Closing Bell - Closing Bell: Awaiting Key Inflation Print & Bank Earnings 7/10/24

Episode Date: July 10, 2024

What should investors be watching ahead of tomorrow’s data and start of earnings season? Dan Greenhaus from Solus, Stephanie Link of Hightower and Jason Snipe from Odyssey Capital give their takes. Plus, Goldman Sachs Asset Management’s Sung Cho reveals the under-the-radar tech plays he is betting on right now. And, Max Kettner from HSBC tells us how he is navigating stocks in the second half. 

Kelly, thanks so much. Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with a rate cut rally. Stocks extending their record highs as Fed Chair Powell continues to make the case for lowering interest rates likely in the months ahead. Yields falling, the major average is rising, and now most wondering how long it can all last. We will ask our experts over this final stretch. Take a look at the scorecard with 60 minutes to go in regulation.

We're at the highs of the day. Dow's good for near 250. S&P crossing 5,600 for the first time ever. 5,618, that's where it sits. NASDAQ's up by nearly 1%. Tech is good today. Materials, they're among the best sectors. The semiconductor index hitting another new high.

And how about Apple? Up for a seventh day in a row. We're going to have a report on that coming up as well today. Takes us to our talk of the tape. The market move ahead of tomorrow's inflation report and coming bank earnings. Let's ask strategy. Let's talk it with Dan Greenhouse of Solus Alternative Asset Management here with me at Post 9. Do you think I framed this right, a rate cut rally? Because I think over the last couple of days, the chair was pretty dovish on the Hill and continues to set the table for what's going to happen in, we think, a couple of months. Yeah, I think that's right. I don't think he said anything new, but it's all from the equity market

standpoint. It's always nice to hear the Federal Reserve chairman tell you the types of things that you want to hear, like the labor markets loosening up a little bit and the odds of us hiking rates in the next couple of months are going up. And that's effectively what he said yesterday and today. Well, I mean, the labor market is, you know, weak. They seize weakness there. There is weakness. Well, and that's the thing, right? They've been solely focused on inflation for this whole run over more than 18 months. It's a dual mandate. And now they have to worry about the labor market getting away from them. You've got the unemployment rate at 4.1. You don't want that to start to get to the point where they can't control

it. So he's talking now about the two sided risks where before it was the principal risk of going too soon and cutting. Now, maybe the bigger risk is waiting too long to do it. Yeah. My friend Michael Gape and the chief economist over at Bank of America titled his note the return of the dual mandate. Because the idea is, of course, that now with inflation on track, according to the Fed, to be back within the realm of what they deem acceptable over the next couple of months and the labor market weakening, you have to start paying attention to the other side of your mandate.

I would take issue with the idea about the Fed, quote-unquote, controlling it, because I think there's, we put way more faith in the Fed than I think we should. My point is, look, they've gotten this far, and they sound close to declaring victory. Well, it's always darkest before the dawn and all that. They sound close to being able to declare victory. They don't want to mess it up. Yeah, but a point I've made with you numerous times, and I'll repeat again, is we cannot declare a soft landing until they've reduced interest rates by some amount,

which we can discuss another time, without having caused a recession or a recession occurring simultaneously. Yes, things have gone better than I thought and predicted 12, 18, 24 months ago. I'm losing track of how long it's been at this point. But the idea that they can cut rates, let's call it 100, 150 basis points, and glide path the economy into a soft landing is effectively what the market is betting on. But their ability to do that, I think, remains something of an open question. I think the odds are at this point that they're going to. But again, my point is just to repeat, until they've done it,

I don't think we can declare anything resembling a soft landing. I keep hearing people say, well, the market's due for a correction. And then it goes up. The market's always due for a correction. Well, I mean, does it feel like a correction's going to come? I mean, it's only due for a correction because you really haven't had one. That's the only reason you can say and make the case, well, it's due for a correction. But why? Because we haven't really had one.

That's right. We've been doing this for 20-something years now. Anytime the market's going up, someone's coming around telling me that it's due for a correction. What I would add to that conversation is, and I keep coming back to this, the divergence between the S&P market cap and the S&P equal weight. The S&P market cap obviously continues to make new highs, as you mentioned, now north of 5,600. The equal weight's traded sideways since early May. And there's a lot of stuff under the headline that is down 15%, 20% from the highs. A lot of the restaurant stocks throw up a chart of either McDonald's or Starbucks, two of the largest restaurant names. The homebuilders obviously have had a real tough go of it.

Some of the better performing momentum names we've talked about, like Decker's, have really run into trouble here. So under that headline, there's been some pain. It's just that that AI trade has continued uninterrupted, and that's holding up the bigger market cap weighted index. But again, I think you've had something of a sideways, if not downward correction for a lot of names under the headline. Does that pain under the surface knock the patient on its back at some point, or is there just enough strength in the rest of the being to keep this market going?

Well, listen, if for some reason tomorrow, if we found out that all of this was double ordering, let's say, and NVIDIA and Apple and all the meta and the tangential names, if you will, the power names, et cetera, all sold off, yeah, the market cap index would fall, of course. But I think at the end of the day, if the economy continues to do what we think it's going to do, and by we, I mean, let's just say the consensus, and earnings do what are expected to do over the next 12 months, then you'll find some equilibrium at which point the market, the equal weight, let's say, can begin moving higher again, even if that happens. But that said, I will just repeat, I see nothing, and I'm not, and I've said this 100 times, Solace nor I are some great tech investor,

but I've seen nothing in the macro data or in the company-specific data that says that there's some immediate worry to be concerned about. Do you think that earnings expectations are too optimistic given the economy is clearly showing signs of slowing? And if you look at any number of data metrics, it will suggest that. Yeah. Listen, do I think it's too optimistic? Probably. Do I think that means the market needs to go down because earnings expectations will come down? I'll give you the same answer I've given you the last 18 months, which is no. The market is generally too optimistic. And into

any given earning season, expectations come down. That's a perfectly normal thing to have happen. And then when earning season actually happens, we end up beating by anywhere between, let's call it two and five percent, something like that, depending on what time frame you want to look at. I don't see any reason that this earning season is not going to be any different. Well, when's the rest of the market going to start playing ball here? Well, some portions of the market are doing okay. We know this. And even if you move down below the Apple and the Teslas of the world.

Yeah, but I'm not talking about the growth trade. I'm not talking about semis. I'm not talking about software. I'm not talking about any of that. I'm talking about more cyclical areas of the market that have not performed nearly as well as the growth trade, as mega cap tech, or a lot of other parts of the market. When does that start participating? With the caveat that there's always stocks going up and there's always stocks going down. We know that. You know what I mean.

I do know what you mean. I'll repeat something I've said a couple times, which is I think my gun to my head, I think the answer is when rate cuts start happening, presumably later this year. Let me ask you this, why do certain parts of the market move in anticipation of Fed activity, whether it's cuts, hikes, or what have you? The market is a discounting mechanism. We say it all the time. It moves ahead of expected events.

Sure. Six to nine months is the conventional thought of things. Not always accurate. Well, but you know what I'm saying? Yes. Why in this case, if we know that rate cuts are coming, likely within the next couple of months, is that not working? I think...

Except for today. Today doesn't trend make. Well, today, one day doesn't matter. But having not put a ton of thought into that question for now... Well, Greg, because I just asked it. That's right. I just heard your first question, the question for the first time now. I think that the answer probably has something to do with the fact that for 12 months,

we're Lucy in the football here, where we've been told rates are coming down, inflation is normalizing, then you had the bump in the first quarter. And I think there's some element, at least based on the conversations I have with people around the street, there's some element of, yeah, yeah, yeah, I'll believe it when I see it. And I think now there is, we're coalescing around the idea that after that first quarter bump, that maybe sometime in the third quarter, call it the September meeting, that you might get your first rate cut. Doesn't mean we're getting a 2004 in reverse style scenario where we're going to get rate cuts in perpetuity. But I think there is a feeling that in some quarters that September is go time. I will counter that with I speak to plenty of people who, when I talk about something along these lines, say, why are they cutting at all?

Yeah, the unemployment rate's up, but a lot of that's immigration flows, and that's pushing up the unemployment rate. Yeah, the market's sitting at highs, but the equal, like there's a lot of- They're cutting because they're confident it's some degree and they'll get even more so before they actually make the move that inflation is getting back to 2%, right? PC is like 2.6. PC is a 2.6 on its way lower. And again, the counter argument is, well, they're not going to wait until you get to 2%, a point he reiterated today. Yes, he did. We're going to cut on the way. But there are other people who look around at the world today, the U.S. economy, and say things seem to be operating more or less OK. The economy is not too hot. The economy is not too cold. Yeah,

the labor market's weakening, but that's what you wanted. But inflation is still too hot to begin cutting rates. So why? What's the rush for September? Why not wait for December early next year, especially in the context of an election when you want to take yourself out of the equation, so to speak. So maybe that uncertainty is why people continue to buy mega cap tech stocks like Apple, which is going for its seventh straight record close. They keep working because they're doing much better than everything else. And everyone has made this point with you for years now. They just have better growth revenue earnings than income profiles than mostly speaking the rest of the market. Sure. But I mean, Steve Kovacs joining

us now to break it all down. But, you know, it's not like Apple's fundamentals all of a sudden got 180 degrees better. This stock has started running really when we were sitting at WWDC on campus. Yeah, that's exactly right. And that's why we're watching this potential record run for Apple, Scott, because like you said today, it could be the seventh record high close in a row if shares end the day above $2.28 and 68 cents. It's well above that right now. It looks like it's going to happen. Apple hasn't had a streak like that, by the way, since March of 2012. Shares are up about 20% in the past month, and that's, of course, since WWDC. And by the way, it's been outperforming the other MAG7 stocks over the same period, except for Tesla, of course. We know what happened there.

It turns out Apple just needed to prove it had a viable AI play to get investors buying again after the stock lagged behind its peers for so much of the year. The question now, though, Scott, will AI drive more iPhone sales? Let me give you one data point. Piper Sandler analyst said yesterday Apple is expecting to ship up to 100 million iPhone 16s. That's going to be the next model by the end of this year. That would be about 10 percent or so more than it shipped last year. Not to mention services growing by double digits again in recent quarters, helped by the App Store recovering from a post-pandemic slum, Scott. I will guess results, what, a few weeks away?

August 1. So yeah, just three or four weeks from now. That's going to be a big moment as it always is. I'll be there. You'll be in the middle of that. I know you will. Steve Kovac, thanks very much for that. Let's bring in CNBC contributors Jason Snipe of Odyssey Capital Advisors, Stephanie Link of Hightower. Both own Apple. Steph, I go to you. I mean, I think at this point it's one of your largest, if not your largest position. Yes, it is. It's about 9 percent of my entire portfolio, so it is very large. And I added to it back in May, when the sentiment couldn't have been any worse. People thought it got to 165. It was going to 130.

You had downgrades all over the place. You had numbers coming down. You had very little support. And I think that all reversed. Yeah, WWDC, but I think you're also starting to get some other things like you're starting to hear Asian channel checks that iPhones are finally stabilizing in China. We have one more bad quarter of China iPhone sales, in my opinion. And then you have super easy comparisons as well. And then, of course,

you do have the AI story and you have the iPhone refresh cycle. You have 270 million phones that have not been upgraded in four years. And now you have this AI component, which is absolutely compelling for those to convert. You also have AI and services. Services have carried much higher margins, so that's good for the margin profile. And you have some analysts,

I'm not sure I buy it just yet, but some analysts that think that this stock could, they could actually return $8 a share in earnings, which would put this at 16 times forward estimates, if that in fact is the case, not the 32 times that people are focusing on. So I think you also have support from the $110 billion buyback. And again, I think the people are starting to position a little bit more positively. But guess what? In the past year, this stock only is up 20%. That compares to Meta up 83%.

That compares to Amazon up 57%. Microsoft up 41%. This stock can play massive catch-up if, in fact, all of these things come to fruition. Well, because, I mean, in some respects, I guess, Jason Snipe, it's a show-me story. play massive catch up if in fact all of these things come to fruition well because i mean in some respects i guess jason snipe it's a show me story the other stocks that stephanie just mentioned they've shown us meta got leaner amazon they got leaner as well microsoft has obviously the position that it does within ai apple's talked a, right? Now they need to show us with the upgrade cycle that's got to be, in some respects, built into this stock move.

A hundred percent, Scott. It's completely a show-me story. It's all about execution, right? So WDC was literally 30 days ago. It was a month ago today, and the stock is up 20% since then. And all eyes and all the focus has been about all the AI improvements and all the things that Steph just alluded to. But for me, as it relates to China, China was down 20%. I think that is bottoming out. And, you know, an excellent point that Steph just made, 270 million iPhone users have not upgraded their phones.

And I think this new technology, all that they have discussed, which is building excitement around the stock, will come to fruition come September. So I think, yes, it's absolutely the execution story. The $110 billion buyback. The stock is trading at 35 times forward. It's now a $3.5 trillion market cap. Again, the largest stock in the world. forward. It's now a three and a half, 3.5 trillion dollar market cap, again the largest stock in the world. You know, so for me I think this is a unique

opportunity for Apple. They were sitting on the sidelines as all the stores, all the focuses have been around other names, to your point, in the mega cap environment and obviously Apple has not always been the first to move on new technologies, but they wait and see. And I think this will be the story that we see them execute over the next few months. I was at a friend's house this weekend with five guys sitting around talking. Everyone's got an iPhone. None of them knew that in order to benefit from this upgrade cycle, you needed at least a, I think it's a 15 or later.

All of them had 11s or 12s or something because there's been no reason to upgrade, which is why you've seen the refresh cycle go from a hard two years when it started to four plus four to five years now. And to the move in the stock, again, I make no comment about the stock as an investment, but I imagine Jason and Stephanie would agree. People don't realize as of yet that they're going to have to get a new phone and that's what I think the stock price is moving right now there's just tens of millions of people out there who are going to find out oh I needed a phone and go buy one so Steph you know you've expressed your concern recently and I think it's fair to say newfound concern about the state of the economy,

which has obviously been showing signs of weakness. The Fed chair continues to talk about what's happening in the labor market. How does that color how you're thinking about stocks you may have wanted to buy a month ago or two weeks ago that you might not take a look at today yet. No, I mean, nothing has really changed other than the fact that we went from 3.4% GDP growth last year to we're now running at about 2%. But 2% is still pretty healthy. And in addition, inflation is absolutely making progress. We get a big number tomorrow, but you have a 2.6 PCE.

And Powell certainly sounded like in the last couple of days that he's focused on the slower days that he's focused on the slower growth and he's focused on the inflation making progress. And they're kind of getting closer to easing. And so that's a good thing. So hopefully they don't overstay their welcome in terms of these really high restrictive rates. But in a two percent GDP world, you can grow top line revenues at about mid single digits, maybe even upper single digits. And you also have margins with inflation coming down. You have some margin help as well.

And so I think you can still see about eight to 10 percent growth for this year. I do not think you can grow in the mid teens next year. We'll have to deal with that at some point. But I do think very healthy eight to 10 percent growth. That is very supportive for stocks. And I I'm I've been talking about this forever and I have been wrong in terms of the broadening out. But I do think this quarter is really going to be an inflection point for not only for tech to continue its run, but also for other sectors to do well, too. And that's financials and that's industrials.

So I think they're a lot cheaper and they're and they're a lot less owned. And so that's where I think you're going. So I absolutely am buying those stocks. See, we've been talking about the significance of the last couple of days of Chair Powell on Capitol Hill. I'm looking at a right through that just moved from Nick Timros, of course, the Wall Street Journal, who says, and I'm quoting right from the article, during two days of congressional testimony this week, Fed Chair Jerome Powell made the beginning of a pivot on interest rates that might prove more durable than one that sparked a big market rally at the end of last year. He goes on to say, quote, he allowed that the Fed was not far, here's Powell's words, not far from achieving

the confidence it needed to cut rates. I mean, that's what this was over the last couple of days, Steph. It was a table set, a letting everybody know that we're closer than we have ever been in this particular cycle to actually making the move to cut rates right but so here's the thing I don't think they're gonna cut rates two three five times this year there are some people that are calling for that I don't think we need it in the economy growing at about 2% but I think just a signal of one or doing just one at least gets them started. And they'll do more if growth slows more.

But I'm not thinking that growth is going to slow more because I still think we have a heck of a lot of fiscal stimulus in the economy that is helping the consumer, that is helping the manufacturing industry. And so, again, it all comes down to earnings, Scott. You know stocks follow profits on the way up and on the way down. And right now they're going higher. What do you make of the perspective that Timoros is writing about, Dan? It's sort of why I framed the very top of this program today the way that we did. It's a rate cut rally. He's telling you essentially without saying it explicitly, we're darn close.

I mean, listen, Nick is a phenomenally connected and a terrific reporter. There's no question about that. I also think what you read is what the market believes also. I don't think that's telling me anything we don't know. To Stephanie's point. Well, we wouldn't believe it if the Fed chair wasn't as direct and as leading perhaps as he was over the last couple of days. I think that's the whole point. No doubt about that. We wouldn't have the type of rally that we probably have had over the last couple of days

without the chair setting the table in the manner of which he did. I feel like he took the extra step. Steve Leisman, after hearing the testimony before Senate banking yesterday, suggested that he took an extra sort of dovish step. Steve Leisman, you know, after hearing the testimony before Senate banking yesterday, suggested that he took an extra sort of dovish step. I feel like today he only added to that and maybe put the other foot in front of the other one. No, I'm agreeing with you entirely. But and to Steph's point, there are a couple of banks on the street that have three rate cuts this year. Most are at two, some are at one. So I think in terms of the forecasting community, the economics community, everybody sort of thought that the economy and inflation

would be on this glide path to start permitting them the cut rates, whether it was September or December and two or three or one obviously is the great debate. But I think he took the, I would agree he took the extra step to sort of tell the market we're almost there. I think if you get one or two more reports, another weakening of the labor market, so to speak, maybe claims ticking up to 240, 250, and inflation continuing to move down into the lower two and a halves instead of the upper two and a halves, I don't see any reason why they, based on everything I hear from this Fed, that they wouldn't feel comfortable starting to cut rates later this year. Jason, I'll give you the last word on the conversation

that we're having. Wrap it up for us. Yeah, Scott. So I think absolutely, as it relates to what the Fed is doing, I think they've done a phenomenal job. I mean, unemployment is right at 4.1 percent, you know, PCE at 2.6 percent. Obviously, we have CPI and PPI this week, CPI looking to come in at 3.1, you know, and PPI looking to come in around 2.2. I think these are numbers that are supportive, at least for one potential cut. By the end of this year, I think it will be September. And I think, you know, then the election will get we'll get through the election and then they'll kind of look at policy again in 2025. So I think we're in an excellent place. Rates are lower. You know, inflation is under control. I think this is a nice opportunity to put money to work. I mean, dare I say I might be surprised if they only did it once this year.

I guess we shall see. And we'll have plenty to talk about in the weeks and months ahead. Guys, thanks so much. Jason, we'll talk to you soon. Steph, you as well. Dan Greenhouse, thanks for being here at Post 9 with us. Let's send it to Pippa Stevens now for the biggest names moving into the close. Pippa? Hey, Scott. Well, HubSpot is sinking following a Bloomberg report that Alphabet has shelved its efforts

to acquire the company. Alphabet signaled interest in the deal earlier this year, but the sides did not reach detailed discussions around due diligence, according to the report, citing people with knowledge of the matter. Now, we did reach out to both companies, but have not heard back. And LegalZoom plunging more than 20 percent to a new all-time low. The company cut its full-year revenue outlook and announced the departure of its CEO. At least five analysts downgraded the stock following the news, including J.P. Morgan, which said investors would view the unexpected departure as signaling newfound operational troubles at the company. Scott?

All right, Pippa, thank you. We'll see you soon, Pippa Stevens. We're just getting started. Up next, going beyond the mega caps. Tech's been on a huge outperformer, the XLK gaining more than 22 percent so far this year. Our next guest, though, finding opportunity outside of the sector's biggest names. He's going to tell us exactly where. We're live with the New York Stock Exchange.

You're watching Closing Bell on CNBC. We're back. The tech sector hitting another record high today, gaining nearly 35 percent so far this year. Our next guest still sees further upside from here. He is, though, looking beyond the mega cap leadership. Joining me here at Post 9 is Sung Cho. He is Goldman Sachs Asset Management Co-Head of Public Tech Investing. It's nice to see you. Welcome. Thanks very much for having me. Okay. So where are the best places to look outside of the mega caps, which, you know, no one wants to talk about? Everybody's so fixated on these big names.

Apple's going for seven in a row. NVIDIA's off to the races. So what do you think? Look, one of the principles of tech investing is to follow earnings estimate revisions, right? And where we've seen the biggest earnings estimate revisions have been in the MAC-7. And as a result, those stocks have outperformed. NVIDIA went from generating $26 billion in 2022 to generating $26 billion in the most recent quarter. So that's where you've seen the most positive revisions, right?

So as you think about whether you want to stay in the MAC-7 or you want to look outside the MAC-7, you have to look the next couple of years and say, where are the biggest positive revisions? And we think that the revisions around Mac 7 have not plateaued, but are going to be less exciting than some of the other areas that we're seeing. Okay, I hear that from other people as well. I don't think many would be surprised by that, right?

You can't keep up this torrid pace of earnings, you know, explosiveness forever forever let's focus on the chips okay because you know nvidia had this correction and a lot of names within the semiconductor index did as well and it seemed to be short-lived right yeah stocks today i think is back at uh at a new high yeah what does that tell us about those other stocks that can work look i think we've seen so far that NVIDIA has dominated the space. They've had 100% of AI processing market share. But we think that that dynamic is about to change. You know, all the cloud hyperscaler companies are investing in their own silicon capabilities

on a platform of what's called ASICs. And we think companies like Marvell are actually set to potentially double their revenues from here. And that's just getting started. I hear names like LAM, right? LAM Research, Applied Materials. Yep. These chip equipment names. That's kind of the wheelhouse you're talking about? Yeah, no, no.

It's much more Marvell. It's much more of an ASIC provider. So as, you know, companies develop their own silicon, like Amazon's developing their own silicon, Google's developing their own silicon, they're developing ASIC chip, which is a different kind of silicon relative to GPUs. And we think that's going to start to take a little bit more share relative to the GPUs. So what about software, which kind of, you know, a lot of the names in that space, certainly the popular ones kind of fell by the wayside for a while. I had some

suggest, no, it's too early to buy the dip. Brad Gerstner, though, who you may know from Altimeter, was on our program from out in San Francisco not that long ago and said, I think we're close to a bottom. Some of those names have rebounded since then. What do we think? We really like the infrastructure software companies. And so, if you think about what's happened so far in terms of AI processing, all the data that's been trained is largely publicly available data. And we're gonna continue to train

a lot of publicly available data, but at some point we're gonna start running out of the publicly data that's available to be trained. And so the gold mine and the next generation of this kind of AI wave is gonna be enterprise data. And enterprise data is still in its infancy, and companies like Elastic are really gonna benefit from the migration of enterprise data and enterprise data is still in its infancy and companies like elastic are really going to benefit from the migration of enterprise data into ai type workloads okay estc what's the

market cap of that company you know off the top of your head not off the top of my head i think it's it's a mid-cap stock so it's in the oh it's 11 billion so yeah okay so it's a small gap it's mid-cap but yep you think it has a lot of upside from here. Yeah. And you're a big believer in the power play, the pun intended, I suppose, for AI. Yeah. Look, I think in some ways the joke is out, right? It's like the reshoring is happening. The manufacturing renaissance is happening in the United States. We started with semiconductor manufacturing moving over.

We have EV factories moving over. Now we're building AI factories in the United States, right? And so we're just building factories in the United States, right? And so we're just building a lot of industrial capacity. And what's putting pressure on is a lot of the power infrastructure. So we're going from 0% power growth to potentially 5% power growth. We need to be able to supply a lot of more power infrastructure. And one of the key suppliers in order to build out grids, in order to build out these power capabilities, is a company called GE Vernnova,

which does industrial gas turbines and electrical components for, you know, and it's a spin out of GE. When people say to you that, I mean, you're the co-head of public tech investing, right? So I know you have a thought on this, that valuations within tech are stretched, obviously looking to the mega caps. Do you believe in that? Do you agree with them? Do you make a counter argument? Look, I think only if the valuations are stretched, only if the earnings don't come through, right? I think in the last segment, you talked a little bit about this, but like the multiples are expanding because the expectations around forward growth are going up. To the extent that earnings estimates don't rise, then obviously it's gotten too expensive. But you said at some point they're going to slow. Yeah, so earnings estimates will slow.

I do think it's getting closer to fair value. We continue to think of mega cap from here as more of a grinder type space. But we just think that there's other opportunities in tech that are much more compelling at this point. Welcome to our program. It's good to have you. We'll see you soon. Thanks very much for having me.

Joe Goldman joining us right here at Post 9. Up next, your second half setup. HSBC's Max Kettner is back with us. We're going to find out where he sees opportunity in this market and where he thinks stocks could be heading over the next few months just after the break. Stocks getting a big boost. The S&P and NASDAQ once again hitting all-time highs. S&P now on track for its seventh straight day of gains.

My next guest thinks there is even more room to run for stocks from here as we gear up for earnings season. Joining us now, HSBC's Max Kettner has his second half playbook. Welcome, Max. Good to see you. Good to see you. Thanks for having me. How much of your playbook over the second half is built around rate cuts? Yeah, not too much. I think as long as the Fed is signaling that the next move is a cut, I think that is the most important thing really for risk assets, whether you're an EMD, an emerging market debt, or whether you're in high yield

credit, whether you're in equities, it doesn't really matter when the first cut comes. I think what really matters for risk assets overall is as long as the tail risk of they could be hiking, as long as that tail risk is taken off the table, that's totally fine. And then if indeed they don't cut this year, they're only going to cut maybe in December or maybe only in Q1 next year. As long as they continue to signal what they've done, for example, today, that they say, we're going to grow more confident. We're just not quite there yet, but give it a bit of time and we're going to get more confident. That's totally fine. I get it. But I mean, is that really true? If that was the case, right, we've figured for the last, you know, I don't know, at least month that cuts were coming and we're going to get them before the end of the year. But yet so many other areas of the market haven't been working.

So why is that? I think because when we look at the last two months, really, we had that one pretty much a line print of CPI in April. We then obviously had that downside surprise in May. And obviously what happened then was rates was coming down, rates, volatility declined. We've seen yields decline. We've seen real yields decline. And that really, really propels the tech sector. It propels the long duration sector. Of course, and also what we've seen in the last two months is these negative activity surprises, the negative economic surprises in the U.S. that are putting a bit of, casting a bit of doubt around

the growth picture in the U.S. I think, for a lot of investors, right? A lot of investors that we're meeting right now really start pretty much every meeting with, well, now that the U.S. growth is decelerating. So you're really going to stick to what's been working over the last year, year and a half. You're going to stick to mega cap growth, mega cap tech, and not really, you know, not really diverting too far away from that. You know, it's interesting. I was looking at your notes and then I was looking at the global markets on my screen here. And over the last month, several of the developed nation European markets for sure over a month have not done well, even though the ECB has already started cutting rates. Why is that? And is there any precursor for what may happen here as we're trying to suggest, I think some at least are, that rate cuts are going to be positive for stocks?

Well, they maybe haven't been there. Why would they be here? I think that's an excellent point, Scott, because I think what we're going to have, and there is a decent chance that that will happen, that we're going to go towards the first rate cut here in the U.S., right? We're going to have, and there is a decent chance that that will happen, that we're going to go towards the first rate cut here in the US. We're going to get to that first rate cut. And then everyone gets super excited. What we really probably could be having by then is a setup where shorter term sentiment and positioning is going to be much more stretched then. Because everyone sort of gets their old textbooks out and says, well, you know what? Once we get the first rate cut, then things are actually good. We get the start of a proper rate cutting cycle. Things are

just like that they are traditionally. And then, you know, everyone gets super excited. And that could be really setting us up for a bit of a stretched sentiment and positioning once it happens. And that is then the point where I think at least tactically, you want to pull the plug a bit on equities and at least neutralize and take profits at least for a couple of weeks a month. We are not there yet at all because we look at our shorter term indicators. They're not even sending a mile, not even a small, tiny sales signal. So we're not at that point at all yet. The difference, of course, being that our economy is stronger than theirs,

their collective economy, obviously. So maybe that plays a role as well, is that you're coming just from a much better economic place when Fed Chair Powell actually cuts rates for the first time from the position where Lagarde had been able to do it. Yeah, I think that plays into that as well, into that whole picture, I think, certainly. But I think that the more important thing right now, and I think that's the immediate next trade, I think, in the next stage, is that pretty much everyone is sort of saying, look, inflation is no longer really a problem. I've been listening to you guys on the program now. I don't think anyone's really particularly worried about inflation.

And don't get me wrong, I'm not proclaiming the next big inflation wave higher. I'm just simply saying when you look at our forecasts, we have been stuck at inflation. We've been stuck at headline CPI between three, three and a half in the last 12 months. And we don't foresee that changing in the next six to 12 months. The the big big difference now compared to two months ago is that when you look at shorter term inflation expectations they're massively lower compared to two months ago right we started the two percent short-term market-based inflation expectations we were shooting higher to three percent we're back at two now so everyone's pretty much like well yeah give it early, Q1 next year, and we're pretty much on target. I think that's where the danger lies, that we're only going to get maybe a slight, an ever so slight upside surprise in inflation.

And that already is enough to question that whole narrative. Well, you know, the Fed already is cutting. It's probably September or December. It doesn't matter, but they're definitely going to cut. And that little bit of tiny upside surprise in inflation and or even some tiny upswing in economic surprises could already be enough to really question that sort of Goldilocks narrative that the market is married to right now. Max we

got to leave it there. We'll talk to you soon. Max Kettner joining us today. We've got a rally on our hands to Dow's good for near 300 points right now. S&P crossing above fifty six hundred for the first time ever today, adding to it as well. We're going to keep our eyes there like Pippa Stevens is watching the stocks that we need to know about into the close. Pippa, what do you see? Well, Needham says to buckle up because one car stock is heading higher. We've got all the details coming up next. Well, less than 15 from the bell. Back to Pippa Stevens now for a look at the stocks that she's watching.

What do you see? Hey, Scott. Well, ride-hailing companies Uber and Back to Pippa Stevens now for a look at the stocks that she's watching. What do you see? Hey, Scott. Well, ride-hailing companies Uber and Lyft are sliding today as drivers in Massachusetts push for a ballot question that would win them union rights if approved. It comes after a landmark settlement last month guaranteeing drivers will earn a minimum pay of $32.50 per hour in the state. And shares of Carvana adding more than 3% after Needham upgraded the stock to a buy with a 160 price target. The firm said that after a volatile past, they see Carvana becoming a profitable secular growth story. Scott? All right, Pippa, thanks for that. Pippa Stevens still ahead. Pain in the payment name. Shares of MasterCard, Visa and Block all lower in today's big session. We're going to tell you what's behind those moves and what could be at stake for the sector coming up.

NASDAQ, S&P trying for yet another record close. We're at session highs with less than 15 to go. We're coming right back. Closing bell market zone time. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus another record rally in the chip maker. Seema Modi is going to join us with those details. Kate Rooney in a moment on why MasterCard and Visa are under some pressure.

Mike, I'm going to begin with you. We have a good rally here into the close. I characterize this as a rate cut rally. Would you want to take issue with any of that? Because, look, Nick Timoros was out, as we said, writing that this was in the midst of yet another pivot and perhaps even more dovish than we got last time. I think that's the latest push in the direction of a bull market that's obeying all the bull market rules. So we do have this tacit acknowledgement that we're probably within a couple of months of the first rate cut,

still with a 4% to 5% nominal GDP growth economy. So all that is just a nice backdrop in general, leaving the soft landing a very plausible, likely outcome. All that being said, here's what we also know. Great first half of the year usually means a positive second half. The average up year in the stock market, up year, is 20 percent plus. We're not there yet. First half of July is positive. We're chasing the best, meaning the highest quality companies, starting to have the others

participate a little bit. So my point is, this is all feeding off of all of the positives inputs that were already in place. I could be persuaded that we're kind of emptying the tank here. It's looking a little melty. We're getting a little bit full. That doesn't mean it changes the overall trend or we're due for some kind of major stumble. It just means, you know, maybe the risk reward is setting up a little bit tougher from here. Yeah, I mean, I know that the mega caps get all the conversation, but Seema Modi is here to talk to us about the chips, specifically Taiwan Semi, which had some pretty good news. Yeah, these are the monthly sales, Scott, that came in much higher than expected,

coming ahead of the full earnings release, which is next Thursday. And it's really providing a nice lift to the entire semiconductor sector with memory players like Micron Equipment, Giants, including LAM Research, Broadcom, customers, NVIDIA, all trading to the upside. AMD announcing the acquisition of Silo AI. That's the largest private AI lab in Europe for $665 million, one of a dozen acquisitions AMD has made in the past years as it builds out its offering to better compete with NVIDIA. But just take a look at this price action. Shares of AMD vastly underperforming NVIDIA. It's up only 23% this year compared to NVIDIA's 170% run. And Scott, some takeaways from Citi's Gen AI Summit. Yesterday

in New York, analysts there citing that a growing number of enterprises are doing some level of AI testing. So that's keeping them bullish. Their price target on NVIDIA, $150. Right now, the stock is trading at $134, which is getting very close to its high that it hit back in June of 140. Semiconductor Index doing real well today, too. Sima Modi, thank you for that. To Kate Rooney on what's going on with some of these payment names, MasterCard, Visa. What's happening? Hey, Scott. Yeah, both are lower after this Bank of America downgrade.

So analysts there still like the business model. They talk about the competitive mode, but they see limited upside from here. They say the names are crowded at this point. Plus, you got regulatory headwinds that they're watching. This battle over swipe fees, they say, could weigh on growth there. Block, meanwhile, which used to be called Square, it's a top pick for Bank of America. But the stock is lower today after they announced a deal to provide ASICs chips to this Bitcoin mining company. Wall Street really has not loved CEO Jack Dorsey's Bitcoin projects. They're a lot more focused on cost discipline in the core payments business. And then Block has also lost its correlation with Bitcoin. It's gone in the opposite direction. If you look at a Coinbase, for example, the big winner, though, in the payment space, it's been

American Express, really. Amex has been the winner so far this year. Wells Fargo hiking its price target, looking for about 22 percent upside. You got Amex up, you can see, around 26 percent. Compare that to Visa and MasterCard this year, pretty much flat. Scott. All right, Kate Rooney, appreciate you for that, with that report. We'll turn back to Mike. We've got less than two minutes to go. I mean, at some point, you need to get the equal weight participating, right?

It's the story, as you said, and the energy's tired. Ideally, yes. That does also mean that the majority of the market is kind of in resting since March. You could say that's when the equal weight really first traded at these levels. I do think you have an interesting dynamic today, which is this would be the first one percent move in the S&P of any direction since about early June. It's like five weeks. And you also see the volatility index up. Stocks up, VIX up is an interesting dynamic suggesting that maybe the market's just waking up in general. And we're on alert for, again, this moment when it feels a little more of an accelerated meltup as opposed to a slow grind. Underperformance, interestingly, today in the Russell.

Yeah. in the Russell. And I wonder if some of that has to do with, even though there's this optimism about a coming rate cut, if part of the cut is because they have to, to head off a worsening economic situation. Well, in the last little bit, we're up 1.08%. Okay, so we just moved up here, too. But everything wants to participate. But the trade-off is relevant here. My system's slow. The trade-off is definitely relevant in terms of, you know, how much do we want to hasten the day when a rate cut looks obvious? Because we are still navigating a slowdown of some magnitude.

It's very manageable right now. Earnings are expected to be up double digits. It's tough for the market to run into a lot of trouble if those numbers come through and miss as well in the next couple of months. Thank you, Mike. New record highs for the S&P and the NASDAQ. into a lot of trouble if those numbers come through and disappear in the next couple of months. Thank you, Mike. New record highs for the S&P and the NASDAQ. S&P is going to close above 5,600 for the first time ever. We'll be right back.