Closing Bell - Closing Bell: Believe in the Broadening? 2/12/24

Episode Date: February 12, 2024

Solus Alternative Asset Management’s Dan Greenhaus and BNY Mellon’s Alicia Levine explain their forecasts and whether or not they believe in the broadening. Plus, Sara Naison-Tarajano from Goldman Sachs Private Wealth is revealing how she is advising her ultra high net worth clients. And, retailing legend Mickey Drexler weighs in on the state of the consumer, inflation and the latest NRF/CNBC retail data. 

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with surging stocks, the broadening rally, whether it is a true turning point for your money. We'll ask our experts over this final stretch, including Goldman's head of family office, Sarah Nason Tarahano. Also coming up, an exclusive with retailing legend Mickey Drexler on the state of the consumer. Can't wait for that. In the meantime, your scorecard with 60 minutes to go in regulation looks like this. Well, we were within a whisker of more milestones in the market, particularly for the NASDAQ going for a new closing high. That would be 16,057 and change.

So we've come down a bit midday. We're still pushing and we will track it over the final stretch. Small caps, another banner day. The Russell 2000 outperforming the rest of the market today. And what would a day be without a check on NVIDIA shares? Well, they were up again. So there's the intraday. So now they're flat, trying to eke out yet another gain.

What a remarkable run that's been. And we're watching shares of Arm Holdings, too. Talk about remarkable in a very short period of time. That stock was up 40 percent earlier today. All right. It's only up 20 plus. What can I say? It takes us to our talk of the tape. Can you believe in the broadening? Let's ask Dan Greenhouse, chief strategist for Solus Alternative Asset Management, with me at Post 9. Welcome back. It's good to see you. Thank you, sir. Got quite a market, you know, strategist today. The trends remain overwhelmingly positive.

Wolf Research, momentum remains very strong. Is that how you see it? Yeah, I think so. We have to be cognizant of the fact that the rest of the market isn't doing as well as the top tier stocks for sure. Starting to, though. Yes, they are starting to. But whenever you have this level of, there's a reason why everyone's talking about late 1990s comparisons, given the outperformance of, you mentioned NVIDIA and some of the other large tech stocks, no longer Tesla, but some of the rest.

But you should be conscious of the fact that they're doing a lot of the heavy lifting here. But even outside of that, as we've talked about ad nauseum and other guests as well, plenty of other stocks, plenty of other sectors are contributing here. It's been pretty impressive and it remains so. I mean, can you believe in it? It's sort of my central question of the day. Can you believe in the broadening? Because I mean, that matters a lot. Well, because you've had it before, but it's been short lived a couple of days here, a couple of days there, but not a trend to really believe in. Not at the headline level, no. But again, to repeat, there's a number of industrial stocks that are sitting at highs that have secular tailwinds. That's fair.

The industrial chart looks great. Yep. A number of consumer names, not necessarily the retailers, although Abercrombie & Fitch is to the moon, but a number of consumer sectors like the hotels, anything associated with travel obviously remains pretty strong. So the homebuilders, of course, it's not just five or six tech stocks that are going up. Plenty are going up. They're just doing the heavy lifting. You scoff at the notions of comparisons to 99. You say, as some would suggest, it's more

like 95 than 99. Fed pulls it off. They pull off soft landing. They do a few cuts. The economy hangs in and everything's great for the next few years. Sure. Admittedly, there are similarities and there are differences. There are a lot of people talking about late 90s comparisons. I think the point I wanted to make to the producers and I would make here on air is the level of egregious overvaluation that we saw in the late 90s is nothing like

what we're seeing today. There are pockets, of course. Eli Lilly, very expensive. NVIDIA, very expensive. Is it? If you believe in forward earnings. I mean, yeah, it costs a lot to buy a share. But the valuation is actually now cheaper than its 10-year historical. Yes, but still 50 or 60 times forward.

Well, it's 30. It's like 33. Depending on your forward earnings. But listen. Don't let the facts get in the way. No, we don't care about the facts. But my point is that when you go back to the 90s, especially towards the end, you had stocks like PeopleSoft and other names.

Oracle was trading at 100 times forward earnings. The market as a whole was trading at 30, 35 times earnings, depending on your... The NASDAQ was trading at 120, 125 times forward. So we're nowhere near that. We're nowhere near that. Now, that on its face is insufficient, because the fact that you were not as overvalued as you were in 1999 does me little to no good. But the 95 analogy, I think, is warranted in the sense that then you were at the forefront of the evolution of the Internet and the New York Times, CNN Money, Wall Street Journal, the commentary then is very similar to what you hear today from the like of Dan Ives,

in the sense that we're on the doorstep of this new industry, this new paradigm shift. Do you think it's going to end badly? Well, listen, when something's trading at 50 or 60 times earnings, whatever it might be, not NVIDIA, let's say, but in general, then those things usually end badly. I defer to my friend Ben Snyder and David Kostin over at Goldman Sachs, who've done work in the past. I don't remember when or the note, but what stocks usually grow into their valuations. And historically, stocks trading at what we'll call excessive valuations to oversimplify things for the viewer usually don't grow into their valuations. That's not always true. It's usually true.

We get CPI tomorrow. We're going to get PPI this week as well. What's riding on this? This is all in the narrative, right? Sure. Inflation is going to 2%. Yes, it's on the way. And the Fed is going to cut before it gets there. The Fed is going to cut before it gets there. Skate to where the puck is going, Scott. The idea that they need to wait to 2%, never an idea that they advanced or an idea that the market should have believed in. The trend is clearly downward. I think the so-called last mile that we're all focused on right now becomes the focus. How long does it take you to get from 3% down to 2%? At the same time, from an investment standpoint, I'm not sure that I care. And what I mean by that is from an

investment, from a market forecasting standpoint, if someone told me inflation over the next five years will be 3% rather than 2%, do I really think that the earnings trajectory, the economic trajectory will be meaningfully different? I'm not sure that it will be. I mean, the Dow hits a new intraday record high today. The S&P hits a new intraday record high. There was a moment today where the Nasdaq was trading above its closing high. These records make you nervous. They say this is, you say this is all good. Earnings are going to justify. The economy is going to justify. The Fed, new trend is going to justify all of this. The economy has justified. Earnings have justified. The Fed has justified. Do you think

earnings broadly have justified? Listen, tech is doing a lot of the heavy lifting. There's no doubt about it. There's been some improvement in discretionary even outside of Amazon and and well, you don't care about this anymore. But but even in discretionary health care has a pretty good earnings trajectory. It's certainly better there than, say, earnings trajectory. It's certainly better there than, say, in materials. It's certainly better there than some of the other spaces. But I think on balance, listen, I just went through, I don't know, 200 conference calls, 300 conference calls. I'll impress everybody by saying 500 conference calls. Wow. A lot of conference calls. You work

really hard. A lot of conference calls. Really, it's very difficult. But the point is, no matter how many you read, I'm struggling to find negative commentary from companies in any one of the sectors. The best I can come up with is normalization, where the excessive growth rates or the extreme growth rates, I should say, from a year ago are now coming back down to earth, so to speak. That's really the most negative commentary

on balance that I've found. That's not to say that there's any one company that hasn't said something specific, but groups of companies, sectors, industries on balance are saying normalization at worst. I mean, I see some people look at the S&P, you know, above a smidge above 5000 and say, wow, this was really conservative. The outlook for this year got 5200, 5400 base case. Sure. You see it. A couple of times ago, I wish we could bring up the video. I speculated that your target for this year should be 5,300, which at the time I wasn't endorsing as my own personal view, but I was saying if that were my view, 5,300,

it would make you the most bullish analyst on the street. And how do you get there? You have normal, call it 10% earnings growth, hold a multiple constant, call it 19, 20 times, and you're pretty easily at 5.50 to 53.50. It's not even that much of a stretch to get there. The advantage I had when I did that was I did it in early January as opposed to early December when the other strategists did it. Next time you're on, we'll play the tape.

We got the tape. Give you some props. I don't need props. Let me tell you something. Let me tell you something. We always have the tape. You know something, Scott? Your friendship is the only props I need.

Oh, what a guy. Alicia Levine joins the conversation now. BNY Mellon Wealth Management. Welcome back. Nice to see you as well. Great to see you. You agree with a pretty optimistic, to say the least, outlook. I have to say I agree. And we agreed together in December as well. We were very bullish. And the thing is, it is it feels like ninety five, ninety six and not ninety nine. Because, first of all, go back two years, we're basically in the same spot where we were in the S&P and NASDAQ and the Russell were 20% lower. So we're not exactly over our skis here. We have the earnings coming in. And so it doesn't feel, if you take a two year view or three year view, we're actually not over our skis. The fundamentals are strong.

Those low estimates for the S&P for the end of the year almost universally expected some probability of a recession. As we price that out, your end-of-year target goes higher because you don't have the recession coming. And so on a probability-adjusted basis, you go higher into the low to mid-$5,000s here on the S&P. The earnings are good. Large cap tech has the margins and the earnings and the revenue, and it's going to keep on leading here. Do you believe in the broadening? I do believe in the broadening. And the story that it can continue for a meaningful period of time. So I'm going to call it a broadening, as you do, and not a rotation. It cannot be a rotation. The Magnificent 7 market cap is five times that of the Russell 2000. You simply can't sell enough Magnificent 7 to get Russell 2000 to a real

position. But you would stay max positioned in terms of the mega caps? I would shave some. I would rebalance a little bit and I'd go to the other asset classes. I'd look also globally. I mean, PMIs have bottomed globally as well. It's a really interesting story because of the kind of doom and gloom that we're hearing about a few months ago. The data is coming in much better. The key thing here, as you point out, is CPI tomorrow. The key variable is inflation. Three percent inflation, inflation moving lower. That's the story. Then the Fed can cut. A 3% inflation means the Fed can cut real rates, cannot be over 2% to 2.5%. And then the story continues. And then you wind up with your long duration assets doing well also. If things, Dan,

are this good now, what happens when the Fed actually cuts for the first time? What is that a signal for the stock market? We like to anticipate things well in advance, obviously. We're in something of a bizarro market in the sense that historically, when the Fed begins to cut is when you would typically want to trim positions. You saw this leading up in the second half of 2007. Obviously, you saw it during the course of 2000. I'm not sure that's the case for reasons that have been discussed on this show and others for the better part of it. And let's also recall why the Fed cut. That's why it's conceivably not the same. I can see why you would suggest that,

because it would make sense, right? Fed's cutting because things are bad. Well, yeah. They have no choice. Here, this whole thing is banking on the idea that they cut because they can, not because they're forced to. No, that's exactly right, which is why history is maybe perhaps not as relevant. So, yes, I think what you have is a situation where if the Fed cuts, I can construct a scenario where interest rate sensitive sectors start to do even better, if that's possible. And you look at something like the homebuilders, and I'm not recommending them as an investment, but industries that are typically weighted, cyclical sectors that are typically weighted towards interest rates,

I mean, have already done somewhat well. Dare I say they might do better? Listen, at the end of the day, I think the way that you have to approach the next year is one, optimistically, because the data is corroborating it. Alicia mentioned the PMIs are bottoming. Leading economic indicators, of which components of the PI would sort of the same view, are starting to turn upwards. With the caveat that, again, a lot of heavy lifting is being done by the few names. And if you start to see profit warnings or something like that, then sure, we can have a conversation. But getting back to

the 1999 comparison, you had a year of Nortel, Intel, Yahoo, Microsoft, Qualcomm, EMC, JDSU, warning about profits coming in less than expected and then eventually negative before eventually the real rollover began in 01 and later 02. Well, this was a period, you know, if we all remember the famous Greenspan irrational exuberance line, it wasn't at the end. It was a few years before. So then at what point, Alicia, this is a good segue. When does exuberance become irrational in this particular case? So I don't think we're there yet because the earnings are coming in and the margins just keep on going higher in the AI and tech stocks. So that is our new dot com, right? That is the new area for investment. And so far it's going so well. We're just not there in terms of, you know, multiples of revenue leading to higher stock prices. We're really

more fundamentally driven here. As you point out, irascible exuberance was in 96, and we had another three and a half years to go that were extraordinary in the market. Is that, I mean, are we potentially looking at another period like that? As you said, you know, the S&P basically went nowhere for a couple of years. If you look, you know, back a few, it's not like the NASDAQ. It's not like it's cheap, but you could certainly say it was more extreme perhaps a few years ago. Does that make the runway longer this time? It does. Because the drop that we saw in 22 and most of the market in 23 reset where we can go for the future. Price came in. Multiples came in. Large cap kept on doing what they're doing because they were insulated from lending and higher interest rates. And we can move from here. If you go

back two years, we haven't gone anywhere. What are we so afraid of? We can't be afraid of this. This is where you can make money for your clients. The funny thing about this is it's almost like we've memory holed the fact that the Nasdaq fell 36 percent, that the stock market, the S&P 500, fell 27 percent. So it's not as if there's been no pain, let's say, associated with the Federal Reserve's rate hikes. It's not as if no one paid the price. The entire crypto industry was effectively wiped out. All the unprofitable tech stocks have effectively been wiped out. All the companies that went public through the IPO process have effectively been wiped out. There's been enormous pain and losses inflicted on investors. Now, just because immediately thereafter, we invented this entire

AI industry in November of 22, I think it was, compensated for some of those losses. But again, let's not pretend that you didn't have humongous losses and pain for investors broadly. What we're afraid of is missing something. We're afraid of these lags that are long and variable, having some sort of negative impact that are not yet seen. We're afraid of commercial real estate having a larger impact on the market. You've had some tremors. You haven't had, you know, full blown earthquakes. Look like we might have something with SVB. And the Fed came to the rescue there. So I think that's the story. What we learned in March of last year is that the Fed has a floor under the market. The Fed puts back.

The Fed put is back. You really believe that? And on the lending side for banks. So if your fear is what's happening with bank balance sheets and what's happening with the commercial real estate going through the regional banks, $2 trillion comes due by the end of 2025. It's not that they're all going to be great investments. It's that the Fed's going to be there to backstop it. And so, therefore, it's not a systemic risk.

So if you're an investor and you say, that's what I'm really concerned about, the long and variable lags in CRE and what that means to some bank balance sheets, I think what we've learned is that we're going to be, you know, it's going to be a cushion there. To that point, if there were, I don't want to say there's a Fed put and the Fed's going to step in if the market goes down, but if there were ever losses to be taken, it was in Silicon Valley Bank. The idea that no uninsured depositors in that bank could absorb even a modest amount of losses to spare some of the pain or the

eventual pain on taxpayers is just, it's unfathomable. So when you say, when we have this conversation about the Fed stepping in, effectively you've nationalized the banking sector. So worries about this have to be at best mitigated. There's clearly more losses to be taken, as Alicia noted, and there's certain banks and the streets well aware of them who has a larger CRE exposure. But when the time comes, the Fed has already told us, the government has already told us that they're not able to bear any losses or pain whatsoever. And as investors, you have to react to that at least modestly. And I think that's part, at least of what you see in the market. Well, certainly with the whole don't fight the Fed, the Fed's not perceived to

be adversarial anymore, because they pivoted. We're assuming that the next move is a cut. Well, listen, rightfully so. Again, you've gone from 9% inflation. We're at 3%. We're on the way to 2%. Maybe we'll get stuck at 2.5%. I don't know. But again, from an investment, that's an economic discussion, whether or not 2% to 3% or whatever the right target might be, what effect does that have on COLA and a number of other components of the government. But from an investment standpoint, I'm not sure that Ingersoll Rand or Illinois Toolworks or Boeing or Chipotle have some sort of troubles in a 3 percent inflation environment as opposed to a 2 percent inflation environment. And I could probably even make the case that 3 percent is better for corporate profits, in which case the market should be going up even more and valued even more.

But then lastly, since we're talking about rates, how long is it OK if the 10-year hovers around four percent? It's fine. It's fine because the next move is a cut, right? So unless something drastic happens geopolitically and inflation goes higher because there's hot wars in places we don't want, unless you get that, the next move is a cut. Whether it's May or June, I don't think it matters. We know the direction of travel here, and that's what's supporting the market. All right, we'll make that the last word. Guys, thanks so much.

Alicia Levine, Dan Greenhouse, I appreciate you both being here at Post 9. Let's send it over to Christina Partsenevelos now for a look at the biggest names moving into the close. Christina. Well, let's start with VF Corp. Jumping today is Reuters reports that a member of the company's founding family is throwing his support behind Engage Capital, which is the activist fund pushing for changes at the company. While it's unclear whether the support is merely symbolic or backed by an actual stake in the company,

nonetheless, you can see the shares are up 13.5%. Lowe's is higher after J.P. Morgan upgraded the stock to overweight from neutral. Analysts say the home improvement retailer should benefit from sliding mortgage rates alongside expected interest rate cuts. Those shares are up over 3% right now. Scott. All right, Christina, we will be back with you shortly. Yes.

Tried to say. Christina Parts, nevertheless. We're just getting started. Up next, your high net worth playbook. Goldman Sachs' Sarah Nason Tarahano is back with us here at Post 9 to tell us how she's advising her clients right now and how she says to play the Magnificent Seven. As I said, she's right here at Post 9 after the break.

We are live at the New York Stock Exchange, and you're watching Closing Bell on CNBC. All right, welcome back. NASDAQ's pulling back after trading above its record closing high earlier today. A number of the mega cap names already posting double digits to start the year. Our next guest says investors should stick with that trade despite those outsized returns. Here at Post 9, Sarah Nason Tarahano of Goldman Sachs Private Wealth. Nice to have you back. Great to be back. Thanks for having me. Of course. So I just had a conversation I hope you

heard with a couple of people pretty bullish. Yeah. Is that the way that's where the trend is here? Yeah, look, I'm constructive. I don't think I'm expecting the type of returns that I expected when I was here with you in November. Well, with the gain since then, S&P is up 15 and the Nasdaq is a percent and the Nasdaq is up 17.5% since you were last here in November. And we're pretty positive. So I'm constructive. I think, you know, the economic data is strong. Earnings have been strong with 67% of companies having reported, 57% having beat.

That's, you know, the average beating is below 50%, typically more like 48%. So I think the economic data and the earnings are supportive. And I think, you know, our perspective on inflation is it's continued away. And these are all things that are pretty supportive for the equity markets generally. Has the easy money, so to speak, been made since November 1st? Is it going to get a little tougher or perhaps not? How would you answer that? So I think it will get a little bit tougher. I mean,

if you look at our kind of global investment research target, it's 5,100. We're pretty much right there. I think there's some upside risk to that number. Everybody keeps bumping their numbers up. But I do think it's going to get a little bit more challenging. I think we're looking outside. By the way, you know, my view is to stay long the Magnificent Seven, in part because, you know, I work with typically taxable investors right and so those taxable investors have realized huge gains i don't want to pay taxes i don't want to bet against those stocks i think you know it's important for to have large cap allocation in a core portfolio but we're looking a lot more to things like small cap

i mean the economic numbers are definitely supportive of more cyclical stocks. If you really think rates are coming in, which I do, those companies have a lot more floating rate debt and their valuations were still 20 percent off the November 21 highs versus, you know, S&P reaching a new high every day. Yeah. So that broader ending of the market is something, you know, I believe in. And then, you know, the valuation supports it, too. They're trading, you know, Russell 2000 is trading at two times book versus its average

historically of two point two. It's interesting to me. So so it's going to be longer lasting, you think, for like the Russell, for example, to continue this run that it's on. I mean, I've had some people sit here and say, look, the Russell could go up 50 percent this year because of all of the reasons that you you said. Now, 50 may seem far fetched, but the point is clear. I don't think 50. You know, I think it has the chance to return, you know, something in excess of our expectations for the S&P is that, you know, another 7 percent from here, another 15 percent from here. By the way, the Russell typically outperforms in election years, too. So all those things I tactically like

Russell. I will say just generally on the market, I expect we'll get some volatility this spring or summer as we head into the elections. I think that doesn't start to happen until two or three months before. And I would tell clients to add on those dips i don't think it's going to be a straight line up until the end of the year have you had to kind of rethink i mean i know the firm has in terms of the first rate cut right it was like march kind of doubled down on march you know jan hatsias did then after the last news conference with the fed chair it's all right all right, so May, we expect five cuts starting in May. And I think we still believe that. I mean, if you look at, you know, six-month core PC inflation, it's trending below the Fed's 2% target. So I think we still expect

to see those cuts. If it gets pushed out from May to June, does that seriously impact the market? No, I actually think in some ways the economic data being strong is more important for the market. Okay, interesting. And so, yeah, I think we still see those cuts coming May or June. You know, the official firm view is May. So we're not too reliant. That's the point you're making. We're not too reliant. This market isn't where it is now because it's too reliant on the idea that rate cuts are coming soon. I don't think so. I mean, I think, look, if inflation, you know, doesn't wane the way we expect it to and gets out of control, I think that's a whole different ballgame. And, you know, if we go from, you know, five cuts to one or two, yes, I think that's going to impact the equity market. But if it's four instead of five or starts in June instead of May, I don't think that's going to have a big impact on the market. How do you address the idea of exuberance, euphoria, you know, and NVIDIA, for example,

which we can't do a show without looking at it and it seems to be green almost every day. Arm Holdings today was up 40 percent at one point. There are a lot of stocks going parabolic. That's sort of the point. If you don't want to speak individually about names, just the concept of wow, you run out of superlatives to describe some of these names. Yeah, look, I think there is a lot of exuberance, especially around large cap tech. But I think the earnings have supported that exuberance. So until and and trust me, the minute the earnings are not there, it will not be supported. There are very high expectations on these stocks. And the answer to that is to be diversified, right? We advise clients to be thoughtful about outsized exposure to any single

equity. And the exception would be obviously, you know, somebody who is a CEO or owner of a company and has no choice. But in general, we would say to be as diversified as you can be across equities. And I actually think this is a really interesting market to think about further diversification of your equity portfolio. Well, on that note, it makes me think of, you know, alternatives, which are kind of the latest, greatest idea, you know, give access to investors who haven't really had a lot of access to alternatives before. And there are many more vehicles to do as such. Private equity, private credit. Can you speak to that sure look we think alternatives are an essential part of a high net worth or a family office portfolio and we did actually a global family office survey in 2023 our clients actually have 44 percent in alternatives that we surveyed

through that family office survey and there are a lot of reasons for this i mean if you look over the past two decades at the outperformance of alternatives, just look at large cap buyout. The median buyout manager outperformed the MSCI world by 6%, close to 6%. You take the top quartile, that number is 12%. So, you know, for the illiquidity, you have received historically a premium over public markets. Our private clients typically can stomach that illiquidity. And by the way, it also lets them be patient on some themes that might take longer to realize. You know, climate transition, inclusive growth. These are themes that can take five to ten years to be realized. That's a really harder to play in the public markets than it is in the private markets.

So we really still like private markets. Better way to, you know, generate more alpha. Exactly. Than the other ways. Right. It's good to have you back. It's great to be here. All right.

Thanks so much. Sarah Nason, Tara Hahn of Goldman Sachs Family Office joining us. Up next, we're weighing consumer strength. Retailing legend Mickey Drexler is here with me at Post 9. We're going to get his take on the latest retail data, inflation, its impact, where it could be heading from here just after the break. When I think about how being black has impacted my success, I think of something very practical, which is that it allows me to stand out. There aren't a lot of people like me. And so at least I can be memorable. If I can take that opportunity to be memorable and say or do something that will leave an impression, I think it gets magnified. So just being different to me creates a great opportunity. And being black is one of my differences, especially in the industry that I'm in. Welcome back.

Consumers look to have taken a bit of a breather with retail sales ticking down slightly in the month of January. That is according to the latest read from the CNBC National Retail Federation Monitor. That number, however, still more than 2% higher year over year. Joining me now at Post 9 to discuss the state of the consumer is Mickey Drexler, the former CEO of J.Crew and The Gap. He is now the chairman of Alex Mill. Awesome to have you back. Thanks for being here. Nice to be here. Thank you. So the prevailing narrative for the last, you know, however many months you want to pick is that the consumer's great and hanging in. And that's been surprising to many. What do you see?

Well, I'm not sure who the consumer is. It's not great for a lot of people. And I see up and down. Depends on what the goods are, who is selling it. Depends upon a lot of factors. I see more discounts around. You do? I see them.

I go online in preparation for this. You know, I see more discounts around. You do. I see them. I go online, you know, in preparation for this. You know, I did a little homework. I appreciate that. This one's business is good. And I say, well, what are the margins? But I think the consumer is consistently being told, wait till sale or go to TJ Maxx. It's today at that price. So I don't think it's so rosy out there. That's personal. It's all personal. But I thought that inventory levels were finally under control and that because of that, that discounting was less. Well, I'll tell you the real issue is inventories might be under control, but what's the content of the inventories? And I've been there many times where you got too much inventory.

A little Alex Mill, I don't want to say it's little, it's growing nicely. But when the inventory is not right, you have to discount. And right now, I love the 80-20 rule always, and I keep trying to push it. Take your 10, 15 best items, own them, and be famous. You know, assortment is dangerous if you're not picking right. Well, that was your genius in the companies you used to run, right? That was the focus of your strategy. Well, it's not genius. It's common sense. You walk

into a supermarket today. Cereals, there's 30 of them. Give me five good ones. Give me one person or two, not a huge group of people in an ad or in whatever. Who stands out to you today who's doing it right? You look at what they're doing and they're playing by the strategy that the legend says has to be the way it works. Well, I never like to compliment our competitors, but, well, TJ Maxx, she's the best. Who's doing it right? Well, companies that you consumers will say who's doing it right, and I think people have a point of view on their business of doing it right.

And I know all the companies. I'm very picky. And doing it right, to me, also includes what do the goods look like. I see a lot of people doing great, and I'm trying to ask myself. But, you know, it's not my point of view, but they're doing great because they have their point of view. Is Alex Mill mostly direct-to-consumer? Is that fair to say that? Well, it is mostly because we have two shops.

We don't have any investors because I've dealt with a lot of investors who were financial. And when it comes to looking at the goods, hello. You know, they look at it, they want to make the money. And look at most companies that are bought out, creative companies by a higher authority. They take the culture out of companies. In my experience, running Ann Taylor a million years ago, big bureaucratic department store took us over. And I had to leave.

I stayed four years to learn how to be the head of the company. But, you know, it depends on the culture. Marriott buys St. Regis. This one buys that. I'm kind of anti-big. I'm not anti-nimble and anti-quick, but big. Layers. Speaking of that, are we still overstored? I ask you

that in the context of I'm walking down the street the other day in a town and there was a Lululemon store on the corner and it's no longer there and I was like how is that possible for a brand like Lululemon? Well, they're killing it. They're doing

amazing. They have a monopoly on athletic wear. And they have to stay there. Do they or people just shop online? No, I think they do. No, Lulu is an exception. They are a fierce, fierce owner of that space. People trust them. They know them. They're consistent.

Someone said they were trying to do like street clothes, whatever that means, or stay with what you do. People are always, I've been guilty, look for another opportunity. The opportunity we have, or one has, is right there. It's right in front of you and you don't have to go out and do something else. So no, the store thing, I'm not, I don't know much. They just have a lot of stores that we have way over stored because the consumer, or my opinion, they don't need so many choices. It's confusing. I love, I spoke to someone today. I said, an old friend who runs a really cool company called, what the heck's the name of it? Anyway, he's going to kill me.

But it's a swimsuit company. His name is Matt Jacobson. He's with Facebook also. Anyway, I said, Matt, I want you to do one bathing suit for us. We're not in the swim business. It's a vintage. Oh, man, he's going to, I'm so blanking on the name. Anyway, I said, do one bathing suit for men.

I want it to be the best suit ever. And I want to sell one bathing suit. So I'm sorry, Matt, but I. Let me ask you this. You told one of our producers, and I thought this was perfectly put. People say inflation is under control, but prices are still at the same level they were two years ago. It's an essential point because we always talk about, oh, inflation is coming down, inflation is coming down, inflation is coming down. The rate of inflation is coming down.

Prices are not coming down. That speaks to the disparity you speak of at the beginning of the conversation where I said the consumer is doing great. You said, well, it depends which consumer. Right. And you know, when I was leaving the office today to come here, I did my little surveys. So I went around, you know, we're an open office, we're a small company. I said, tell me if inflation has come down or where it hasn't. So here's the examples.

Sandwiches now, 16 bucks, they used to be 10. The soup was 12, it used to be 10 the soup was 12 it used to be 8 of airfare was uh they use a san francisco example was probably 50 higher than two years ago and the hotels the price the cheapest room i'm not going to give a you know a credit to whoever so you know there's $600, $800, $900, and they're all booked, too. So, you know, that goes to, you know, probably entertainment or whatever they call it, experience. And I also think, personally, I think the consumer is now moving in. You know, the Japanese do this, in a sense. They buy, I think, one good one instead of three not so good.

You amortize. For me, I've always done that because, in our opinion, not that it's always been that good, but I think style never goes out of fashion. And the prices, by the way, if you look at the quality companies, retail apparel prices, you know, the high end, stunning to me. You know, stunning. I feel like every time we talk, it's like a living version of the Harvard Business Review. It's like a case study. Is that a compliment?

It's a very big compliment because you give a really clear sense of on the ground what's actually happening in the state of retail, the psyche of the consumer and the challenges of running these businesses. Thank you for coming back. It's great to see you again. Oh, you stay there. Stay there. I'll let you go in just a sec. That's Mickey Drexler joining us right here post nine. Up next, the energy deal that has investors talking and shares of diamond back popping. We'll give you those details, why the deal is so important to the sector next. Closing bell's coming right back. We're less than 15 from the closing bell.

We are watching shares of Diamondback Energy today. Pippa Stevens is here with what's behind that big move. Pippa. Hey, Scott. Well, shares of FANG popping after the company said it's buying Endeavor Energy for $26 billion. The private player has key acreage in the Permian Basin, with Raymond James calling Endeavor the, quote, crown jewel of private companies in the Permian. Combined, Diamondback's output will jump to 816,000 barrels of oil equivalent per day, making it the largest pure play in the Permian and the third largest producer in the

region overall. Titi Cowan saying it was a highly coveted deal with Andrew Dittmar from an energy firm in Veris, saying it's among the last major outstanding M&A puzzle pieces in the Permian, though shares got up 9%. Back to you. All right, Pippa Stevens, thank you so much. Coming up, don't call it a snapback. Shares of social media company Snap moving higher, and that after a very rough earnings report last week.

We'll tell you what's behind today's move. Closing Bell is right back. We're now in the Closing Bell Market Zone. CNBC Senior Markets Commentator Mike Santoli is here to break down these crucial moments of the trading day. Plus, Cristina Partsenevelos, another huge rally in arms shares today. And Julia Borsten on what's behind Snap's surge. Mike, we Partsenevelos, another huge rally in arms shares today. And Julia Borsten on what's behind Snap's surge. Michael, begin with you. So we're going to see if we can get another new record close for the S&P 500. Looks like we're going to get one for the Dow.

And the Russell is the standout, up near 2%. Yeah, that's kind of the story in terms of, you know, the sort of relative strength picture here. I do think you saw some things today that looked like possible short term crescendo in the most overheated parts of the market. You know, we we we touch Bitcoin 50K after doing S&P 5K. You got, you know, Nasdaq 16,000, Nasdaq 118,000. Nvidia almost gets 750 down 20 points off its high. Meta, 2, 3 percent off its high. So you had this kind of extremes of short-term action. That's reversing. And then it's being insulated by the Russell up 2 percent, banks up 2 percent, consumer cyclicals up a percent and a half. So for now, it's a rotation. It's not a, yep, we used up all the fuel and now we're going

to kind of coast onto the shoulder. That's been a very critical question, though. If you do have pullbacks in those areas, is it cushioned? And today is a piece of evidence that suggests, OK, maybe it is. It does. And so if you look at all the other dynamics, you know, cyclicals over defensives, that's been rock solid. Credit looks fine. Again, you know, we're getting into this period, February options expiration week. You saw some extremes in speculative stuff, some of the low-quality stuff moving. It wouldn't be surprising to have that headwind of seasonality in the latter part of February bring something a little broader in terms of a pullback. But for now, it doesn't seem like it would throw it off course in terms of the overall trend. No rest for the weary in arm shares, Christina Partsenevelos. What a day.

Well, what a day. And you have no new analyst price target increase, no new news catalyst, and yet the stock is soaring. So last week's strong earnings report from Arm, the leading provider of chip IP, has made some investors start to think Arm is an underappreciated AI play, even though most of that AI opportunity is not in the immediate term. The stock is up, what, over 95 percent since it reported earnings just last February 8th, last Monday, so that's a week. But the reason for today's swing has more to do with low liquidity and options trading. SoftBank spun off ARM in 2023 and still remains the majority shareholder with an over 90% position. That means less than 10% of the free float is available for

the public to trade, aka not a lot of shares, and even a small short position can move shares dramatically. SoftBank is also locked into its arm holding for 180 days, but that lockup expires on March 12th, which could mean more added volatility should SoftBank choose to sell. Yep. Tiny float, obviously a big part of the story. Christina, thank you. Now to Julia Borsta. What's behind Snap today? Well, Snap shares are up about 5 percent going into the close after the company announced in SEC filing that it has entered into a privately negotiated debt buyback. The company is buying back approximately $100 million worth of convertible senior notes due next year and another nearly $340 million worth due the following year. The street viewing this move to lower Snap's debt obligations as a sign that the company is improving its capital structure. But even with today's stock leap, the shares are still

down about 30 percent in the past week. This after the company reported lower than expected revenue and revenue guidance in its quarterly earnings report last Tuesday. Scott? All right, Julie, appreciate that. Julie Borson, about a minute to go in the session as we turn back to Mike Santoli. Got CPI? Yeah. Has to play ball, but I mean, December was revised downward. So at least we have an idea that we think we're going to get what we want. Yeah, you've kind of built up the confidence that that's going the right direction. One number probably doesn't really upend that. On the other hand, I mean, I do think the market in general has been feasting off of a lot of good news. A lot of this idea that, you know, soft landing we can almost take for granted and all the rest of it.

So, again, alert to the possibility that the market can decide to take something a little bit negative, even if it's no big deal. And CPI could be one of those things. You know, the bond market has been doing not a whole lot. Looking at it right now. But we are, you know, near the highs of the two-month range in terms of yield. So I guess you don't want to sleep on it entirely. Yeah, no, your point's well taken. 10-year, 416.

Bells ringing. And that's going to mark a new record-closing high for the Dow Jones Industrial Average. I'll see you tomorrow, Indoor OC with Morgan and John.