Closing Bell - Closing Bell: Believe the Bounce? 7/25/24

Episode Date: July 25, 2024

Is today’s bounce the real deal or just fleeting relief in a still-stressed tape? Liz Young Thomas from Sofi, Virtus’ Joe Terranova and Jack Manley from JP Morgan Asset Management weigh in on today’s market action. Plus, Google’s stock slipped on a big search announcement from OpenAI. A Google shareholder tells us how he thinks this could impact the stock. And, we drill down on all of the biggest earnings movers from today – and the names to watch tonight in Overtime. 

And welcome to Closing Bell. I'm Mike Santoli, in for Scott Wapner. This make-or-break hour begins with a tentative rebound attempt in the hardest-hit parts of the market and another spin of that rotation trade into small caps and financials. A short morning flush lower that deepened the correction of big tech seemed to exhaust the selling for the moment, though the action remains unsettled with the S&P 500 back to the flatline after a 1% gain. Here's a look at the scorecard with 60 minutes to go in regulation. Take a look at the S&P 500. Now, it's up from about a six-week low that it touched just after the close this morning. It had been up by about 60 points. Now,

back to the flat line, as we said, NASDAQ composite has been struggling to find its footing as well, and it just slid into the red again. Semiconductor index, it got nearly to a 20% total decline from its record high before an early morning bounce. You see it's still give or take around that flat line. The small cap Russell 2000 though taking back most of Wednesday's 2% drop. It is within about 2% of last week's high. Continues to outperform but again it's been pretty twitchy along with the rest of the market. The volatility index surged to a three-month high this morning above 19. The fever broke, came back. Here we are rebuilding it again as the indexes have backslid. Takes us to our talk of the tape. So is this a bounce to be believed, just a fleeting relief

in a still stress tape? We'll discuss all of that with our panel of experts in just a moment. But first, a big announcement from OpenAI that has Alphabet shares falling in the last hour. Steve Kovach joins us now with the details. Hi, Steve. Yeah, Mike. OpenAI is getting into the search business. And like you said, that sent Alphabet shares lower. Last I looked, it was down about 2.5%. And here's what OpenAI is announcing today. It's called SearchGPT. That's going to be a search engine powered by OpenAI's AI models. Right now, they're just calling it a prototype. You can't use it right now necessarily.

It's not launching publicly. But you can go to the OpenAI website and sign up for a wait list to give it a shot when it is ready. Now, OpenAI says they're partnering with publishers and other web creators to give them proper credit in those searches. This is very similar, in my view at least, to the popular AI search engine called Perplexity. That's another hot AI startup backed by big names like Jeff Bezos. Now, the reaction to Alphabet shares, just to put this in context here, we see them down 2%. Microsoft's Bing chat failed to gain share from Google when it announced its big Bing update or AI update rather last year. So it's really too early to tell how much of a threat

this is. But clearly we saw this a couple of months ago, Mike, when there was rumors that this search product was coming out that sent Alphabet shares lower. And now we're seeing it in fact here, Mike. Yeah. And also, of course, in a week when, you know, investors are a bit apprehensive about the overall Google story here. I do wonder, Steve, you mentioned about the Bing update. How would this sit alongside what Microsoft itself wants to do? Is it a competitor? How do we think about that?

We've seen that this is such an interesting relationship between these two companies, Mike. We've seen ChatGPT put out its own enterprise versions of ChatGPT that directly compete with Microsoft's Copilot. Just yesterday, Microsoft announced a new update to Bing that has even more artificial intelligence answers within it. It's very similar to what we're seeing right now from opening eye. And by the way, we got some interesting commentary from Google CEO Sundar Pichai during their earnings call a couple of days ago talking about its artificial intelligence search product called AI Overviews. Not a lot of data around that.

Just talking about some increased engagement with young folks and maybe some increased ad engagement. But it's really unclear if that's driving search growth at Google right now. So this is such an unproven market, this specifically AI search and what that can do better or differently. But it looks like opening eye is at least going to give it a shot and start to see how people react to it. Yeah, for sure. Uncertain is right. And the market doesn't quite know exactly how to price it. Selling first here, Steve. Thank you very much. Here with me at Post 9 is Liz Young-Thomas, SoFi's head of investment strategy, Joe Terranova of Virtus Investment Partners, and Jack Manley of J.P. Morgan Asset Management.

Joe, of course, a CNBC contributor. And Joe, let me just start with you just because of the alphabet connection here. It's been pretty well-timed with where the indexes actually started their afternoon down leg when Google sort of lost the bid there. How would you be thinking about it? Also, in light of everything else we've heard from this week. They spoiled the afternoon party that potentially we felt like we were going to have a lot of chatter being traded during the early afternoon about maybe we've exhausted the selling. It was perfect. The S&P fell from the intraday high on July 16 to the intraday low this morning, 4.9 percent, 9.5 percent for the Nasdaq. Everything felt right. And it looked like we were setting up for, OK,

let's hear what Amazon, what Meta, what Microsoft have to say next week. But then you get the news from Alphabet. And I think, Mike, it speaks towards the Mags having a price for perfection. Their price for perfection in any misstep, any stumble, is going to be greeted with selling pressure. Immediately what comes to mind for me with Alphabet is, okay, $13 billion? No, we're probably going to have to spend a little bit more than $13 billion to combat a lot

of what's going on. And now with obviously with search GBT. Liz, the Microsoft and Amazon earnings that's out into next week, that seems like an eternity in a sense, both because this market is very in the moment, but also we have the PCE report tomorrow. Obviously, the Fed meets next week. We got GDP today. So on the one hand, you could look at what's been going on the last couple of weeks and say, you had a fully valued market, seasonal weakness, maybe overbelief in the soft landing story. It's an obvious time to pull back. But then the question is now, July cut, is the economy weakening even more?

So there's always a little bit of a growth scare that gets thrown in. How are you viewing it? So, first of all, I'm not in the camp of a July cut. I don't think that Powell wants to surprise markets that way. He doesn't like unnecessary drama. And I think it would cause unnecessary drama at this juncture. I think it would make markets believe that something else was wrong that we didn't know about yet. So I still think September is the first time that they cut. But I do think that we're going to start to hear more dovish language from them at the July meeting at Jackson Hole that will get us to a solid place of what our expectations are for September. I also think that commentary over a 50 basis point cut in September is going to continue heating up. That's

still a contrarian view, but I think it continues to heat up. When you look at what's happened in the market, so I was on closing bell on July 9th and I mentioned that forward PE ratios on the S&P were in the 89th percentile. We're still there, still high, okay, not above 90 but still high. When you look at the spread between the equal weight S&P and the market cap weight S&P, the one-year return spread was 17% then, it's narrowed to 11%, but we're still in the 95th percentile. So what does that mean? It means the rotation is on slowly, right? But will it last? We've seen this story before. We've had a lot of head fakes with this before. This time, what is different is that we are approaching a cutting cycle. Typically,

a cutting cycle is not this huge expansionary signal for the economy and a yield curve that's un-inverting, also not a bullish signal for the economy. So I think what we're going to see is that rotation right now that's happened into financials, into small caps. It can last a little bit longer, but as it conks out, I think we'll see a rotation more into dividend-paying stocks, utilities, staples. Energy, I think, will catch a bit again. And then health care. So kind of, you know, this has been a bit of a staticky message from the market, in a sense, because you had this Phoenix Act from small caps and financials in the last couple of weeks. And I keep pointing this out. Usually, you see that kind of a rip when the economy's already been weak and you're coming out of, it's like early cycle action in a way, new bull market type action.

On the other hand, small caps underperformed vastly in a strongly growing economy up till now. So in other words, there's just a lot of mixed signals about how this market is behaving relative to the underlying economic cycle. I mean, small caps have not been able to get off the mat and make new highs. I think this is their sixth attempt at doing that. Maybe they do it this time. I think part of what's happening here is because we haven't gotten to the point yet in the AI cycle, Joe mentioned that they're priced for perfection. I think they're priced for profits to be coming in from AI today.

And that's just not going to happen yet. We don't have all the use cases. We don't know how margins are going to expand. And now the rubber is hitting the road where investors want the proof. Where is the money going to come from? So some of that impatience that we're seeing, I think there's a rotation just because people don't want to take money out of equities right now. So let's find somewhere else to put it. What's more attractively valued? What still has growth potential? What does well when rates fall? And the answer to most of that is small caps. So that's where we've seen it go. But it can come back out just as quickly if people start to get nervous. And I think the key to that nervousness is whether or not the labor market stays steady. Jack, you're a kind of a believer in some kind

of rebalancing of this market and that it can continue for a bit. Yeah, I think so. I mean, all of this ultimately does come down to the interest rate view, right? But feeding into that interest rate view is making sure that this macro story that's been emerging over the last few weeks is actually durable, is actually the start of something bigger, right? I mean, we saw that GDP printout this morning that makes it look like first-half growth was right in line with trend. Okay, that's pretty good.

Modest uptick in the unemployment rate, modest decrease in wage pressure. Obviously, that inflation read from a couple of weeks ago coming in a lot better than expected. All of that feeding into this new rate view where people are all of a sudden talking about a July cut. I would agree. I don't think that's going to happen. Right. And that is where I get a little bit worried about that small cap trade in particular. You know, we talk about earnings being priced for perfection in the MAG-7. I think that small caps are looking for 75 basis points of cuts this year. And if that doesn't happen,

then I do think you start to see a bit of an unwinding. For the value side of things, particularly on the larger portion of the market capitalization spectrum, that's where I think things are a little bit more durable. You got these big, nice macro tailwinds, right? You have that easing wage pressure. You have cooling inflation.

You have falling interest rates. You have no recession. But then you also have some really interesting idiosyncratic stuff coming through to sectors like materials, health care, financials. That's going to help to lift earnings a lot in these laggards from 2023, particularly in the fourth quarter. And the MAGG7 has to be worried not just about those lofty earnings expectations, but about other parts of the

market actually being able to compete. And that, I think, is where we are, at least right now in this cycle. So that helps to, I think, support this broadening out. I mean, I was just looking earlier. NASDAQ 100 forward PE has gone down to below 26. It's like 25 and a half. It had been at 28 in this last year as the high. This is about where it bottomed in the April pullback in terms of valuation. And I think you'll hear people talk about the broadening out of earnings growth, but this isn't really the reporting quarter where that's supposed to kick in, right? So maybe that's part of the noisiness of the response to earnings. Right, Joe? I think it's more. I think I agree with you. And I think we're we're probably not placing

enough emphasis on where positioning was coming into the third quarter and how much of this is just reworking that positioning. We all know and Sarah has done a great job talking on the networks, our eyes and about the unwind of the carry trade, what's going on with the Japanese. Yeah. And that absolutely has an effect. If you think about all the sovereign wealth funds, what have they been long for the duration of 2024? It's these mag seven names.

So I do think that positioning has a lot to do with go with what's going on right here. And why I think that's important for the viewers to understand is because that's something that's momentary. That's not something that is enduring through the remainder of 2024. It's clean up the positioning. Let's get it back to comfortable levels once again, see where the earnings are, take another look. Let's get the Fed, whether it's 25 or 50 basis points. And I think at Jackson Hole, it's going to be 50 basis points. But ultimately, after Jackson Hole, yeah, well, I think he's going to at Jackson Hole. I think he's going

to message that to the market. But I think it's what we're witnessing here is a reset. And resets begin with working off extreme positioning and extreme sentiment. That's true. I mean, you know, as long as nothing breaks along the way, right, in terms of the unwind. Credit markets are OK, though. No, of course. No, no doubt about it. I'm not suggesting that. But, you know, in practice, the entire market has gone from crowded trades to orphaned trades, essentially. So it's almost like we're writing a macro narrative on top of that to a fair degree, even though there's real reasons for it. I mean, Chipotle is a great example of this. It goes from 68 to 51 in a straight line. The business did nothing wrong right along the way,

and it didn't hold its pop from today. That's just one sort of tactical element of it. Now, Jack, the other piece of the rate cut story and how the soft landing scenario is supposed to play out is the bull case was the Fed's going to get to a point where it can do optional insurance trims of interest rates so that it just normalizes policy and it acknowledges the decline in inflation and not goes into an aggressive easing cycle in response to a weakening economy. So it's almost like cuts later and fewer of them is the bull case. Does that make sense? Oh, I think absolutely. And if we are looking at 75 basis points and cuts this year, it's because something broke, to your point. Right. I mean, this economy, I think, is still in very good shape.

Four point one percent on the unemployment rate is not something you used to be afraid of. Right. And inflation, I think, is more or less under control, but not at risk of turning into deflation anytime soon. This stuff tells me that that gradual easing higher for longer narrative is very much what is what is supporting the long term bulls. Liz, you know, it's hard to escape talking about, oh, the seasonal effects, the pre-election, you know, kind of move to the sidelines to some degree in terms of risk appetites. Is any of that filter into your view? I mean, if you think it's an ongoing bull market, right, and it hasn't changed the overall trend, I guess, should you care about that? Or how should you, I guess, change the pace of what you invest in over the next few months?

So the typical pattern is that we have a little pullback in spring in an election year. That one happened about a month later than it should have this time. We have not followed the pattern as it would go. And this has been a much more high performance. You're supposed to basically have no net upside in the first half of the year. Right. And we've had a lot of upside. Right. So what would happen then typically in fall is that we see volatility in September and October. The election occurs. We find out the result right away, which who knows if that'll happen. And then there's a relief afterwards that we know what we can expect for the next term, so on and so forth.

I think we probably will see some of that. I think we see some volatility in fall leading up to it. Polling, I think we've learned in the market, doesn't necessarily work. You might get the election outcome right, but the market reaction completely wrong. So what I would tell people and what I do tell people is that you don't want to position your portfolio too much for a certain outcome because you never know what the market is going to do with that. So I wouldn't do too much right now ahead of it. But I think the main thing that I would be positioning for in fall is the fact that I think we do see a yield curve that comes out of inversion, which is important to watch. And typically the sectors that do well are the ones that are paying dividends. So you have to pay attention to that.

I do think that we're going to see volatility as the Fed talks at Jackson Hole. I think we're going to see volatility as the Fed talks at the end of July. And I think we're going to see volatility in the next two CPI prints, because if they continue to come in as cool as they have, the market starts to get jittery. In the last CPI print, the market got jittery on that cooler data, which was a new reaction than what we had seen. The other thing that I think is going to be really important to watch is the next unemployment report. If it goes up to 4.2% unemployment, that's some rule triggers. I think that will make people jittery as well. And I think that there's a good chance that we go from

right now pricing in two to three cuts by the end of the year, that we go to pricing in three to four cuts by the end of the year. And that could happen before the end of summer. Yeah. I mean, the market always is going to try to push. Right. In terms of once we think we see it clearly, we're going to see how far we can can get with pricing and the change in policy. And, you know, Jack, we talk about the PC inflation number tomorrow. And the fact that we're now a little more sensitive to signs of slowdown than we are to inflation issues. Almost all of the narrative from coming out of companies as they report,

where they're having a little bit of friction in their businesses, it's actually inflation-friendly stuff, right? It's the airlines talking about too much capacity. It's restaurants and French fry companies saying that, you know, consumers are balking at all this stuff. From a macro message perspective, it should be comforting, in a sense, if inflation was the main enemy. What does it mean, though, for whether earnings estimates can hold up where they are? I think we've seen margins expand quite nicely in general over the last five, 10 years, right? The trend there is very much up and to the right. Companies are able to defend their prices. They're able to pass on potential higher costs. So they do somehow end up materializing. But I guess this might come back to that small cap story that we

were talking about earlier, which is that, hey, if inflation is easing and the input cost prices come lower, well, then all of a sudden you start to make a little bit more money. So, I mean, I think it is a good story generally. Yeah. All right. We'll see if it keeps playing out. Jack, Liz, great to see you. Joe, we'll see you in the market zone. Thanks a lot. All right. Let's head over to Pippa Stevens for a look at biggest names moving into the close. Pippa. Hey, Michael. Ford shares are dropping 18 percent on pace for their worst day in 15 years after the autom. Pippa. Hey, Michael. Ford shares are dropping 18 percent on pace for their worst day in 15 years after the automaker missed earnings estimates. Now, revenue did beat,

but Ford said its profitability was impacted by increases in its warranty reserves. Ford did not give an exact amount, but said it was 800 million more than the prior quarter. And ServiceNow hitting an all-time high after the company reported stronger than expected earnings and raised its full-year subscription revenue forecast, growing demand for workflow automation, and the company's work in Gen AI also drove growth. Those shares are up 15 percent. Mike? All right, Pippa, thank you. We are just getting started. Up next, airline stocks soaring for the day anyway. American and Southwest both popping in today's session. We'll hear from a top analyst with where he sees the sector heading from here. And later, managing the mega caps, how should investors navigate the tech trade

after yesterday's sell-off? We'll discuss how to best position your portfolio. We're live in the New York Stock Exchange watching Closing Bell on CNBC. Southwest and American Airlines getting a boost today after reporting Q2 earnings beats before the bell. Both airlines forecasting a loss in revenue for the third quarter, though, with rising concerns around an oversupplied market despite high travel demand. Here's Southwest CEO Bob Jordan and American CEO Robert Isom, who both joined CNBC this morning. I'm not happy with our result in Q2 either, but there are a lot of impacts. There are, at this point in time, there is excess capacity more than demand, and we're working to flush that out.

Our capacity is actually going to come down to about 2% here in the third quarter. It will actually decline to a 4% decline in the fourth quarter. It'll actually decline to a 4% decline in the fourth quarter. Actually, seats will be down 8% year over year. We're not pleased with the results. I said back in May a couple of things. One, there's a supply and demand imbalance leading to pricing weakness, and we're addressing that. We've pulled down our capacity. The planned capacity growth in the back half of the year had been growing at about 8%. Now it's about 3.5% in the back half. The other issue is we put in place a sales and distribution strategy in 2023.

It's not working. Joining me now to discuss is Tom Fitzgerald of TD Cow. And Tom, it's great to have you on. So obviously a pretty sobering message there from the CEOs of these companies. We get this bounce in the airline index of 3.5% or so, but that's after, I don't know, a 30% decline. So what's your main message to investors about, I guess, when these stocks might become more investable? Thanks for having me, Mike. Yeah, we think today is mainly just short covering, and we continue to push companies with very diverse revenue streams, with clear

paths to margin expansion from here, and with either strong balance sheets or balance sheets that are definitely set to improve. So our top picks are Delta, United, and SkyWest. We think we need to see clear evidence that the domestic market has, supply and demand has rebalanced and come back into equilibrium. We need to see clear progress on RASM growth and these new sales initiatives from American and Southwest and some of the other peers in the domestic market. And that's just going to take time to shake out. We expect a lot of noise in the coming quarters as multiple carriers try to manage multiple strategic initiatives, whether it's network changes, distribution changes, leadership changes.

So, you know, running an airline's very challenging in the best of times and, you know, trying to overhaul on the fly is not an easy task. So we prefer the margin leaders or smaller, smid cap names with niche opportunities like SkyWest or like a Sun Country. I got you. And, you know, in terms of, let's say,

those comments we just heard from Southwest, I mean, you talk about companies that have a lot on their plate in terms of trying to restructure, and now with this change in terms of assigned seating at Southwest, does any of this build toward them being better positioned in your mind? I think it's to be determined. You know, obviously, this is, I mean, these were the low-hanging fruit initiatives. They were very well telegraphed

over the last six or so months. But, you know, some of it, you know, they're going to lose fees from the early boarding ancillary. So it's not all profit. There's profit share on these fees. So we think some of these initiatives, even the blue sky scenario, will be more incremental. And we don't see it generating the EPS boost that they will need to generate ROIC above their cost of capital. And today, after American's results, you lowered your price target there to seven. So obviously, you feel as if the market still has to deal with getting through this rough patch there, too? Yeah, that's correct. I mean, we were on the low end of street estimates going into the print today, and their guidance was even below our

numbers. So I think, and with some of these situations, it's safer to be on the more bearish side and end up pleasantly surprised. They do, as they go into 2025, they're going to face easier comps on the RASM side. But, you know, we just think this market's going to take a little bit longer to work out than people think. And there's going to be a lot of air pockets. So we're more cautious on that one. Is there going to be a moment or are we at the moment when we will have to worry about the absolute level of demand? Or is it, you know, is it here yet or are we just essentially seeing a little bit of digestion issues? That's one of the $64,000 questions.

Year-to-date, throughput's been up about 6.5% overall. Some investors have wondered how much is really core, genuine demand, and how much is just being stimulated by some of these fair sales that we're seeing in the domestic market. We overall believe that we're not expecting some reset back to 2021 levels of spending on goods. And we think that the secular trend of consumer spending on experiences and services is still intact. But, you know, I think at the lower end of the consumer, there's definitely, you know, maybe not a buyer's strike, but there's just less discretionary income to go around. So we could see some weakness there. And we, you know, we are a late cycle, it seems. So we could see some weakness there. And we are a late cycle, it seems. So definitely want

to be more cautious. And you mentioned you do prefer Delta as one of those names. Obviously, the more global exposure, the credit card business, all the rest that we know, their advantages. But I guess you don't really think that the recent issues they've had after the whole data glitch are going to be persistent? We don't think it's going to be persistent. I mean, their operations today and yesterday have looked very strong, so they seem to have gotten back on the right side of things. We expect management to come out with an 8K detailing what the impact will be once it's definitively, things are back on track. But longer term, that's still a great company, great management team. They've executed the strategy the best out of anyone in the industry

the last 10, 15 years. So, you know, maybe there's a little bit near term weakness to 3Q numbers, but long term, we're still big bulls. Got it, Tom. Appreciate you running through all that with us. Anytime, Mike. Thanks for having me. Bye-bye. All right. Up next, investors anxiously awaiting more earnings and a key Fed decision on the horizon. What to expect and what it might mean for your money after this break. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app, S&P 500, rising back to about a half percent gain for the day. We'll be right back. Welcome back. Stocks attempting an intraday comeback as the S&P and Nasdaq try to rebound from their worst day since 2022. Investors bracing for more mega

cap earnings and a key Fed decision in the week ahead. Joining me now is Joseph Quinlan, head of head and CIO of Market Strategy for Merrill and Bank of America Private Bank. Joe, it's great to talk to you. I wonder just from a top-down level how you're viewing the recent market action, whether it's telling us anything we should be more concerned about, about the fundamental outlook or not. Not really, Mike. I mean, you know, the market was overdone with the Mag 7 companies. Economy's still in good shape. Earnings are coming in better than expected. So this pullback in technology is very healthy. Better breadth. So I think we're set up for a good fall into the rest of the year.

So to me, the pullback, violent as it has been, is healthy overall for the markets. And what would you do with it, I suppose, strategically, tactically? What opportunities have surfaced in a lot of this shuffling around? Well, the biggest thing, Mike, we've got to get a lot of people out of cash. We've got a lot of people sitting in cash. We want to put them in equities, the fixed income. We're looking at energy, defense. So really, you know, get people to come out of the money markets, look at the equities, look at fixed income. And so that's kind of the big push here, what we're doing here at Merrill. That's interesting.

So, you know, you're obviously dealing with a very wealthy clientele there. You're part of the business. And you feel as if they're still just frozen mostly in short-term cash at this point? They're comfortable. And why not with 5% plus with all the volatility, the election, the move with the Fed. But we're starting to see folks come back into equities and they want them to move into more cyclical side of the area. So with energy, the industrials. So it's happening. But boy, when you look at how much money is sitting on the sidelines, that's a lot of fodder

for more upside for equities as we go into 2025. Think of that as well. It seems like, you know, I like the kind of rubric you have for the themes in terms of hard power, hard assets, hard hats, meaning infrastructure. I wonder, as you offer that as a view, if people say, oh, but don't we already know those trends are underway and hasn't it already been exploited? What's your answer to that? Well, Mike, take military spending, right? You know, hard power. Right now, global military spending is around $2.5 trillion. It's around 2.3% of global GDP. It's at an all-time low. So we're under-invested in the military, given all the tension points that we have. Hard assets, commodities, when you talk about restocking

munitions, when you talk about building out the infrastructure, AI data centers, that requires minerals. And then the hard hats, the infrastructure, it's the grid, it's AI, it's bridges. So this is a long-term play, and it should be part of anyone's core portfolios, these leaders within these different asset classes. You seem generally unworried about the immediate future in terms of the U.S. economy continuing to expand, although there have been some wobbles or at least some perceived softening in various areas. How important is it for whether the Fed to ease or for that story to change a little bit? I mean, we're watching that very

carefully. I mean, in the second half of last year, the economy grew by 4 percent. In the first half of this year, it grew by 2 percent. So it's slowing down. But the consumer data is still hanging in there. We've got an unemployment rate of 4.1%. We're in a very strong CapEx cycle. We're seeing global growth pick up as well, so better exports, foreign-affiliated income. So we're watching the economy very carefully, Mike, no doubt about it. But when the consumer is 70% of GDP, roughly speaking, they have a job, they have income, and they spend it. It's a very simple formula so to speak so as long as the consumer has the income has the job security this economy is going to continue to plot along

i remember mike this is a 28 trillion dollar economy so 2.8 real growth doesn't sound like much but it's on a massive base which means more earnings upside as we go deeper into this year next year. Yeah. And obviously, you get, you know, two plus percent inflation on top of that. And we're talking five percent nominal growth, I suppose. Do you see any reason to diversify any more outside of the U.S. at this point? We're watching it carefully because I hate to be so U.S. centric because there's a big role out there. So we're looking at, say, Asia, China. We're looking for opportunity in Europe, you know, luxury brand goods, some capital machinery companies in Germany. But, you know, honestly, Mike, when you talk about the AI

investment, capex expenditure, you know, what's happening, we're going to pull even further ahead of the rest of the world as we go into the second half of this decade. So from our point, from the CIO, we're still U.S.-centric, but it's justified given how dynamic we are here in the United States. We're leading the AI revolution, which means we're going to continue to lead the global economy forward when it comes to growth and earnings. So that's kind of our basis. That's the foundation by which we view portfolio construction. It seems like those would be pretty durable drivers for a while to come. I guess the question I might have if you're a CIO and you're talking about long-term money

is how the market is currently valued to deliver forward returns. I mean, the common math would say, hey, returns must be lower because we're 20 plus times earnings. But I'm just not sure if that's the way you're assuming it, penciling in for that. We take that into account, Mike. But we're also looking at something beyond, say, technology, fully valued here. So where the cyclicals, the energy, healthcare, there's opportunities within these various sectors where you don't have to, you're not paying up where we are already with the valuation. So, that's kind of like the small cap story has been beaten to death.

So, we've been early there. That's working now. So, whether it's small cap, mid cap, U.S., across all growth value, you want to own part and parcel of all these different asset classes. All right, Joe. Hey, it's great to catch up. I appreciate the time today. You bet. Thanks, Mike. All right. Take care.

Up next, we are tracking the biggest movers as we head into the close. Pippa Stevens standing by. Hi, Pippa. Hey, Michael. One healthcare stock is in need of medical attention. We've got all the details coming up next. Just over 17 minutes till the closing bell.

Let's get back to Pippa for a look at the key stocks to watch on a pretty jumpy day, Pippa. Yeah, and a big IPO on the Nasdaq today. In fact, the biggest of the year so far. Shares of Lineage, the largest temperature-controlled warehouse REIT in the world, priced 57 million shares at $78 apiece. They are now trading at $81.38. Now, Lineage is a four-time CNBC Disruptor 50 company and is the 94th name on the list to go public. Meantime, shares of Edwards Life Sciences plunging 30% after the company slashed its guidance for transcatheter aortic valve replacements.

Deutsche Bank calling it a, quote, painful earnings release, with investors now questioning the company's long-term growth rates. Mike? All right, Pippa, thank you very much. Talk to you again in a minute. Still ahead, a double dose of pharma movers, AbbVie shares popping and AstraZeneca dropping on the back of their quarterly reports. We'll drill down on the data driving those moves. That's coming up. Closing Bell, we'll be right back. We are now in the Closing Bell market zone. Virtus' Joe Terranova is back to break down these crucial moments of the trading day. Plus, Seema Modi on why Honeywell is having its worst day in a year. Angelica Peebles on some major moves in the health care space. And Pippa Stevens looks ahead to Decker's earnings out in overtime today. So, Seema, Honeywell, what's the reaction about here?

Well, Mike, Honeywell caught investors by surprise with that guidance cut for 2024. The industrial giant also trimmed its free cash flow guide by $100 million due in part to its industrial automation business, where inventory to stocking weaker volumes remains an issue. Its aerospace technologies business did outperform up 16% in the second quarter, but that was overshadowed by that guidance cut. Unlike other industrial giants that have spun off certain parts of their business to unlock value this year, Honeywell has actually done the opposite. It hasn't joined in on the spinoff trend. In fact, it's been growing by acquisitions. The latest one, Carrier, a security firm for $5 billion. We are seeing shares of Honeywell underperform, not just today, but it's underperformed

its industrial peers so far this year. And speaking of peers, 3M set to report tomorrow following its spinoff of Solventum, and shares have quietly risen 13% so far this year, whereas Honeywell is negative so far in 2024, Mike. Yeah, absolutely. Got to keep an eye out for those numbers in 2024, Mike. Yeah, absolutely. You got to keep an eye out for those numbers tomorrow, Seema. Thanks, Joe. I mean, Honeywell does have, you know, the business automation, industrial automation, some areas that you would think would be kind of advantaged right now, but not really working. But that was one of the weakest segments. That's where the surprise is. Look, the stock is down 12 percent in the last three years. This used to be a favorite industrial name of mine.

I owned it for so many years. And to see them miss like this, margins were down 75 basis points in three segments. That's not something generally that you see from Honeywell. So all of the M&A that they've done the last several years, it really needs to begin to be accretive to the bottom line. What about in general? I mean, industrials were one of those groups where in the first part of this year, you're able to say they're outperforming along with semis.

That's usually pretty good insulation for a rally. It gave some back and now it's a little more mixed. Well, it's a combination of several things. It's, you know, the weakening economy. You've had some stumbles in the airlines. And then the favorite industrial name, I always talk about this, it's Uber. And Uber, you know, that growth story is pulling back as we're seeing the VIP names get sold off. Yeah. And you don't always think of it in there,

but that's where it is actually in the industrials. All right, Angelica, talk to us about some of these pharma moves. Yeah. AstraZeneca this morning raising its outlook for the year, but those shares are down today. And some of Astra's older drugs, like Simbacort, doing well in the quarter, but some of its newer drugs, like Infimzi, coming up a bit short. The core products, the new products, are very much in line with what we expected and actually overall what the market, the consensus expected. So I really think that over the next few weeks, months, these questions will over time disappear and people will see that we are on track

to deliver our long-term goals. And now on the other end, we have AbbVie. Those shares hitting a record intraday high today after raising its full year forecast thanks to newer immunology drugs Skyrizzy and Rinvoke. Now, these drugs are meant to replace sales of AbbVie's main drug, Humira, now that it's facing biosimilar competition in the U.S. And clearly, investors liking what we're seeing from those drugs. Mike? All right, Angelica, thanks.

Healthcare actually showing its defensive properties last week or so. Absolutely, and I think in the rotation, maybe we're not spending enough time emphasizing that now is the time to look at health care. It's working off a lot of the COVID comps. We're back to a pre-2020 type of environment. And to your point, yes, it's been defensive in its nature.

It's been the one sector over the last five days that's been the strongest. It's positive over the last five days. The only sector that's doing that is utilities. But, Mike, in addition to that, when you're looking to rotate into health care, it's some of the names that we kind of have forgotten about. We spoke about AbbVie. Well, it's Amgen, a name that I've purchased recently. Let's keep in mind when the Federal Reserve begins to cut rates, that generally is good for biotechs. You can consider the XBI.

It's Merck. It's McKesson. And you have Pfizer above $30. Josh Brown's done a great job talking about that on Halftime. Yeah, that's absolutely one of the more neglected pharma names. Everything outside of Lilly actually has gotten better bounce in the last week or so. What about this Edwards Life Sciences, which is getting taken apart today? Is there anything to generalize in the broader medical device area there?

To a certain extent, there is. But, again, I keep emphasizing positioning. And that was one of the favorite names in the healthcare sector. It's kind of, you know, it was Regeneron, it was Vertex, Intuitive Surgical, and Edwards Life Sciences. So again, you're working off positioning here. I don't know if the business is damaged in the sense where you look at it and say, okay, we're going to put this in the penalty box. But I think you have to understand there's probably more selling pressure to come. All right. Speaking of stocks that have been working off maybe some crowded positioning, Decker's.

We're going to hear from them, Pippa, after the close. Yeah, Mike. And despite the broader consumer concerns, Decker's brands like UGG and HOKA have been actually performing pretty well in recent quarters. But the stock has pulled back in the last month on worries of a slowdown in direct-to-consumer sales, although UBS said in a recent report that their checks suggest the Hoka brand specifically maintained robust revenue momentum during the quarter. Now, this is Decker's Q1 report, and so investors will also be looking for an update on its full-year guidance. T.D. Cowan said they don't see the guide moving materially higher based on the last two Q1 reports,

but they said shares can continue to compound higher and pointed to exceptionally high levels of full-price selling. Now, earlier this month, the company announced a 6-for-1 stock split, and the stock is ticking higher here. Mike, ahead of the report. All right. Thank you, Pippa. We'll keep an eye on that. You know, Pippa mentions the stock split. It's interesting how post-split a lot of these stocks haven't acted well.

And Chipotle is one of them. And Chipotle was one of those that was trading right along with Decker's as one of these consumer category killers. Yeah, it really has taken down, I think, the entire consumer discretionary space, what we witnessed in Chipotle. So far, Deckers has really, I think, benefited from the decline that we've witnessed in Nike, the decline you've witnessed in Lululemon. Pippa mentioned Hoka, which is 60% of the sales. The running shoes are very popular right now. So you've got Lulu and Nike back to levels that we haven't seen since March of 2020.

It's been to the benefit of Deckers and Skechers. The option market is implying a 10% move tonight. That's a rather large move. Deckers sitting right at the 200-day moving average. And the skew is towards calls. I think Deckers and Skechers, both of them, still maintain a little bit of favorability given what we see in the overall climate with Nike and Lulu. Yeah, these kind of market share trends.