Closing Bell - Closing Bell: Alternative Asset Managers 6/17/24

Episode Date: June 17, 2024

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

Welcome to closing bell I'm Mike Santoli in for Scott Wapner this make or break hour begins with stocks levitating into a new week and on track for another set of record highs we'll discuss this big run with our experts including BlackRock's Rick Reeder in just a few minutes. semiconductors today led by Broadcom. Also, though, joined by a broader selection of stocks, the Nasdaq 100 have to say still at the center of the action here, up about a percent and a half and not too far from the 20,000 level, which is not something we had necessarily anticipated. There's the composite up 1.2 percent as well. With consumer and industrial names are participating in the gains, although to a lesser degree. Now, despite ongoing concerns about this narrow bull market leadership, three Wall Street firms have raised year end S&P 500 targets today as the first half winds down, bowing to the persistent strength of that benchmark. Treasury yields meantime up a few ticks on a quiet day for macro news, though the 10 year remains under 4.3 percent, is well below where it sat before last week's Federal Reserve meeting, and a series of somewhat reassuring inflation readings.

It takes us to our talk of the tape. Where are we on the path toward that hoped-for soft economic landing? And are financial markets correct in their read of the Fed's current stance? Let's ask Rick Reeder, BlackRock's CIO of Global Fixed Income and head of its allocation team. Rick, great to see you. Thanks for coming by. Appreciate it. In the last week, so we've gotten the Fed meeting statement, CPI, PPI, some other inflation indicators as well. Is anything new? What should we be taking away from this as it's been filtering through the market? So, I mean, I think the big thing

last week was that inflation data was pretty soft relative to what was anticipated. And we got actually, if you strip out shelter, which the chair talked about in the press conference, core CPI, three month moving average is 2.0. That number was over 12. It's down to 2.0. So that was a pretty big deal. PPI followed on it. So listen, we are moving and, you know, it's going to get core PC, which is the Fed's favorite measure. We're going to get that too. We're going to get probably a 0.1 or so in the next month or so. So pretty good numbers. So and, you know, simultaneously, you're starting to see a little bit of softness in labor.

You know, we still had a strong payroll report, but you leave the jolts report, you'll get claims picking up a bit. So we're definitely closer to where the Fed could move. I think they can move soon. And we're definitely closer. Yeah. I mean, the idea that with inflation going down, their current policy looks starts to look more restrictive, I guess, has started to take hold. And it was interesting because it felt like on first blush, people say, well, it's a hawkish

dot plot or maybe even the rhetoric around it. But the market fixated on the numbers, on the data. Yeah, that's probably a good thing. And the Fed is now pushing 11 months at the same rate, which is a long pause for them. Does that mean that policy is in a really good spot or does it mean that we have to be more attentive to those slowdown concerns and the idea that they can wait too long? So all of the above. So the first thing I will say is I think the obsession with they went to one, the average went to one. It was basically one could be a non-voter. I mean, that was pretty mundane, useless stuff. If you think about, though, the direction of travel, we've got an economy that's moderating, but very slowly. There is a two-stage economy at play, though, that I think is significant, which means that

the Fed has to go. I think they have to go. You're talking about pressure on low income, pressure on small business, pressure on local banks. You've created a two-stage economy. The question is whether the fact of five and three-eighths interest rate, my mind is not the right level. If inflation is coming down, which it is, so let's say core PCE, we're running a two-seven, maybe trending down a little bit slowly, but trending down a little bit. You can get the funds rate down to four and a half. You still have a restrictive rate. And so I think that's where they're going to go. Slowly, you want to see more data. My sense is they'll get it. There's a real seasonality to the data these days after the first quarter. My sense is you'll get it and they'll be able to go. You still hear talk about how in the second half of the year, the comparisons become tougher, especially on shelter inflation,

and maybe it's going to cosmetically look like the improvement in inflation isn't really on track. You think they'll be dismissive of that? Or I mean, really, also, the question is, are rates the thing that is going to help inflation in the direction we want anyway? So so first of all, well, you're right. Base effects mean it's going to be we're probably going to sit around two seven core PC for the rest of the year, largely because these base effects you talked about. But there are if you take the cyclical components of inflation, by the way, core goods is negative. If you take year on year, we have negative. The cyclical parts have come down. You're seeing that transportation services, big drop. The cyclicals are coming down. So yes, I think they have the chance to bring it down. I've also laid out a pretty controversial argument.

It's not clear to me that keeping the interest rate here does anything for inflation because you have an incredible shift in how the economy works today. Growth of huge transfer from the public sector to the private sector. Private sector in aggregate is a net creditor. And you've got middle to high income that's benefiting. And you have an aging population, which recirculates money into service level good or service level products, which buoys inflation. So it's not clear to me that it's actually doing much of anything but what is clear to me is creating a two-stage economy and it is putting real pressure you see this in credit card delinquencies credit card charge-offs auto

loan delinquencies my sense is they need to move it down but they can you know still a good economy it's still an economy that's you know are they engineering a soft landing i think the economy is incredibly resilient i don't think if you move the rate down, it's going to create anything other than helping some of the people that are under pressure today. What you call a two-stage economy, I mean, to some degree might be reflected in the way the markets are behaving, right? You see, you know, obviously the big growth stocks that are feeding off, of course, they have great balance sheets, cash flow, all the rest of it, but they're feeding off the big AI investment trend. You have a lot of economically cyclical stuff that has been wallowing a little bit here

and not necessarily getting the benefit of this drop in treasury yields. So I guess the question is, does that mean there's opportunity or is that creating a sense out there that there's more fragility in the expansion or in the soft landing story? So firstly, I'd say the investment in technology that we're going to see is extraordinary. The AI investment, the CapEx requirements, the energy requirements are extraordinary. It makes sense to me that the big Cap companies will continue to do well. Those that spend on R&D, CapEx will continue to do well. So I think that is real. By the way, many of those companies are no longer, are not borrowers. They actually have cash on hand. They actually

benefit from this interest rate. Oh, yeah, I think in aggregate, they're earning more on their cash than they're paying in debt, yeah. So I don't, listen, but I think there are parts of manufacturing, I think there are parts of the economy that are definitely struggling.

You see that in all the earnings. You see the retailers, more couponing, more promotion, more trade down to generics. That is real. And so is that, so when you think about it though, in aggregate, it's not that large when you think about the whole economy. It's a larger number of people, a number of businesses and actually a number of employers that are being impacted. It's just not

that much in terms of the aggregate economy. So listen, that's why I think we need to have a little bit more balance. I think you could do that. I think when the Fed starts to move, the terminal funds rate is going to be higher. So you create a dynamic where bring down the near term, bring down the short term funds rate. Terminal rate stays a be higher. So you create a dynamic where bring down the near-term, bring down the short-term funds rate, terminal rate stays a bit higher, so it doesn't create a financial condition easing of significant magnitude. Does that mean longer-term yields are in the right spot? I mean, you have the 10 years kind of range-bound, I guess, big picture.

And then, of course, corporate credit spreads are quite tight at this point. And so does the fixed income market have it right? So, you know, I'll tell you a couple of things. First of all, I don't think 10 years is going very far. I mean, we've got a tremendous amount of debt coming due. I think there's too much debt that's got to come due over the next couple of years. So what I think will happen when the Fed moves, you'll steepen the yield curve a bit, which is fine, which is a normal, I mean, as the economy moderates, you would expect some steepening of the yield curve.

But I don't think long-term rates are going anywhere. Part of why I think fixed income, we do the CTF, we're keeping all our yield, this bank, that we're keeping all our yield in five years and in. By the way, you don't need to go out the yield curve because there's so much, you've got a flat to inverted curve. So you capture a lot of yield using credit, mortgages, securitized assets.

So that's where I think we are today. The curve will steepen. It is, where I think we are today. The curve will steepen. It is, I just think it's going to take time for that to happen. So that's where you get the yield from. What about other kind of allocation decisions you'd make right now in terms of dialing up or down risk and what parts of, let's say, equities? I mean, I still like the equity market. I mean, boy, it's a heck of a move today. And it's been a pretty profound move. I still think when you boil it down, and I hear all the discussion about as a multiple, it turned too high.

You're still seeing a historic dynamic around the growth, the ROE, the return on equity companies are creating, and the buyback relative to the IPO calendar. When you marry the fundamentals and the technicals, they're pretty powerful. So do I think equities still have upside? I still think they have upside.

The beauty of equities today, including a lot of stuff we are active in, including today, the volatility is so darn low that you can use options and you can actually reduce. So we've done a little bit of reduce what is your outright equity exposure, but you actually grow it because your options keep coming into the money and then you roll your options. The vol, by the way, interest rate volatility is high. Relative history has come down a fair amount with the recent Fed decision. But equity volatility is a gift. I mean, these vol levels to be able and by the way, you know, in any given day, you can see the equity market up or down 50 points in the S&P 500 like

today. You can move around your risk. You can you can be with volatility so cheap. It's a it's a phenomenal opportunity. It is amazing. So index-level volatility is very, very calm, almost to the point where people are trying to question why it might stay that way. But within the index, things are swinging around. And so there has been this trade, as you know, and maybe this is what you're talking about, of essentially betting that you can earn that difference off the volatility of the components versus the index.

Well, I would also, single-name volatility is also pretty low. I mean, you look at the volatility of names like Apple or the banks, they're under 20 vol in terms of, that's pretty cheap. So you can create, you can move some of your equity, your holdings, your Delta, what you call Delta one, move it to synthetics because the volatility in single name is so cheap today. So both are pretty reasonable. What it makes it harder to do, we do a lot of overriding of our positions to create some income. The volatility is not, particularly when you get days like this in tech, semis, it's pretty hard to give up some of that upside. Sure. Yeah, I know that has been kind of a little bit of a trap maybe some people have

fallen into. I guess just in terms of this idea, the Fed can, you know, maybe ease off a little bit in a measured way, usually slower easing cycles are more bullish than fast, urgent ones. Do you think we're going to, in six months, say that was just kind of a mid-cycle slowdown and now we still have years of this expansion left? Are we still in this late cycle psychology? So one man's opinion, I don't think cycles are nearly what they used to be. I think the whole concept of cycles was a manufacturing-oriented economy, a goods-oriented economy, a commodity-oriented economy.

You think about service economy, healthcare, education, et cetera, you don't have that sort of cyclical dynamic that you said. There's some cyclicality, but boy, it is much more reduced than it used to be. So, listen, I think the economy you go through, we took in a lot of people through immigration. You got nominal GDP to a level that was very high. My sense is that that will dull some of that growth. My sense is that some of the CapEx R&D will probably come down a little bit from the high levels it's been at, although you still have this massive AI investment.

So I think you're going to see an economy that, and by the way, when you step back and think about it, if we get 2% real growth and you have 2.7, 2.6 inflation, you talk about nominal GDP of four and a half to five, people say, my God, the Fed has a problem. We got to get it down. If you have four and a half to five nominal GDP, when we have too much debt on the country today, pretty good. Like it's pretty good for investing. It's a pretty good paradigm. It used to be kind of a normal run rate, more or less. Yeah, or even it's a little high to me. We ran for a long time at 4-ish or just under 4. Pretty good, particularly with an aging demographic.

Pretty good. So, I mean, listen, I think people should celebrate it. Part of why I think the Fed can move it down a little bit is I don't think it will create any damage to that dynamic. I certainly don't think it will create any damage to a reigniting of the inflation paradigm. And then, but it does create more balance. And you don't think the Fed will be like, look, the Nasdaq is going to get too excited if we ease here? So I bet that's part of the conversation.

And it's part of why you can create a paradigm where you say the terminal rates is going to stay higher. And by the way, I think their endpoint will be significantly higher than it used to be. And as long as you articulate that, by the way, they've reduced the balance sheet. I think you can deal with that and not create anything that's a financial condition easing of significant magnitude. And I just don't think equities,

I know I've talked about before on your show, I just don't think equities are as interest rate sensitive as they used to be. Oh, not nearly, yeah. So I'm not, you know, it's always interesting. People say, if we hit a 4% tenure or four and a half, and they're like, the equity markets come under pressure. No, it doesn't seem like that's a relevant indicator anymore.

Rick, great to see you. Thanks so much. Appreciate the time. All right. Well, keeping a close eye on the NASDAQ and the S&P 500, both on track for record closes. Let's bring in Jordan Jackson of J.P. Morgan Asset Management and Jason Snipe of Odyssey Capital Advisors. Jason is a CNBC contributor. Jordan, let me get your reaction there to just those thoughts that, you know, the Fed's in a pretty

good spot. It has flexibility to move based on where inflation is and maybe being able to kind of preserve this pretty decent economic backdrop. Well, it's pretty interesting. I think the Fed, coming out of at least last week's meeting, they're concerned around the inflation outlook. It's clear that Powell is a bit concerned around base effects, particularly as we move through the summer. He has on occasion mentioned some concerns, even though core goods prices have fallen, core goods potentially re-inflating a little bit again and that complicating the inflation backdrop. I'm impressed that he's able to, after a Wednesday morning print, be able to talk to all the governors and have them update their dots. I think most folks

said after one print, they said it's not really worth updating my dot. And so that's why you got that shift down to one cut. But I think that's generally right. I think, you know, if stuff is still moving, humming along over the course of the summer, now you're swinging into the election season. I think it's going to be tougher than to start moving in September and November. And I think perhaps they at best can squeeze in one rate cut in December. And I think that's where the median member sort of lies. And Jason, do you think that that's kind of an acceptable scenario here? It's kind of amazing the way that the markets have have basically been okay with with fed patients and

obviously you've had market-based yields more or less cooperate but uh how long can we wait yeah mike i think i think absolutely the numbers that we got uh last week as clear indication that inflation is moderating again this is the second month in a row that we're seeing very positive numbers on the inflationary front we're coming off a backdrop of we had three months that were difficult where the Fed was talking about a trend of inflation obviously moving higher. But as I look forward and to Jordan's point, coming with the election coming ahead and other geopolitical stories that potentially will play out here, I think it was prudent for the Fed to talk about, you know, maybe potentially one cut in December.

Obviously, the dot plot has been updated from three cuts to one cut. And I think that sets a nice, nice ramp into 2025, because, again, I'm in the I'm in the camp that earnings have been strong. The economy is relatively strong. I think the Fed is getting a lot of what they've asked for in terms of inflation moderating, some loosening in the labor market, which plays into exactly what the playbook was coming into this year. So I think they're right in the right place in being data dependent and looking towards 2025 as an opportunity to continue the rate cut story starting in December of this year. Jordan, you say in general that you're still pretty well disposed toward risk assets.

I guess the question is how much the market's already sort of built in here. I mentioned you had the sell-side strategists raising their price targets. One of the, I think, components of the bull case has been, hey, Wall Street's kind of fighting it. Nobody really thinks the market can do much. It seems like maybe expectations are in check. Is it starting to feel like it's running a little hot right now or is the, I guess, negative sort of breath in the market, you know, making that seem less the case? Yeah, I think this suggests that we may be primed

for a bit of pickup and volatility over the course of the summer. You know, the reality is, look, we are expecting a broadening out in earnings growth from the rest of the market, not just technology really driving earnings and mega cap tech. That being said, mega cap tech is still expected to post double digit earnings growth as well. And so I think, you know, look, markets are becoming a little bit jittery, which I think rightfully so over the course of the summer, given where valuations are and given where interest rates are at. But I do think we're going to looking at it on the balance of the year, an equity market that's going to deliver 15 to 20 percent total returns. And I think we're going to rally pretty nicely in the fourth quarter,

given you also have 2025 earnings growth expectations that are sitting in double digits as well. So I think there's a there's a fundamental backdrop, a micro case to stay bullish. But also, again, the Fed is still very much biased, both implicitly and explicitly, to want to cut rates. This is not a Fed that's putting hikes back on the table. They're firmly biased to want to cut. It's just a matter of when. I think both of those are bullish for the market. Now, Jason, where within the market looks like it hasn't yet quite been kind of fully reflective of the underlying earnings power? Because, you know, everyone complains about it's only a handful of stocks driving trillions of dollars of upside in market cap here.

But that's also where the earnings momentum has largely been is in those mega cap growth names. So do you find areas that are now primed to pick up as we wait for second quarter earnings estimates are up 9% year over year and are looking pretty solid at this point? 100%, Mike. I think obviously the story to our all points here is obviously, you know, tech and the semi-hardware space has obviously done really well. You know, the opportunities that I see more cyclically oriented is I look at the financials and I look at investment banking as an example. You know, we've seen Goldman Sachs price action so far this year. It's up around 15 percent.

It's pulled back in recent weeks. But I think there's opportunity there as we as we think about the capital markets and and all the all the numbers that we've seen. I think IB has bottomed. Absolutely. And I think we will see a nice runway going into 2025. The other story that I look at is health care. Health care typically in election years doesn't really return very well, but I look at MedSurg as an opportunity. There's been a lot of discussion clearly on GLP-1s and what's going on with Eli Lilly and Novartis and some others.

But I look at some of the device companies like Stryker, Intuitive Surgical. I think there's opportunities for these names to continue strength and see earnings power ahead. So those are a few of the opportunities that I see going forward. Jordan, I wonder if there's one thing that stands out to you that's causing you any kind of nagging concern about sort of the macro outlook and whether, in fact, you know, this sort of patient Fed keeping rates here for a full year, and you have a little bit of deceleration in parts of the economy that has investors' attention, whether any of that could break the wrong direction?

Yeah, you know, it still feels like inflation is public enemy number one. But that being said, I think there needs to be a little bit more focus on the growth backdrop and particularly across labor markets. Now, obviously, we have not seen labor markets come under significant pressure just yet. But, you know, the job openings number has been steadily coming down. Initial claims, we'll be looking to see if this will be a second week in which you've got to pick up an initial claims data. So it tends to be a bit noisy and there's a lot of seasonal adjustments. There's still an incredibly wide divergence between the household survey and the establishment survey. I tend to think the truth probably lies somewhere in the middle. So this is clear that, you know, the labor market is cooling, not freezing over just yet. But I do think there needs to be a little bit more focus on some of

the growth dynamics that are at risk under higher rates. Yeah, I guess we have to stay alert. Probably good news. The market seems to at least have one eye on those factors as well. Jordan, Jason, appreciate it. Thanks for the time today. Thanks. Let's send it over to Christina Partsenevelos for a look at the biggest names moving into the close. Hi, Mike. Well, the U.S. government is suing Adobe, alleging that Adobe, quote, hides expensive fees in the fine print, making it all the more difficult to cancel a subscription. And when customers actually try to cancel, the Department of Justice alleges Adobe forces customers to go through a complicated cancellation process and, quote,

ambushes them with a termination fee. Adobe replied, saying that they are, quote, transparent with the terms and conditions of our subscription agreements and have a simple cancellation process. They plan to refute these claims in court, and that's why shares are down almost 1%. Best Buy getting a bullish boost today from UBS, a new price target from them at $106 a share, up from $85. You can see that's still higher than the $91.47 trading right now. They suggest this retailer is a buy because of the company's restructuring efforts and new product cycle. And that's why shares did hit a 52-week high,

up about almost 5% right now. Mike. All right, Christina, thank you very much. We are just getting started here. Up next, big opportunities and alternatives. Goldman Sachs' Kristen Olson is revealing her best bets for diversifying your portfolio. So join me at Post 9 after this break.

We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Dow up 200. S&P on track for a new record. Interest has been building in alternative investments during this record run for the markets as investors look to diversify. Joining me now at Post 9 to discuss is Kristen Olson, global head of the Alternative Capital Markets Group at Goldman Sachs. Welcome. Good to see you, Kristen. Thanks for having me, Mike.

What principally are investors or your clients looking for when they want to look at non-public markets, various types of alternative options? So our clients, as ultra-high net worth clients, have always had a very large allocation to alternatives. And the approach has been to be quite diversified. So alternatives is a big category that's going to span private equity, private credit, real assets, and also hedge funds. The largest allocation has been going to our buyout strategies, so traditional private equity. But really, the objective for our clients is, how can they achieve differentiated sources of return from public equity and public fixed income returns? How can they add uncorrelated sources of return? And most importantly, how can they drive alpha

or outperformance versus the returns they're getting in public liquid markets? Interesting that you say that they're looking for outperformance as opposed to just a smoother ride. I mean, some of the criticisms of some alternative strategies is that, well, they don't mark the market every day and you don't have to absorb that sort of noisy volatility on the way to whatever return you're getting. You're saying that they think that there's sources of better or different types of returns. 100%. at it. You're saying that they think that there's sources of better or different types of returns. One hundred percent. Look, I think there is a benefit of perhaps not seeing the volatility or not having to live through the volatility. And I think one of the other hidden benefits of Alternative is it forces investors to stay the course. Right. These are illiquid strategies.

You're signing up for a 10 year commitment and it takes the sentiment out of it. Right. You have to you're going to have to deploy capital. It's not at your discretion and it allows you to really stay invested. And I think that's one of the hidden benefits of alternative investments. Has private equity recently kind of lived up to the billing in the sense of, you know, you're seeing these reports. First of all, there's maybe less activity in terms of new buyouts than you might expect, given some of the other market conditions. And then just this idea that LPs want to withdraw their money

and sponsors have to take on leverage to do that. In other words, it just feels as if there's a lot of moving parts that maybe are not necessarily as clean as, hey, we buy companies, we lever them, we fix them, we sell them. Yeah, look, I think that manager selection and looking at what is the actual strategy under the hood is incredibly important. I think now more than ever, finding managers that are driving real value creation at their portfolio companies and looking through as what was from cheap financing, how much of it was multiple expansion, like what was actually organic growth that was driven at those portfolio companies. That's incredibly important to be looking at today.

You also bring up an interesting topic, which is liquidity. And so one of the interesting areas within private equity right now is secondary private equity. So you've had institutional LPs that have now gotten to targets in terms of how much they want alternatives that are finding themselves, given the lack of distributions coming back, finding themselves needing to potentially sell. And as a liquidity provider, that's an interesting strategy to be a secondary private equity investor today. Should anybody's antenna be raised by the idea that now you have these managers

who want to open up to high net worth individual money as opposed to, you know, why am I so lucky to be getting this opportunity kind of a logic? Well, I do think it's one of the most interesting moments. So in the last 25 years, I've been at the intersection of wealth and alternatives for individual investors because you've never really had access in the way that you do today. For the ultra high net worth investors, it's top tier managers that are thinking about how they're going to grow their business over the next 20 to 30 years and realizing that they need to tap into individual investors to grow their business, right?

And so it's projected that if there's $4 trillion today of individual money in the private markets, that's going to triple in the next decade. And so alternative asset measures are figuring out how do I access that capital? But the other part of that is going downstream and thinking about how do you get to the mass affluent? How do you get to retail? And so what you're seeing is the advent of new structures that allow for that. So in credit, the non-traded BDC, in real estate, non-traded REITs, and then you're seeing private equity and other real asset strategies going into these open-ended evergreen structures, some of which

allow you to go to smaller investors that don't have to meet the $5 million minimum net worth for traditional alternatives. But these structures also have a modicum of liquidity, because that's the other real challenge to investing in alternatives is you have to give up liquidity to be able to get that alpha in the private markets. And that's harder for smaller clients. In a world where trailing equity returns in public markets have been pretty strong, and now you can get pretty safe yield above 5% and 6%, does it raise the hurdle rate for investors wanting to go to less liquid strategies well I think like always looking under the hood what's interesting so with higher rates you look at credit okay so

you can get pretty attractive yields today but in the private markets you can add to that and be getting low double-digit returns as a senior direct lender so I think investors find that pretty compelling and obviously that's a product that has or that's an investment product that has gone into some of these structures for broader individual investors. And I think the way our clients think about returns in privates is what is the spread that they can get above the public market return? And to give up that liquidity, generally looking for 300 basis points a year year better than the public market alternative. Interesting. That actually says a lot in terms of how people are making these decisions relative to what any old person can get. Kristen, great to talk to you. Thanks so much.

Thanks so much for having me, Mike. All right. Up next, the S&P and Nasdaq trying for record closes. Top technician Ryan Dietrich is back. He's breaking down the charts and flagging why he thinks May's market performance could be a big bullish signal for stocks in the upcoming months. He'll make his case after this quick break. And don't forget,

you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. Stocks are in the green across the board with both the S&P and Nasdaq hitting record highs to start the week. Nvidia also briefly hitting a record high earlier in the session. So does this rally have more room to run? Let's ask Brian Dietrich of Carson Group.

Brian, always good to catch up with you here. You know, all of the stats that I know you like to look at in terms of when the market has behaved in the way it has this year, number of new highs, degree of upside, all that stuff by this moment in the year usually has good things to say about what's to come. Is there any reason to think otherwise at this point based on some of the internal rhythms of the market? Yeah, Mike, thanks for having me back. I mean, we are bullish. We're optimistic. But you're right. I mean, just last week, right, we had 1.6% weekly gain on the S&P, yet less than 200 names in the S&P were higher. Less than 100 outperformed the S&P 500 last week. What's that tell us? Well, maybe there's a little weakening. We know a lot of people come on all day talking about this. Tech has done so well lately. Maybe there's some weakness under the surface. But honestly, Mike, I think it's a lot like January.

We saw this in January, some weak divergences. But you know what happened? Market kind of went sideways for a week or two and then stocks caught up and a lot of participation came in. And we still think that's probably the play here. Yeah, I mean, I know you've been focusing on, as others have, about July and its record of being very strong, pretty consistently for stocks. On the other hand, the final stretch of June sometimes is where you have gotten some choppiness. So what are the relevant things you think to focus on here going into the second half of the year? Well, you're right. I mean, people are going to hear this a lot. July has been higher the last nine years for the S&P 500.

But in an election year, and I came on with Scott a while ago talking about this, you tend to see a summer rally, right? June, July, August, usually really strong. So we're still in that strong seasonal time frame, Mike. And then I like to look at credit spreads, right? Investor grade corporates. What's going on there? There's no monster under the bed, right? We're not seeing any major stress in credit markets. We're hitting literally the 30th all-time high of the year for the S&P as we sit here and talk today. So there's always worries, concerns, but bigger picture. We're overweight equities. We have been since December of 22.

Mike, we still think there's pretty good upside the second half of this year coming. And do you think it pays at this point to essentially look beyond the leaders? You know, I mentioned the NASDAQ 100 up another percent and a half here. It just accelerated up to higher today on kind of nothing new. And I just wonder if people are kind of capitulating to that particular type of market leadership and leaving the rest behind. Well, clearly, that's what we saw. I mean, last week, you know, tech was up 6%. Real estate was higher, and every other group really didn't do anything last week. So we're starting to see that.

We think there is going to be more of that. I don't know if capitulation is the word I want to use, but some of that moving into other areas. We like industrials. We like financials. I know they struggled last week. And then, obviously, small and mid-caps are dirty words a lot of times with the underperformance we've seen.

But we really think with the inflation data, you had some guests come on before me talking about inflation. A lot of positive trends. I mean, grocery prices down four months in a row, new car prices down five months in a row. There are some things happening on the inflation front. Yes, shelter is that stubborn part of it. But if you look beneath the surface, Mike, we think there's two cuts coming, September and November. And once that's a little more clear to people with one more probably good month of inflation, that probably can add to that or allow for that broadening out, if you will, of some other groups finally taking the baton back from tech, which clearly is the all-star. Yeah, I was going to say that that seems to be the swing factor is whether, in fact, you get cuts.

It seems as if the market has been unwilling to sort of anticipate that moment, I guess, after 11 months when rates have stayed steady. The market's not going to start giving the small caps credit for getting the rate cut before we get it. But, you know, we did have yields come down last week, and it didn't help the smaller stocks. Well, you're right. We saw a 10-year yield lowest level since April,

10-year yield obviously lower also. And you're right, small caps did not get much of a bid at all. In fact, they struggled last week. We still think, though, there's some opportunity there. And you look at one more thing about last week, you know, kind of looking at it under the surface, leverage loans actually hung in there pretty well. What in the world does that mean to us if there's this risk-off scenario, this major worry taking place? You'd think there'd be more weakness there. So the fact we didn't see much weakness in leverage loans, yes, it was all about tech last week. But still, there were some positives under the surface there, we think. Yeah. So in other words, if small caps weakness

was telling you something scary about the economy, you would expect credit to weaken up as well. And that hasn't happened. Yeah, exactly. Ryan, great to talk to you. Thanks so much. Appreciate it, Mike. Thank you. Ryan Dietrich. All right. Up next, we are tracking the biggest movers as we head into the close. Christina standing by with more of those. Hey, Christina. Well, we got an activist investor suing Autodesk and an under the radar AI play. And I promise it's not a semiconductor name. Tune in for those details after this short break. 17 minutes till the closing bell. S&P 500 up about 1% at a new

record high. Let's get back to Christina for a look at the key stocks to watch. Hey, Christina. Hi, Mike. Well, shares of Autodesk, they're up by almost 7% right now after activist fund Starboard Value, or activist investor, I should say, said it would file a lawsuit against the company. The investor has about a half a billion dollar stake in Autodesk and says that the current team misled shareholders, specifically within its accounting practices, which is why Starboard is pushing for new board members. You can see shares up almost 7% right now. Corning hitting a new 52-week high. This is an under-the-radar specialty glassmaker, and it could be a big AI winner, according to Fox Advisors and their note,

not because necessarily of the glass side, but because of thinner fiber cabling used in server racks. So when you buy a lot of GPUs for those AI systems, you need more connections, and that means more fiber. And that's where Corning plays a role. Shares up almost 4%, Mike. All right. Part of the food chain. Christina, thank you very much. We are getting some news on Citigroup and its relations with regulators. Steve Leisman has that for us. Hi, Steve. Hey, Mike. Good afternoon. Citigroup shares given up some gains today after a Wall Street Journal report that the FDIC will vote Thursday to downgrade the bank's living will to deficient from a shortcoming. CNBC has not been able to confirm this story. The FDIC would not comment. But Citi sent us the following comment, which reads in part, this is to the Journal story

they commented, our balance sheet and financial health remains strong with high levels of capital, liquidity, and reserves. We continue to have confidence that Citi could be resolved without the use of taxpayer funds or an adverse impact on the financial system. It's unclear how serious a development this is. Banks are required to post and create living wills, get them approved by regulators. The living wills tell regulators how to unwind them in the event that the bank fails.

It's rare for a living will to be labeled deficient. Sometimes the FDIC finds it deficient. Sometimes it's the Fed. Deficient is the lowest rating. The Journal notes that the Fed is not expected to join the FDIC in the finding of a shortcoming. And this had been flagged back in 2022. The Journal said no penalties are likely associated with this because the Fed is not on board with this vote by the FDIC expected

to happen on Thursday, Mike. So you're down. You were 60 and 50 cents and now you're down 50. I'm down about a buck on this news. Yeah. And Steve, obviously, you know, this is all sort of hypotheticals. And if things came to the worst case scenario, this is how it would potentially go in terms of these living wills. Although it also seems to be a lever for regulators to try and encourage or or compel upgrades of systems. I know that Citi has been under some scrutiny about its data management and some glitches on that front. So maybe just another pressure point. I think that may be right, Mike. And just by the way, the stock, I should notice, well off the lows when the story broke. It was down 59-40 or so. It's come back a

bit since then. You can see that bump down, came back a bit. Yeah, it well could be that. And like you said, Mike, it's hypothetical and it's also sort of deep in the labyrinth of regulation. I'm not sure. The main thing I think investors would care about is does this lead to a change in the capital requirement of Citi, which would have an impact on the earnings, on everything that Citi does. I don't see that happening, at least in what we know now about this story. Yeah, exactly. And it would seem not. And, of course, Citi also persistently trades below its stated book value. So there's a little bit of risk built into that already, Steve.

Thanks very much. I'm still had navigating the meme mania. GameStop shares sinking amid its annual shareholder meeting. We'll bring you all the headlines from that highly anticipated event and what might be next for the stocks. Follow run closing bell. Be right back. Up next, Lenar reporting in overtime. We'll run you through the key themes and metrics every investor needs to be watching. And also on the housing front, don't miss Zelman Associates, Ivy Zelman on closing bell overtime. That is at 4 p.m. Eastern time today.

The Market Zone is coming up next. We are now in the closing bell market zone. Kate Rooney is tracking what's driving GameStop shares lower into the close. Plus, Pippa Stevens with a look at the sell-off in solar stocks today. And Diana Olick has the setup ahead of Lenar earnings after the bell. So, Kate, I guess the GameStop hive got their hopes up and had them dashed again. Yeah, Mike, it was a bit uneventful for the Reddit crowd. This was actually GameStop's second attempt at an annual meeting. It was scheduled for last week, and then it got bumped to today

after the website essentially crashed due to unprecedented demand from online participants. Today, though, relatively uneventful. CEO Ryan Cohen reiterated some statements about cost cutting, said GameStop plans to operate the smaller network of stores and then talked about a strong balance sheet. The company has been capitalizing on this meme stock rally. It's issued more than $3 billion worth of stock, but there were no specific new updates around the turnaround plan there. The stock down more than 12% today after that meeting. It's been on this wild ride since, of course, the return of Keith Gill, roaring kitty to social media. Ryan Cohen in his remarks saying, quote, we are not here to make promises. We are here to work. It was a brief statement. Shareholders did vote on a couple of different things, board composition, salaries and then an outside accounting firm as well.

Mike, but a lot of fireworks. All right. Billions to work with. No, no statement on how it might be used. All right, Kate, thank you very much. Pippa, overall strong day for the market, not for the solar names. Yeah, that's right, Mike. Solar stocks facing a risk off day today, building on last week's losses as rates continue to hammer the group. Now, May was also the TAN Fund's best month in nearly two years, so perhaps it got a little bit ahead of itself. First, solar has been a standout, up 30 percent in a month. As a pause on AD, CVD tariffs expired. And as Wall Street bets, the company will be an AI beneficiary. Cowan upping its target on the stock today to $325. That's about 24 percent above where trades, saying module prices trending higher should help the domestic manufacturer.

Now, in addition to higher rates, the industry has been hit by policy uncertainty and supply chain issues, including a transformer shortage. And amid this lackluster performance, we've actually seen some management turnover. Last week, SolarEdge and DeRay Technologies announced their CFOs will step down with Sanova's CFO also leaving this month. Mike, as someone told me, some unhappy board members with the stock performance as we've seen. Wow. Yeah, you have to be nimble, I think, if you're going to trade this group based on all the things that can swing these stocks around. Pippa, thank you very much. Diana, Lenar, been a strong stock, though not the strongest in the group.

What are we expecting? Well, Mike, analysts are estimating that Lenar will post about a 7% increase in earnings for Q2, with sales up 5% year over year. They're also looking for about a 5% price drop in the price of a home. This was a rough quarter for mortgage rates. No doubt the 30-year fix was below 7% for much of March, but it shot up in April to the highest level since last fall. Rates came down a little in May, but still over 7%. Now, some builders had reported fewer incentives in the first quarter,

although Lenar said they were still heavy into them. Now we're hearing from the Builder Sentiment Survey that more builders are ramping up incentives again, So we'll be looking for that in commentary. We also saw more supply of existing homes on the market in the last three months. The market is still lean, but that new supply is some competition, which the builders really haven't seen in a long time. Mike? That is for sure, Diana. You know, I was also noting, I think Toll Brothers had a price target increase today, and that's been a big outperformer relative to the likes of Lennar. I Mike? That is for sure, Diana. You know, I was also noting, I think Toll Brothers had a price target increase today, and that's been a big outperformer relative to the likes of Lenar. I

know they really serve much different segments of the new home market. What seems to account for the market's preference right now for the likes of Toll at the high end? It's just what you said. It's that they're in the luxury market, and luxury buyers don't depend as much on mortgages. A lot of them don't use mortgages. They're all cash, and they also can afford some smaller moves, whether it's 6.5%, 7%, or a little bit above. But for the Lennar buyers and for others like KB Home and D.R. Horton, they're much more sensitive to those smaller moves in mortgage rates, and that's why they get hit. Understood. All right. We'll see what the numbers have for us for Lenar after the close.

Diana, thank you very much. All right, as we approach one minute to the close, we are on track for new records. It's about a half a percent. S&P 500 up a little more than three-quarters of a percent. It is off its intraday highs, which was about a full 1% gain. NASDAQ still continues to be the strongest of the major indexes. It is up just about 1% right now. And that, of course, has a lot to do with the semiconductors up another 1.6%.

A lot of folks wondering if that type of action is representing a bit of a blow off top in one of the hottest segments of this market. A lot of complaints about narrow market breadth for weeks right now. It actually has improved today, started negative during the morning and is now looking at about, oh, about a five to four up versus down ratio on the New York Stock Exchange as we head into a close. Bonds backed off just a little bit today. Yields marginally higher, but not really standing in the way of that big tech trade. Also been pointing out the NASDAQ 100, the mega cap growth driven 100, is up 1.2%, not far from the 20,000 mark. That does it for Closing Bell.

We'll send it to overtime with Morgan and John.