Closing Bell - Closing Bell: As Good As It Gets? 6/2/23

Episode Date: June 2, 2023

Have the market bulls and economic optimists earned back the benefit of the doubt? Or is this as good as it gets for now? NewEdge’s Cameron Dawson gives weighs in. Plus, we count you down to Apple��s Worldwide Developers Conference. Andrew Uerkwitz of Jefferies breaks down the key products and themes to watch from that big event. And, top analyst Simeon Siegel gives his take on Lululemon’s big move higher.

Welcome to Closing Bell. I'm Mike Santoli. In today for Scott Wapner, lies from Post 9 at the New York Stock Exchange. This make or break hour begins with an assertive breakout for stocks after a healthy jobs report follows a debt ceiling deal to ease Wall Street's two biggest worries, perhaps. The benchmark S&P 500, now up about a percent and a half, has been riding around this level all day. The Dow up more than 700 points at the highs as well. And the S&P not far from its August 2022 peak, which would be basically the peak for the last 13 months or so. In a crucial shift, the rallies also moved beyond the handful of big tech favorites as small caps, energy, and cyclical stocks, which of course pack the Dow, are playing some catch-up.

Which brings us to our talk of the tape. Have the market bulls and the economic optimists earned back the benefit of the doubt? Or is this as good as it gets for now? Let's bring in Cameron Dawson of New Edge Wealth to talk a bit about that. Cameron, welcome. Thank you. And how are you thinking about this? I mean, the jobs number today, certainly strong on the headline, but enough slowdown internally to make people think the soft landing is not out of the question. The Fed's told us in the last few days, perhaps they're willing to skip even with

the economy strong, skip a rate hike. And, you know, we had the tech leadership and now maybe it's starting to broaden out. So what's wrong with this picture? Well, it certainly is encouraging that for the first day in a really long time that the rally isn't just a handful of names and a handful of tech names. And to see names like Caterpillar up 7, 8 percent today, energy stocks up 3 percent, that's really encouraging and a sign that maybe this fear of having a very sharp slowdown in the very near term isn't happening, supported by the economic data we got today, as well as the China stimulus. And I actually think that is what's behind a lot of these moves in the cyclical names, because if we see more economic support out of China, good for commodities,

good for these value names that have been really beaten up and really left for dead all year long. They have. I mean, there's a way of describing what's been going on this year as taking the main complaint of the last few months, which is it's been an incredibly narrow rally, the upside driven by just a small handful of growth stocks, as saying, well, that's the market's way of kind of pricing in some slowdown risk into the rest of the market. Other sectors have not done a lot. Therefore, expectations are low. And if the economy is firmer, they can start to take up some of the slack. Yeah. I mean, look at that equal weight index trading at 15 and a half times earnings. That's not pricing in anything aggressive. However, if you look at

the growth sector or the technology sector, you're trading at 26, 27 times earnings. And you're actually back to territory that we've only seen those valuations when the Fed is actively easing. And so there is a point that some of these technology stocks, in addition to AI optimism, they have been pricing in a weaker economic environment and easier Fed policy. I think what's interesting about the Fed's commentary, even this backing off of a hike in June, is that even the most dovish members are not talking about cuts. And so it will be interesting when we get into the June meeting how they parse that gap between what the bond

market is saying they will do and what they're saying they will actually do. Right. Presumably, they're going to have to update their economic outlook to account for the fact that the market is the economy is not slowed down as much as they might have thought. What it means for their target rate for the Fed. I guess right now the market's just saying, look, we're in the zone of where they said we're going to get to. There's some relief in that. But how would you be looking to either participate in what's going on or, you know, use it, let's say, even to get more defensive or how to how to navigate it? So we have been buying equal weight and value. That's where if we're looking to put new capital to work, we've been focusing on those parts of the market instead of chasing the growth rally

if you look at growth in the Nasdaq it is overbought in the short term now momentum in the short term doesn't mean that the trend upward is over it just means that you might have a little bit of a digestion period so instead of chasing that today we've been adding capital into the equal weight and value indices and actively purchasing names in those areas with a lot more valuation discipline. And I guess the question is, what's the next thing? We seem to be kind of hopscotching from one thing we're worried about to the next, right? It's either, you know, we're headed right for a recession or the numbers were too hot in January. The Fed's going to have to go to 6 percent. And then it was debt ceiling and then it was maybe an earnings collapse. A lot of them we've managed to weave around. And then, of course, now we have folks

saying, well, now that we have a debt ceiling deal, it's going to be a big, huge rush of Treasury issuance. And what's that going to do to yield? So in a way, it's good to have the wall of worry in place. But what do you think is the next thing to challenge this market? I think it is exactly that last point, which is that we have seen liquidity be a very big beneficiary for stocks this year because of the drawing down of the Treasury general account. And Dan Clifton over at Stratigas calls it Yellen's bazooka, meaning it's bigger than QT. It's actually offset all of QT this year, this spending of cash by the Treasury. And so when that reverses in the other direction,

you lose a tailwind for this market. And it helps to explain why valuations are so high for growth in tech stocks, because they benefit the most from that liquidity. So as you pull that liquidity away, you see a rebuild of the cash balance that could be an important headwind and a source of rotation from growth into value. That would make some sense, although I still look at the massive quantities going into money market funds. Most of that cash is being parked at the Fed in the reverse repo. In other words, it's not as if all the liquidity has been rushing directly into stocks. It just seems as if there's just the pie has not shrunk. Yeah. And it's a correlation versus causation kind of question, which is that we can see that there is a correlation when the Treasury draws down its cash. We have typically seen big growth rallies. The last one happened in the summer of 21. You couldn't really describe or define why it was happening. And so this could be a scenario where,

yes, we might not be able to draw a direct line into this is the reason why it's happening. But these things are typically correlated. And I would also point out that growth stocks have diverged from real yields, which means that they're levitating at a valuation level that's not consistent with the level of yields. Yeah, that's for sure. That linkage that was very tight last year has loosened up at least. Let's bring in Greg Branch of Veritas Financial Group and Victoria Green of G Squared Private Wealth, both are CNBC contributors. And Greg, way in here on, you know, I know that you've been assuming the Fed is going to be perhaps even higher for even longer than the

market has been expecting. And I don't know, some of the officials this week were trying to step off that that treadmill. Yeah, and that's what they were supposed to do, Mike, to the extent that the politicians and certainly the banks were going to do some of the Fed's work for them. The politicians, by bringing us to the precipice of default, which may still result in a downgrade, which will still slow growth, and the banks, as we saw in the sluice reports, upping underwriting standards of their own accord.

I think Cameron hit something right on the head with regard to the Treasury. They need to replenish the TGA, and that's probably in the magnitude of about the $700 billion number. Recall that they spent down about $600 billion of untaxed and unborrowed money, which was an ejection into the bloodstream. Not only did it result in elevated valuations, but it resulted in a surprisingly strong first quarter. We're not going to get that in the second quarter. And so I think that we will move on from the debt ceiling absent a downgrade, which I place 50-50 probabilities

on, and we will move back towards watching the Fed. At the end of the day, they have a problem. Inflation has proven to be stubbornly resilient. And though the jobs report had something for everyone, the Fed can't be as episodic as the market. The market focused on the fact that we only had 30 biffs of wage growth. But the Fed's probably looking at that 339,000 jobs added, which crushed consensus, as did the ADP number on Wednesday. And I think that they're likely concerned here. I guess the question I have on the debt downgrade, I mean, does anybody look back at S&P's downgrade from 2011 and say, you know what, that was the time that we should get negative on the economy and markets? It seems very much a almost a political gesture or political

comment by S&P. And Fitch just said, OK, we're going to keep you on negative rating watch but uh it is what it is for two years we have a new debt ceiling i'm going to quibble with the political aspect of it david beers which is who is the guy who made the call at s p at the time has come out publicly and defended that decision and said it was exactly the right decision at the time because of the political environment and because of the increasing debt. And so that's really given cover to Fitch and Moody's, both of whom have placed us on watch. And so if you believe it's political, who knows where it's going to go? If you believe that it's substantive based, I think that there's a likelihood or reasonable likelihood for a downgrade. And if that happens, we're all going to be concerned about global growth. I guess my point was it was a political assessment, not one of creditworthiness.

It was about the willingness to pay. But in retrospect, from an investor's point of view, it hasn't necessarily mattered tremendously on an enduring basis. It hasn't raised the cost of capital observably for the U.S. And, Victoria, I'm just wondering how you're thinking about this rally at this point today. Does it feel justified? Does it feel as if people are starting to chase a little bit too much to the upside or does it have some room? Yeah. Yeah, I'm going to say it feels a little bit bubbly, right? I mean, it had a lot of reminiscent the way I look at that. This is kind of nifty 50 ask of the 70 to 72 and how that's

those stocks ran up and a little bit also what happened to the ARK fund in 2019, 2020 and then it fell apart. And when you look at it and people stop caring about fundamentals and people start throwing around just absurd, you know, what might happen and not necessarily based on reality, you have to get a little bit worried when people start talking about this stock won't go down, their earnings growth can't slow, you know, it's impenetrable, you know, and I think you just have to take a step back and say, okay, what's reasonable? And if you look at the run up of say, a Nvidia or a Meta or a Tesla, yes, those are very,

very strong companies. I'm not saying that they're like pets.com. They have a lot of earnings growth and a lot of potential, but they're beyond price to perfection. So obviously, hugging the bench has helped with such concentration and low breadth, but you do have to start looking a little bit elsewhere. And I think we're getting a little bubbly. Now, bubbles persist.

We know that. Irrationality and momentum tend to be able to last a little bit longer than we think is possible. But I think you want to be looking more. I'm a little bit more sell on the rips. I think even with us getting above 4,200, cusp of the new bull market, I am worried about a little bit of froth here. And what's going to be our catalyst? We're hitting this dead zone for two weeks until the Fed. You know, they're about to go in blackout. We'll get a little bit of data on PMI and ISM next week.

But but we're beyond the debt ceiling. Maybe a bank comes back into play, but that's not good news. So and earnings are done. So what's going to move us higher the next two weeks? Yeah, I mean, I guess what what's going to move us higher the next two weeks? Yeah, I mean, I guess what what's going to move us higher, except for the fact that people feel underexposed to a market that's up 10 percent on a year to date basis. Right. I mean, who knows exactly how it plays. But I guess, Victoria, in that world in which if it's looking bubbly to you in that slice of the market that has been showing high momentum, where else looks a little bit less so and more reasonable? Yeah, sure.

Value, obviously, has been extremely unloved this year, as Cameron talked about, the equal weight. If you look at the dispersion of the S&P versus equal weight, you're talking about, I think, about almost a 10% difference this year. So the dividend stocks are highly unloved. Yes, they held up extremely well last year, but I don't think you want to give up on your quality names. I think you want to be a little careful chasing into this growth high beta right now because of the FOMO.

And you need to stick to your plan. You know, understand your allocations, understand your risk. Don't be chasing just because everybody else is buying it. And I think that happens to a lot of investors. And like I said, a great parallel, in my opinion, is what happened with the ARC fund back in 2020. People just started buying it because it was like it couldn't lose. said a great parallel in my opinion is what happened with the arc fund back in 2020 people just started buying it because it was like it couldn't lose and then you hit the recession there in 1972 with the nifty 50 those stocks just couldn't lose and then you hit a recession

and so i i step back and i think what part of the economic cycle are we really in are we really early cycle of a new cycle and a new economic cycle, a new stock market cycle? Or are we late innings and late bear where we're going to see continued slowdown? And I hate to just sound like Debbie Downer, like I am rooting for the market to work. I'm rooting for the economy to work. But I think at the same point, you need to step back and say, are we really going to economically get better or are we going to get worse? Yeah. I mean, just for the record, the ARC fund quadrupled in a year before it peaked. So things can get a little nutty, even if we're going to be in for something like that. And Cameron, I guess I would

end by saying is muddle through a decent scenario for the economy. I mean, it's true. Late cycle is late cycle. You can't escape the fact that we already have low unemployment and profits maybe have crested, if not worse. But for the markets, can we kind of deal with the slow, slow pace of things if the Fed backs away? I think it raises an interesting point, which is that if we continue this muddle through, even if we have a recession, we're starting from a higher base. So maybe we don't go as deep as people feared back in 2022. But I'd say that the muddle through is what's being priced in at least, because if you look at consensus earnings expectations, there's a big rebound already priced into 2024 with a big rebound in margins, which is effectively saying that there will be no recession and

we'll still have very strong revenue growth. So I think that that's the current base case for this market. And it is then the question of if that muddle through is enough for the Fed to keep rates higher for longer, will interest rates ever matter for valuations? Right now, there's a disconnect and maybe that can persist. But we've seen in history that usually interest rates are very important for valuation. Yes, at times and sometimes suddenly, I guess. Greg, just to finish up, where would you actually take shelter if

that's what you think is necessary here? If you really think the Fed's going to have to do more, maybe bonds are not that safe or do you think the long end is OK? Well, I think short duration bonds are certainly safe. And I think and I want to follow on with what Cameron said. Interest rates are absolutely important because right now the estimates for the third quarter and the fourth quarter are not reflecting what the Fed has already done, much less what they're going to do. And, you know, I'm on record as thinking that the terminal rate, particularly now that we're past the debt ceiling, is going to be six percent plus. And interest rates aren't reflecting that.

With 2% growth in the third quarter and 9% growth in the fourth quarter and 245 on the S&P in 2024, those estimates aren't necessarily reliable. And so when a good friend of mine called me today and said, well, yes, the S&P is trading on 17 times. I said, no, it's actually probably trading on 20 times real estimates. And so it's really hard to have a broad-based rally when you have significant downward revisions ahead. And I think that's where we are, Mike. We'll see.

We haven't gotten a break from the downward revision. See if it lasts through next earnings season, at least. Cameron Gregg, Victoria, thanks very much. Appreciate the time today. Let's get to our Twitter question of the day. We want to know, now that the jobs report data is out, what do you think the Fed will do at its next meeting? Skip, pause, or hike? Head to at CNBC closing bell on Twitter to vote.

We'll share the results later in this hour. A skip means they don't hike, and then maybe they resume hike down the road. Just for clarity, let's get a check on some top stocks to watch as we head toward the close. Christina Bartz-Neville is here with that. Thanks for that clarity because I was just picturing this. But let's talk about a serious story because over a dozen states have filed lawsuits suing chemical manufacturers like 3M over toxic forever chemicals, that's what they call them, or PFAs that are found in clothing and household goods, which eventually end up in our drinking water. So today, a Bloomberg report says 3M struck a tentative $10 billion settlement with several U.S. cities and towns to resolve their water pollution claims tied to these chemicals.

This 3M news comes after DuPont, Corteba, and Chemours also settled over contaminated U.S. public water earlier this morning. And that's why you're seeing all of these names, 3M up almost 9%, and the other names too, also climbing higher. Now let's switch over to Airbnb. It's the second biggest winner on the Nasdaq 100, up about 4%. There's no major stock catalysts or news that I could see, but the company is filing a lawsuit against New York City over a new law against short-term rentals. The law will limit the number of people who can host rentals in the city. The mayor's office, and that could be adding to the uptick, said it will review the lawsuit.

Mike? Christina, thank you. We are just getting started here. Up next, Apple's highly anticipated developers conference kicks off in just a few days. We'll hear from an analyst who just upped his price target ahead of the big event. He will make his case after the break. And later, the telecom tumble. Those stocks getting slammed today, and it's all thanks to one big tech name.

We will explain. You're watching Closing Bell on CNBC. Apple shares coming within 1% of an intraday record today as the mega cap momentum drives the Nasdaq toward its best weekly win streak in more than three years. And our next guest just raised his price target for Apple ahead of the company's annual developers conference next week. Andrew Erkowitz of Jeffries joins us now. Andrew, appreciate you joining us. You mentioned that you think that the likely and expected introduction of the AR VR headset by Apple could be one of the most important moments in Apple's

history as the introduction of a new hardware platform. That seems like a high bar. Make that case. No, it is a very high bar. I don't know if they'll actually be able to do it, but I just think that whenever, you know, when it's rare that Apple or anybody tries to introduce something, you know, groundbreaking, the iPhone, the iPod. And this is probably the, you know, the next attempt at building the next platform. We've all been, you know, CNBC and everybody's been covering what the next platform is after mobile. You know, this is probably Apple's big attempt to define what that is. And what do you believe they need to show investors, I guess, show the public to make people believe it? I mean, I guess, first of all, does it matter?

We can think back to previous introductions, whether it's AirPods and the watch, low expectations. You know, people were like, oh, this is nice around the edges. And then all of a sudden, over years, it grows into a significant business. Are we looking for a similar trajectory here? It's got to be a similar trajectory, right? Because this device potentially has some of the most leading edge technology on it that's going to fit on your head, right? And so it's probably going to be $2,000, $2,500, some rumors at $3,000. That is not a mass market device. But, you know, as they bring the cost down, as they find use cases, yes, you know, it could easily become a very significant device and revenue driver for Apple.

I mean, the stock obviously has performed well, even in a market where, first of all, Apple's, you know, is in a fiscal year where earnings are roughly flattish and, you know, growth maybe resumes next year. So it's performed well in that light, but also without necessarily being seen as one of the core artificial intelligence plays. What is Apple going to have to say on that front? And does it matter? I don't think it matters yet. We don't expect them to say anything about AI or well, actually, we expect them to say very little about AI, right? They seem to be taking a fairly cautious approach. They'll probably argue that

they already built it into a lot of their products. And at a developer's conference, when the developer conference really is about all the attendees, they'll probably say, look, it's you guys who are building all the really cool apps. You're building them on our platform. We're enabling you to do it. So go off and build the next great app. And if that's AI, wonderful. It will sit on an Apple device somewhere. Yeah. And you have a price target, as we mentioned, up to $210. What gets you there in terms of the mix of valuation and what investors need to embrace to think that that's what the stock is worth? Right now, a lot of it's just our view is investors are looking for safe

havens, right? A lot of uncertainty out there. The one thing that is not uncertain is Apple's position in consumer devices, Apple's position in services, Apple's position on capital allocation. And so we think it's just a great safe haven stock here over the next 9, 12, 18 months. And it's already performed that way, right? It's clearly, I think that's what's been driving the mega caps this year. And I think Apple is a key stock in that group. Yeah, certainly, if that continues to be the market's attitude, it's the one they'll settle on. Andrew, appreciate it. Thank you. Thank you for having me. All right.

And don't miss a special edition of Closing Bell live from Cupertino on Monday. Coming up, what's next for the Fed? Investors awaiting that all-important June meeting. Former Federal Reserve Vice Chair Alan Blinder joins us with what he's expecting from Powell and what it might mean for the markets after today's Strong Jobs Report. Closing Bell, we'll be right back. Stocks rallying following this morning's strong jobs report with the Dow heading for its best day of the year. So what does it all mean for the Fed's next move? Let's ask former Federal Reserve Vice Chairman Alan Blinder.

Alan, great to speak with you here. I mean, clearly the market is treating good news on a strong headlines payroll number as good news. But can the Fed accept this level of job growth and take a meeting off with rate hikes? I think the Fed is looking at it as mixed news. It's not that they want people to lose their jobs, but the job market has been so buoyant and it's been a longstanding worry of the Fed in terms of getting the inflation rate down while the jobs market is so strong. I must say, and I think they must think also, so far so good. The inflation rate is drifting down too slow for the Fed. They'd like it to go down faster, but it's certainly drifting down, even though the job market is very strong. Look, if that could keep up forever, that would be wonderful.

You know, I don't think the Fed thinks it can keep up forever. And so there's both joy and sadness, if you want to put it that way, from the Fed's point of view as opposed to the stock markets in this report. I guess the question is, I mean, certainly when you say mixed news based on today's jobs report, there was a deceleration in wage growth. The hours worked was also down. The household survey showed an uptick in the unemployment rate. So, you know, perhaps there are some offsets in there. But do you think that the Fed can actually believe that there isn't a certain level of unemployment they need to engender to really do the job on inflation at this point?

Look, that's the traditional view, but I think that view has been weakening for years. And during this episode, it's been weakening even more because of what I was saying before. I mean, here's the job market with a three handle, the unemployment rate with a three handle for a very long time. In the old days, we would have said, well, for sure, inflations are going to be going up. That has certainly not happened. Now, it's not down where they want it, but it's been drifting down despite that. So I think whatever degree of certainty or uncertainty various FOMC members had a year and a half ago about the point you were just raising. It's got to be much less now.

It is interesting to just think back. It was not three months ago that we had the little regional banking crisis. We thought that might put the Fed on hold. Presumably, it's going to have some impact on credit creation. The Fed creates the Senior Loan officer survey, and that's one that's raising some warning flags. The yield curve has been indicating that we should have had a downturn perhaps already. So all these things must also be on their mind that, you know, the ingredients are somewhat in place to have the economy weaken up. So maybe they don't have to do

that much more on the rate side. I think it's possible. You little, this is a little banking. We hope it's over. I think I probably said on air on CNBC that I would have paused then. Right now, that's now behind us, we hope. The debt ceiling, which could have been a real calamity, is behind us. And so, you know, the outlook for the economy is looking, I don't want to say clear, less cloudy than it was before. And it's coming down to what we were talking about a moment ago. Can the inflation rate keep drifting down, even with that kind of a low unemployment rate so far in the last year or so the answer is yes yeah uh and are you uh in that camp that believes that the more difficult ground

to make up on inflation is going to be ahead of us in terms of getting it from you know fourish down toward two uh versus how it's been to now? Absolutely. I mean, if you look at the CPI instead of the PCE, the PCE is what the Fed concentrates on. The CPI peaked around nine-ish and now it's around five-ish. So that's four percentage points. You don't get that from the kind of fed tightening that has happened you get that from oil mostly and supply chains and things like that that's probably behind us look no i don't know what's going to happen to the price of oil in the coming six months uh neither does anybody else because the ukrainian uncertainty is still there uh the supply chain problems are probably behind us, at least we think so. And now we're

down to sort of conventional, what, as you know, economists like to call Phillips curve, thinking that you get slack in the economy and that eats away at the inflation rate. There are signs of slack in the economy, but the unemployment rate is not really a strong one in that regard right now. Yeah, absolutely. Makes you wonder if we're going to have to rethink what's going on structurally with the labor market as well. Alan, thanks so much. I appreciate the time today. You're very welcome. All right. Up next, stocks rallying on today's jobs report. Top technician Jeff DeGraff is breaking down those charts and highlighting one part of the market that he thinks has more room to run. Closing bell. Be right back.

The major averages rallying on the heels of today's jobs report with the S&P 500 hovering near its highest level since last August. But is the market's recent momentum set to stall or is there still more room to run? Let's ask Jeff DeGraff, the chairman and head of technical research at Renaissance Macro. Jeff, it's good to see you. You've been, you know, in the camp sticking to the idea that this market is in an uptrend since October. It's gotten a little ragged. Parts of the market have, you know, on the verge of breaking down. But what's your assessment right now of this push to a new, I guess, you know, nine month high? Yeah, look, I'm still optimistic. I think there are better things happening than than people or particularly the bears are giving it credit for.

You know, one of the big ones for us are credit spreads have really kind of led the way here. They've stalled out a little bit, but certainly not anything like you'd expect given the concerns around banking and some of these concerns around recession. And I think that's kind of the bear's biggest foil here is it's hard to explain what's happening to the credit markets. They've been very, very resilient. And usually, the equity markets are going to be an offshoot to that. And I think that's exactly what you're seeing. So this is one of the more interesting markets that I can remember in the 33 years I've been doing this, where, you know, you've got different industry groups within sectors or even different stocks within the same industry that look completely different. And I'll just give you one example, you know, the difference between Uber and Lyft, which

last I checked, they're both in the ride-sharing business. I know there are a few more bells and whistles to the different companies, but those are completely different charts. And we see that in every single sector that you can really draw a distinction to very good charts in one industry group, but within the same sector, some very bearish charts as well. So that's been the challenge. It certainly has been a stock picker's market. Well, yes, absolutely. And that theme of, you know, haves versus have nots, the market seems not to be able to be sort of broadly inclusive. At least it hasn't been for now. And that's been a big criticism, right? Oh, it's just a few stocks. The real market is actually not doing a whole lot. But today we see some catch up move. Is there is there the possibility of the market essentially repairing itself internally by rotating? You know, it's a much higher probability than people give it

credit for. And I know people are using this breadth as a crutch and the breadth has not been as robust as you'd want it to be. But it certainly hasn't been, you know, exclusively bearish as well. And I think that's important. When we go back and look at the points where you've had divergences just using trends, 68% of the time, let's just call it two-thirds of the time, breadth catches up with price, not the other way around. Now, breadth has made some very good calls. It made a good call at the beginning of 2022. It was a divergence that led to a bear market at the end of 2007. And then the same thing at the end of 1999. Breadth was weaker than the market. And obviously, we had bear markets in each of those three. But you've had a host of other points in time where the S&P has been trending and breadth

has not been trending. And what ended up happening was instead of the S&P succumbing to the breadth line, the breadth line, again, two-thirds of the time, started to repair and improve itself back to the market averages. So I think that's just another, I think it's been too widely used of an excuse. And there was this focus on quality, particularly around the debt ceiling and the banking crisis. And now, as that dissipates a bit, people are willing to step out on the risk spectrum. You're seeing it in beta. You're seeing it in the decrease in high quality names in terms of performance. And that tends to be good news, not bad news. Want to get your current take on the semiconductor group, which you have been favorable toward for a little bit here.

But obviously some some really kind of vertical moves in some of those stocks. Where does that stand? Yeah, I mean, you know, up is good in our book until it's not. So that's a tough one, right? There's a couple things that we use to tell when the momentum's too strong. One is we look at a rolling sharp ratio, or we actually do alpha. And, you know, right now, if we look at the three-year rolling sharp ratio, it's right around 50 basis points. Historically,

semiconductors peak out when that gets above one. So there's a long way to go in terms of the performance to say, this is too much and the trees don't grow to the sky. The other part, which I think I sent you a chart, is the ETF flows. And right now, when we look at the ETF flows accounting for the share creation and the share redemptions, we actually see ETF flows are right in the middle latitudes of where they are historically. That's just not a danger zone. We get worried when people are really kind of climbing all over themselves to get exposure to that. Maybe that happens going forward. But right now, we think momentum is actually an ally, not an adversary, until we see either those extreme sharp ratios or we start to see these ETF flows really become too exuberant. Yeah. Interesting to think that the real chase

could be to come. We'll see. Jeff, great to speak with you. Have a great weekend. Thank you. Thank you, Mike. You too. All right. Last chance to weigh in on our Twitter question. We asked, now that the jobs report data are out, what do you think the Fed will do at its next meeting? Skip this meeting and then resume hikes, pause or hike outright? Head to at CNBC closing bell on Twitter. We'll bring you the results after this break. Plus, we're tracking the biggest movers as we head into the close. Christina Partsenevelos standing by with us. Hi, Christina. Hi. Well, software providers are warning of weaker demand and smaller deal sizes, but what name is bucking that trend.

I'll have the details after this short break. 14 minutes until the closing bell. You see the S&P up about a percent and a half near the highs of the day. Dow up 700. Let's get back to Christina Parts Nevelis for a look at the key stocks to watch. Christina. I'm looking at Sentinel One because that stock continues to plunge today, down about 35% right now after the cybersecurity firm missed revenue expectations and cut its full year guidance. Weak demand and high operating losses

are really just hitting margins. Analysts are also rushing to downgrade this name, so that's further adding to the sell-off. And it's not alone. Software firm PagerDuty heading in the same direction, down about 17% right now, citing smaller deal sizes and buyer hesitation. Management also cut their revenue outlook. But that's not the case for MongoDB, a database software provider. Shares are surging over 27% right now on a raised financial outlook. The company was able to add customers, especially from China, despite this weaker macro narrative. MongoDB CEO joins overtime at 4 p.m. Eastern.

You won't want to miss that today. Mike, happy Friday. Christina, you as well. Thank you. Let's get the results of our Twitter question. We ask, now that the jobs report data are out, what do you think the Fed will do at its next meeting? Hike is the winner. 40% of the vote believing that that jobs report is enough to have them move, despite what some officials have been saying in recent days.

Up next, Lululemon's post-earnings pop. That stock up double digits. We'll speak with a top analyst about where he sees the stock headed from here. That and much more when we take you inside the Market Zone. We are now in the closing bell market zone. RBC's Lori Calvacina on why she's raised her targets for the S&P 500 this year, plus BMO Capital's Simeon Siegel on the big post-earning surge in Lululemon and Julia Borsten on Amazon's potential move into the telecom space.

Lori, you recently did up your target on the S&P to about 42.50. Well, the market's listened to you, and we're actually above that right now. So where to now? What do you think the market currently is pricing in? So, well, thanks for having me on, Mike. And look, I think the market has really been very forward-looking. I think in 2022, we pre-traded 2023. And I think that this year we're really pre-trading 2024. And we've started to notice on some of our indicators that the market clearly is starting to price in a recovery in 2024.

Not a fantastic one, but one that is moving up nonetheless. And so that would imply that you think the market is correct in believing that we get an earnings rebound going into next year and things fall into place fundamentally. Is that without a recession or is that kind of beyond a recession? I don't know if we're going to end up calling it a recession. I think that whatever it is, it started, whether it ends up being a growth scare, something close to a recession, a technical mild recession. I think the market's been prepared for that. I think we priced that in at the October lows. If it gets far worse than that and kind of bleeds deep into 2024, then I think you might need to see the markets repriced lower.

But if the economic damage is fairly contained into this year, I think that we already paid the price for that last year. And frankly, you know, and I hate to say this, but, you know, the fact that we are getting some confirming evidence that we're starting to see some of the breakdown in terms of consumer behavior. I think that it's actually good news for the market in an indirect way, simply because we do need whatever this is to go ahead and get it started. So we're not just constantly pushing it down into the future. Yeah, absolutely. We've been in those periods before where we can't get off of that late cycle vigil. Within the market, what looks interesting right now? Everyone's talked about the growth stock dominance and small caps maybe bouncing to catch up a little bit today. Well, the small caps are having a fantastic day. Last I checked, we were up about 3.4 percent on the Russell 2000.

And I thought it was interesting in the context of today's jobs report. We saw the unemployment rate tick up just a little bit. And one of the charts that we've had a, you know, sort of a lot of interest in in our investor meetings has been one that shows that typically if you're in the middle of a recession and the unemployment rate starts to tick up, that's about when the small cap trade usually inflects. Now, I think it actually inflected, you know, kind of at least started trying to do that last summer. It got interrupted by SVB. So i think this is really kind of a continuation but really the idea is you know once everyone sort of knows that certain things are breaking down and that economic damage is upon us it's usually already priced into the small cap part of the

market so i think that's one of the reasons why it's rotating so heavily today you know also frankly i think that we're seeing the value trade in general catch up and small cap has become synonymous with that value trade and we've seen certain things suggesting that the growth trade is ready to take a breather, perhaps not to go down, but in terms of just rotating some of that leadership away and letting the rally broaden out. Certainly, small caps have been trying to fight to reclaim some of that leadership and they're having a good day so far. Yeah, absolutely. This should be kind of the easy way for those divergences to take care of themselves as opposed to the hard way. Lori, great to talk to you. Thanks so much. Meantime, Lululemon shares surging after a 24 percent jump in first quarter sales. CEO Calvin McDonald

discussed that growth on Squawk on the Street earlier today. Around the globe in every market, we're in double digit growth, not just here in North America, but in every international market. Obviously, standout performance in greater China, but also APAC and EMEA. So very pleased with our performance across the world. Let's bring in BMO's Simeon Siegel. He just raised his price target on Lulu to3.55 from $340 a share. Simeon, can we extrapolate this type of performance that Lulu reported into the coming quarters? The market seems to love it. Good for you, Mike.

By the way, how much more comfortable did Calvin look than we are? We've got to get Lulu on. So, listen, I think that I agree with what Lori just said. I think this notion of this is the recession everyone's been waiting for but hasn't actually happened yet. Lulu's not seeing any of that pressure. So this, we're getting to the end of a consumer earning cycle where less bad was not even good enough, and Lulu came out and put up a very strong quarter. I think your question, though, we're dealing with a stock. And right now, we're seeing the stock go back to where it was about a month ago. Is it going to get better? Can it get better? I think these are very fair questions. I think what we saw was a clean, healthy, strong quarter

that appears very much priced into the stock. Yeah. And to be clear, you are kind of more neutral on the stock, even as you raise your price target as the valuation has rebuilt. I mean, the market clearly is just kind of crowding into the durable retail and consumer names and discarding those that seem more vulnerable. Where do you find there to be decent opportunity in the sector? I think it's interesting. You and I talk about various types of companies here. We have the Nikes of the world where you have consistency, you have size and scale. You have the TJXs of the world where you have off price. I will benefit from a trade down. But then you also right now, I have companies that I look at that are trading at five, six,

seven times earnings. A year ago, we were talking about that times sales. So you look at a Capri that just reported, and unless you think that they are going to just completely crater and they held their guidance, some of these companies are getting very cheap. So I think it's a risk profile curve. And so I like to think about, you can look at the TJXs on one side as being your more protected compounders, right? A little bit less exciting, but more consistent. And then on the other hand, you have Capri and Bath and Body Works, which are these companies that, if Lori's right, if we make it through and we don't see something really problematic, there's going to be a lot of repricing opportunities that happen across retail because it just happened on the way down. For sure. And as you mentioned, I mean, Lulu people are starting

to pay up for the perception that they have pretty much clear sailing for a little while. Are they in that zone with the Nikes of the world where the brand can just endure in that way? So I'm going to overstep and talk about the thing about my pay grade. I think that when we think about it, I'll get philosophical here. Multiples, premium multiples are generally premium and more expensive because of growth. I think that what happened across consumer over the last decade was that if you had a consistent company, you would pay up for that. And so I think Lulu is a typical growth stock. I think Nike is a consistency premium. I think TJX is a consistency premium.

What that means is the latter two are never going to live up to a peg ratio ever again. You're not buying it for some future year that will make the multiple seem more realistic. You're buying it because you can go to sleep easy at night. What that means in practice is that Lulu maintains their multiple as long as they maintain their growth. Whereas Nike and TJX maintain their multiple as long as they maintain their story. It's much harder to break a story. I was going to say, very crucial distinction. Lulu maybe isn't there yet. Simeon, thanks very much. Have a great weekend. Great to see you. Did want to get to Julia Borson on these reports about potentially

Amazon having ambitions, Julia, in the telecom space, excuse me. Well, telecom stocks plummeting today on that report that Amazon is in talks with wireless carriers to offer free or low-cost mobile service to U.S. subscribers to its Prime service. Take a look at these shares. Verizon shares down over 3% to a 52-week low. AT&T down 3.5%.

And T-Mobile shares down over 6%. In contrast, DISH shares are up about 16% today. Now, Verizon, AT&T, and T-Mobile all telling CNBC that they are not in discussions about a wireless Prime service. We have not yet heard back from DISH. Amazon saying, quote, we are always exploring adding even more benefits for Prime members, but don't have plans to add wireless at this time. Mike, that phrase at this time, it leaves the door open. Absolutely. And the market is clearly taking it that way, that that is not exactly closing the door on this possibility. Julia, thanks very much. Appreciate it. As we round out the week, about 30 seconds to the close, we have the S&P 500, just a handful of points from its previous August highs.

Remember, those August highs came right before Jay Powell of the Fed said there was going to be some pain to come in the economy. Now we're right back there. About 85 percent upside volume on the New York Stock Exchange today. The volatility index collapsed down below 15 to more than a year and a half low at about 14 and a half. It looks like the Dow is going to go out with a gain of 2.1 percent, just under 700 points. That does it for Closing Bell.