still love Apple as a company. Doug, appreciate the thoughts today. Thank you. Thanks, Mike. All right. As the Dow is up about 200 right now, just around at the highs of the day. Up next, charting big opportunities. Top technician Jeff DeGraff is back.

He'll tell us the one part of the market he would buy on the dip and where he's seeing strength in stocks right now. That's after this quick break. Closing bell. We'll be right back. Welcome back. The small caps are bouncing back from earlier losses, but still underperforming to start the year with the Russell 2000 down nearly 6%. Our next guest sees a bullish setup building in those charts. Jeff DeGraff is the founder and chairman of Renaissance Macro Research.

Jeff, good to see you. You too, Mike. Thanks. Jeff, you referred to kind of buyable weakness in the Russell 2000 this morning. What's the premise of that? And why does it seem as if this backsliding in the smaller stock seems like it's worth trying on the long side? Yeah, I think, you know, we can take this all the way back to the fourth quarter of last year, where we had really impressive and, you know, almost unprecedented breadth in terms of 20-day new highs and just some of these thrust indications that we saw out of the Russell 3000. So obviously

the Russell 2 has to participate in that. So that helps set the stage. Then we had our trend models turn positive in December for the group. And at the same time here, most recently, then we had, you know, our trend models turned positive in December for the group. And at the same time here, most recently, as we kind of got through the calendar effect of the beginning of the year, we're now oversold in our oscillator. So oversold conditions in an uptrend in our oscillator, particularly after we have this, what we call escape velocity with breadth is usually a very, very bullish setup. So, we kind of look at this as a gift, because oftentimes you'll just get a consolidation

without really any type of meaningful price pullback. In this instance, we actually had a decent price pullback. And I would just add, without rambling here, I would just add that a lot of the charts that have pulled back have not structurally damaged themselves at all. They're back to their pivot points. They actually look pretty good.

So it's not as if this weakness, you know, somehow was, you know, through this critical, critical levels that jeopardizes the trend. It all looks very orderly to us. Right. So, I mean, essentially big picture, you say we're playing by bull market rules based on how the market sort of proved itself to a degree last year with those momentum and breadth signals. And what does it mean for the global markets? Because I also am interested that you felt like non-U.S. indexes maybe look a little riper for new money. Well, they're more oversold. So you can make that case.

And you can also make the case that means they're relatively not as strong. So there's a little bit of a yin and yang there, on you know what side of the ball you're on um but all things considered when you look at the strength of the trends uh globally really with the exception of the hang seng which is hong kong and uh in china uh global trends are actually in very very good shape i. I mean, the Japanese chart, which I've been in this business for more than 30 years, Japanese chart hasn't looked good in 30 years since I've been in this business. So it now looks very, very good. So I think it's easier to make a case or to at least have the foundation for a bull market domestically when we see similar patterns and similar trends globally.

And I think that's a big part that, frankly, I don't think enough people are paying attention to. They talk about the U.S. market, but they don't really look outside the U.S. And in many instances, you know, talk about European banks or European REITs, they're actually stronger than what we have here in the States. And those usually bode well for at least a good foundation. It's not just some idiosyncratic move out of the U.S. that we're trying to keep alive and fan the flames. It really is more global in nature.

So there's global heat out there. And I think that's good news for the for the S&P. And obviously, one of the reasons that the U.S. has managed to stand above the rest of the world is the dominance of a big tech, one description or another. Has there been a reason to question whether tech and related stocks remain in a leadership position? Everyone seems to want to bet against the 493 against the Magnificent Seven. Does that make sense? I mean, look, at some point it does, but that's kind of like saying you're one day closer to dying. I mean, you know, that's a true statement, but it doesn't really give you a lot of comfort or information. Look, the relative trends are still good. The data that we look at that gives us some indication of when we want to start fighting those trends,

basically risk-adjusted type of returns, are not so excessive as to suggest that, you know, trees are growing to the sky there. So I'm a little shocked by it, frankly, but the data is the data and still so that there's more there. I think we might get, I mean, if we want to get cute with this, I think if we go back and look at the 1995 parallel, when the Fed cut rates and really kind of engineered the last soft landing, what we had was tech actually did well up until the first rate cut. And then it kind of went by the wayside as other things started to dominate,

like banks as an example. And that might be, I don't think it's the perfect playbook, but that might be a twist here that things are very good as the eyes are on the Fed to cut rates sometime in the spring. When they do, it's very, very much anticipated, and maybe the market actually shifts leadership we're always looking for what's the wrinkle today versus the expectation and that's one that we're

certainly vetting out and continuing to test and look at as we go. Sure did also want to get your view on Boeing the stock up four plus percent today I know it's one that you had sort of flagged again as having maybe been overdone to the downside in the short term. Where does it head from here? Well, the first thing we do is we start with the group, right? So the industry group or the sub-industry group for aerospace and defense is still relatively strong. It's one of the better groups within industrials. So birds of a feather tend to flock together. Forget the pun about it being an aerospace name. But those charts generally are good charts. So we like to look for opportunities within good industry groups. The big huge base really in Boeing kind of coming back from

the the MAX 737 problems that they had obviously was a nice breakout. It looks great. It's in an uptrend and what we really try to do is find names that are oversold in uptrends. We call those optimal entries for our clients and we alert them to those. We started getting some of those signals back last week, but what we really look for is that hook, some type of momentum to say that the downside is being recognized and probably flushed out. I think today is actually a very good example of that. So optimal entry for us in Boeing. It held support, which is essentially 180.

And we think it's going to resume the trend to the upside. Jeff, great to catch up with you. Thanks so much. Thank you. See you later. All right. Up next, we're tracking the biggest movers as we head into the close. Kate Rooney standing by with those. Kate.

Hey, Mike. Yeah, so a pair of calls from Morgan Stanley sending two stocks to charge in opposite directions into the close. We're going to tell you which stock is jumping 8% and which beaten down name is at a four-year low. That's all when we come right back. Less than 20 minutes until the closing bell. S&P up about three quarters of one percent. Let's get back to Kate Rooney for a look at the key stocks to watch. Kate. Hey there, Mark.

Let's, Mark, Mike, Santoli, hey. Hertz, we're going to start with Hertz shares. They're jumping after analyst Morgan Stanley upgraded the stock to overweight the investment firm, cheering on the rental car company's decision to sell about 20,000 electric vehicles from its fleet and says that should help boost the stock. And then you've got Plug Power. It's down after the fuel cell company announced new financing plans. It does plan to raise more than a billion dollars by selling new shares.

And that new round of financing would dilute existing shareholders and would represent a massive part of the company's existing one point five billion dollar market cap. Mike, back over to you. All right. Chris Rooney, thank you. Talk to you soon, Kate. Still ahead, your regional bank rundown. Several reporting earlier with more on deck tomorrow morning. We'll hear from a top analyst with all the key themes and metrics he's watching plus Apple on the rise shares popping more than three percent today. What's sending that stock higher. Closing Bell be right back. up next Humana shares tumbling that stock down more than 10% today, actually 8% right now. We'll see what's weighing on that name and what it might mean for the rest of the insurers.

That and much more when we take you Inside the Market Zone. Tomorrow, Scott Wapner, live from the American Express. Exclusive interviews with the CEOs of American Express, Delta, and more. Coverage throughout the day, tomorrow, only on CNBC. We are now in the closing bell market zone. Virtus' Joe Terranova is back with me to talk the rally in Apple shares, plus Bertha Coombs on why Humana shares are sinking, and RWF-aired senior bank analyst David George as we hone in on the regionals.

Joe, Apple up, let's say, 3.2% right now. It's the biggest upside contributor to the S&P, accounting for about a quarter of the gain. What I find fascinating is, upgrade from B of A today, didn't really tell you a lot that we didn't already know about Apple. What a wonderful company it is that you have this potential upgrade cycle coming. They got the Vision Pro happening and the stock had pulled back 10 percent. So it seemed like it was tactically an interesting call because we pulled back to the 200 day moving

average and it was a well-timed one. Is there anything that gives you a sense that it's going to carry on from there? Because we did also have downgrades based on things we also knew, which is top line's not growing very fast, etc. So we've had three downgrades so far year to date in 2024. And if you look at the 55 analysts that cover Apple, of those 55 analysts, 34 buys, 15 holds, six sells. So 38% of the analysts actually have a hold or sell. If you compare that to the other mega caps, the hold or sell on the other mega caps, 10%. So there was embedded in Apple so far year to date

a degree of skepticism, certainly coming off last year. I think you're right. I think really they didn't tell you anything more than generative AI is coming and we trust Apple to nail it and get it right. Oh, and we've got the Vision Pro coming as well. But it does restart the bullish momentum. It helps out clearly today. You're going to have the Nasdaq closing at its highest level of the year earlier in the year. But what's surprising about that is the 10-year is going to close at the highest level of the year. S&P will come close to the high of the year at 47.83. Let's see if we get there. But it restarts the bullish momentum. Yeah, we are at the high of the day,

and we are right there near the highs of the year for the index. Of course, the all-time high is just slightly above. The high closes 47.83. Exactly. I guess the question is, can we just crank up the same trade? You mentioned earlier that last year's rules seem to be applying. But that has to be the formation right now because I mentioned the S&P. I mentioned the NASDAQ. I didn't mention the Russell. You know exactly where the Russell is.

We know where the banks were. The banks over the last five days, you have banks down 5%. You have banks down 8%. Morgan Stanley is down close to 10%. The banks over the last five days, you have banks down 5 percent. You have banks down 8 percent. Morgan Stanley is down close to 10 percent. Really, Goldman Sachs is the only one that seems impervious to the overall environment. It's only down about 1 percent. Even J.P. Morgan is down 5 percent the last five days.

Now, for sure. I mean, the old glamour stocks at the top of the NASDAQ are insulating this market once again, at least for the moment. Let's get to Bertha on this move in Humana. Bertha, so what's behind this? Well, it's the trend that's now becoming much clearer. Medicare patients are having more elective surgery procedures. Humana now warning that its fourth quarter medical loss ratio, that's the percentage of the premium that's spent on medical costs, will top 91 percent. That's 240 basis points above consensus. And as a note, insurers MLR rarely top 89%. Meantime, Humana is blaming it on high inpatient costs as well as outpatient surgeries. The same as what we heard from UnitedHealth last week. But unlike UNH, Humana

says this is hitting its full year 2023 earnings. So it's cutting that guidance. On top of that, the insurer also warned that it's a higher attrition and lower new member growth during the Medicare open enrollment season recently and now projects 2024 Medicare membership growth will be up just one point eight percent, which is below the industry average that we're looking at for this year. All right. Yeah. And this this move obviously has ripples, ripple effects across the sector. Thank you. So, Joe, does it change anything? I mean, it seems like higher utilization is something that maybe we can think about being front loaded into last year before premiums go

up. Or is there a way to talk around this or is this going to be an overhang on this group for a while? I see inflation impacting the bottom line for these companies, managed care companies. Multiple expansion is going to be missing, Mike. So I think if you're allocating towards health care, you're looking towards big pharma like a Merck. You're also looking towards large cap bio pharma like a Vertex Pharmaceuticals or Regeneron. And let's not forget about what Eli Lilly is doing.

And you also have the medical devices in there as well. But managed health care is going to struggle. No medical devices were hurt last year. Fewer procedures or fear of it now that's coming back. So health care is a vast sector, as we all know. Let's get to David George for his take on the regional bank results. David, what's the, I guess, some of the key threads you would pull out of the numbers so far this quarter? The market seems to be not really worrying about any adverse surprises, but also

not that enthusiastic. Yeah, and good afternoon. I would say, from my perspective, Mike, the takeaway from these results is really stability. And what I mean by that is revenues across the board have been pretty stable. Expenses have been relatively well managed. And credit quality, for all the concerns out there about CRE and the consumer, credit quality continues to be in good shape. And while the group has pulled back, keep in mind over the last six to eight weeks, the banks are up a good 30 to 35 percent. So I think some profit taking is not surprising. And if we get a couple more days like this, I think it's time to start getting a little more aggressive on the long side on some of these regional banks here.

You've characterized credit quality as normalizing, I guess, for the most part for these institutions, but not necessarily getting to worrisome levels. We did see the Discover Financial get hit today on some of the delinquencies going up. Obviously, the company has some other issues as well. Then again, if I look at a Capital One or some other consumer proxies, they're well above their lows from late last year. So where do we think about, how do we think about credit right here? Well, we really try and think about credit, we think about credit right here. Well we really try and think about credit Mike through and through a normalized lens and banks as you as you both know are cyclical in nature and the most cyclical part of the income statement is the provision. So it's important when times are really really good or really really bad from a credit perspective is

to think about what's normal and value the stocks accordingly. So in thinking about that concept, consumer credit loss is relatively normal, again, with a 3.7% unemployment rate. Unemployment, from our standpoint, at least, has nowhere to go but up. So it's conceivable and reasonable to expect that you're going to see consumer credit losses go up throughout 2024. But again, I would call that normalizing rather than anything meaningfully worrisome from a consumer perspective. And I would say the same on the commercial side. Loans, we've had very low losses for three to four years really since the pandemic. And I think it's really reasonable to assume that losses have to go up. But again, in the context of

what's normal, that should be expected. You know, you mentioned on the commercial side, and it seems as if commercial real estate is kind of the three-word bear case on a lot of these, even without getting into the details. I noted Goldman Sachs' results. They've really written down their office exposure dramatically, feels like it's at a reasonable level. Have these banks, to some degree, outrun that issue, or is it manageable for most of them at this point yeah so i do think it's manageable i think a couple things to keep in mind and many of your guests have talked about cre these assets are clearly going to have some challenges are going to be some markets and b and c office that struggle but it's important to note

that these take time to work through, and banks really benefit from time, the ability to generate pre-provision earnings to pay for those credit losses over time. The other thing I would say, and this has been largely, I think, underreported, is banks by and large have taken significant pain and significant reserves for CRE office already. Companies like Wells and PNC, for example, have put aside 8.5% to 9% reserves against CRE office already. Companies like Wells and PNC, for example, have put aside eight and a half to nine percent reserves against CRE office. That is a very high reserve. And from our perspective, many banks are probably over-reserved, at least in the kind of the large regional, the money center area. So to your point, we think a lot of that has been dealt with from an earnings

perspective. And now it's more of managing that headline risk as things start to deteriorate. And then quickly, you mentioned if we had a couple of more days like this, you'd be more aggressive in terms of doing some buying. Where in particular, what are a couple of your favorite names at this point? Yeah, in the regional group, Truist, which reported this morning, would be our favorite. We think Truist is a very compelling risk reward. We think about banks simply on a risk reward basis and- it's a great banking franchise in the southeast it's a combination of

B. B. and T. and SunTrust that merger has had some challenges. In the near term but we think that expectations are very low. Truist also has significant insurance franchise that is about 15% of earnings which we think. Will be monetized at

some point this year. If you were to assume a monetization of the insurance business, the stub or residual bank is trading at just seven times earnings. So we think Truist, from our standpoint, is a great opportunity. We would also point to Comerica, Fifth Third, Huntington and Citizens. All right. Going to hear from Comerica, I believe, in the morning. David, appreciate the time today. Thank you. Thanks, Brian. Joe, you mentioned that the banks have actually traded kind of sloppy off their numbers for the most part. Regional bank ETF as a group, it's back to about one time book value. Anything to get interested in here? No, I still think when

you're looking at the financial sector, it's looking at companies like Visa, MasterCard, Berkshire, maybe Arch Capital, Apollo, KKR, Blackstone. Those are the places you want to be. And then Money Center Bank, you want to stay, obviously, with J.P. Morgan. But I think collectively, the totality of this week, look, we're in the same place right now today we were one week ago when you and I were sitting here on set, and we were awaiting financial earnings, money center banks. Well, they didn't really come through so good, and we're in the same place. So the optimist looks at that and says, choppy market, but we're still okay. Exactly, and the earnings season is like that.

You punish what needs to be punished. Maybe it doesn't spread to everything else. Joe, great to see you. Thanks very much. Got about 30 seconds to go before the close. You see the S&P 500 is up about eight-tenths of 1%. We're pretty close to the highs of the day. The Dow up 215.

NASDAQ still the leader. And the Russell 2000 up half of 1%. You actually had market breadth turn positive. It started off quite negative, just modestly so, though. About a 50-50 split between up and down stocks as the bond market through the afternoon did calm down a little bit. That's going to do it for Closing Bell on a Thursday. Let's send it over to Overtime with John Ford.