Closing Bell - Closing Bell: Bloom or Gloom? 4/1/24

Episode Date: April 1, 2024

As April kicks off - will a historically good month play out that way for investors? Trivariate’s Adam Parker and NB Private Wealth weigh in. Plus, top wealth advisor Cheryl Young is breaking out her playbook and explaining where she is finding opportunity outside of big tech. And, Jeff DeGraaf tells us where he thinks the momentum trade is heading from here – and the one sector he thinks is breaking out. 

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 the rally and the risks to your money as a new quarter begins. Earnings season soon to heat up, and that will likely hold the cards for stocks in the near term. We're going to ask our experts over this final stretch whether they'll live up to the hype. In the meantime, take a look at your scorecard with 60 minutes to go in regulation. Some pretty good economic data this morning. Well, that sent yields higher, pushed stocks down. That's where they are right now. There's the 10-year 433. The Nasdaq's been trying to make a move all day as Microsoft Meta and Alphabet rise. Elsewhere, really only energy doing anything as last month's best trade looks for more momentum in the quarter ahead. It does

take us to our talk of the tape, whether a historically good month will play out that way for investors. Let's ask Adam Parker. He's the founder and CEO of Trivariant Research, a CNBC contributor with me once again at Post 9. It's good to see you. Always. All right. So new quarter. Same story for the rally. What do you think? You know, we look back. Our data goes back to 1928 in our database. And there's been 12 times previously we had double-digit returns for the S&P in two straight quarters. You know, we were up 11 and changing Q4, up 10 and a little bit in Q1. So I said, all right, well, what happened a quarter after that? And if you look back, the average is it worked another 4% on average, and only

one time were you down double digits, Q3 1975. So the data, it's not a massively statistically significant sample size. Yeah, it's not an exact science or anything, but the trend is your friend. The trend is your friend. It means something. It's up. Nine out of 12 times it was up. Only one time was it bad out of the previous 12 years.

So history doesn't say, oh, I had two great quarters. Let me, you know, throw everything out. So I'd say that, you know, the trend's your friend. And I think this week's big. If we get any negative pre-releases, I don't think we're going to, but that's something you've got to monitor. Usually everyone dots their I's, crosses their T's, and maybe Wednesday or Thursday at 4 p.m. you get a little, you know, revenue guide down. That's what we have to watch out for. But I don't think that's, you know, what's highest probability.

So how are you thinking about rates and stocks? Because, you know, you had the better data this morning and the 10-year goes to 433 and stocks are a little uneasy. I mean, isn't there a point at which stocks don't want to handle the backup in rates once again? We don't want to be talking about that again, do we? Man, it's like I want to like change my mind on that like every day. I want to say good news is good, bad news is bad. If the economy is good, the tenure backs up a little, the stock market goes up, corporate earnings are good, that's how you learn in the textbook. It's only in the last 13 years we've all been messed up by Fed intervention that we think

it only can be good when rates go down, right? And today it's interesting, the market's not having a great day, but tech, which you would think is more rate sensitive, is fine. So I think it can handle higher rates as long as I think the economy's decent. But I don't know what the magic cutoff is if it's, you know, five or something like that. But today surprised me a little bit.

I think, you know, good news should be good. You've called the broadening pretty incredible, right, that we've seen in the market. It's been extraordinary, really, that, you know, finally, all these other areas beyond tech over the last month, let's say the month of March, I mean, tech was like sixth or seventh in performance. Does that continue? I think if you're bullish, it will. If the market goes up, it will. I don't think, you know, that small caps outperform in a down tape. So to me, the reason things are good is financial conditions are very easy.

If you look at any sort of standard financial conditions index, this is about as good as it gets. It's in the top 5% of easiness. So the small caps shouldn't have problems accessing capital. Their margins can go up, and that's why it's broadened. If you get tighter financial conditions, if the economy slows, then I think you narrow back to the ones you're confident in the growth trajectory. I mean, I heard somebody use the word Goldilocks earlier, right? Economy strong. We know the Fed's going to cut at some point. Earnings are probably going to be, you know, decent. Would you use that word? Yeah, decent. I think that's right. I mean, look. I

mean, Goldilocks. Well, yeah. I mean, you had two double-digit return quarters. The Fed is saying they're going to be accommodated. Margers are going up. Financial conditions are easy. I think that's you got to dance when the music's on. I think the question is, does the Fed somehow really get people thinking? Look, the worst thing is you start being afraid we have stagflation later this year.

You get a little bit of pickup inflation, economy slows, and then that's where you get the double-digit correction in that month. Right now, that doesn't look like something you should position for. And I think there's lots of portfolio strategy, right? You can own AI. You can own accelerating software. You can own electrification industrials. You can own energy and copper. There's things that I can own, health care services for cost-cutting.

I see lots of things I want to own, so that keeps me constructive. Let's talk positioning. You just used that word, so let's go there. Because you have some new positioning calls in terms of what you've done in various sector weights, what you've increased and decreased. So you reduced your weights in healthcare, utilities, staples, so that you've reduced defensive plays, obviously, real estate and discretionary by 1%. You've increased exposure to tech. You've increased exposure to materials, financials, industrial.

So you're definitely getting more cyclical. Yeah. We look our tech. When you when your S&P benchmark, you own twice as much tech as anything else, right? So if you like AI semis, as we talked about for over a year, you like accelerating software, you're going to own a lot of tech. You own a lot of mag set. So the question is, how do you balance that? I think energy materials are a good balance.

I think financials, we have a market weight, but I didn't want to be underweight. I think that they're a pretty good risk-reward, a lot of shareholder return. I'm not exactly sure what industry environment I'm rooting for. That's the only thing that worries me. But if the economy is good and that's what the stock market the last two quarters is telling you it's going to be, banks tend to do OK. So a lot of them have already done OK. They've done OK off the lows of October 7th. That's right. Yeah. And I think they they're still pretty cheap. I mean, there's plenty of banks I can buy at 10 times earnings. Well, the problem is a lot. I mean, there's plenty of banks I can buy at 10 times earnings. Well, the problem is a lot of these banks, the bank stocks of JP Morgan and some others are already at at new highs.

Yeah. That doesn't make you nervous at all going into earnings season. Maybe, you know, but the stuff like Truist or other things that have five five and a percent dividend don't have a pretty good, you know, geographic footprints don't have CRE exposure. Like super regionals. Yeah. I think there's some of those that are pretty good. And, you know, look, when the stock market is at an all time high, then it stands to reason a lot of stocks are going to be an all time high. So you increase your exposure, as I said, to tech by two percent. Yeah. Now you had already been advocating that you've got to be overweight tech. So, I mean, yeah, we're talking, you know, 25 to 30 percent of exposure in someone's portfolio to tech. And you're sort of even. Yeah, we're talking, you know, 25 to 30 percent of exposure in someone's portfolio to tech. And you're sort of even above that. Yeah, we're at 28 now.

We went from 26 to 28 in the recommendations. You know, I just think there's multi-year trends we're in the early phases of. I want to own software that has accelerating revenue. I want to own semiconductors with expanding gross margins. I want to own software that has accelerating revenue. I want to own semiconductors with expanding gross margins. I want to own market weight in the Mag 7, some of which are in tech, some are in comp services. But when you add that all up, you're going to have a quarter plus of your portfolio in those names. So how do you diversify? You got to own a little healthcare. You got to own some cyclical stuff like energy and metals, which we see is a little bit diversifying today, which is, I think, a positive for the portfolio construction.

The thing I'm most negative on at the current moment, based on what's worked, the thing I'm least likely to want to chase is physical U.S. retailers. OK, when I look at the components of the XRT, I see tons of stocks that are up a lot. I don't know if Abercrombie & Fitch is an AI stock all of a sudden, but last I checked, they sell clothing. Target, it's something I think is overvalued. I can't find any stocks in my database that have lower margins, grow more slowly, and are more expensive. Would you short some of those names? I would. I think that this is the least believable, sustainable part of the growth story. I'm willing to believe we need more compute with AI. I'm willing to believe we need more industrials with electrification. I know we need more housing.

I know healthcare companies can be much more profitable in terms of their productivity. There's things I can dream that might happen six months from now to five years. What's the dream? I'm going to sell more stuff at Target? How would you play the consumer, which has been pretty strong? Would you do it through experiential and travel type things, or you wouldn't play it at all? I think you have to be underweight. That's our biggest underweight in the portfolio is discretionary. Sure, high-end travel holds in because the upper 10% are inelastic to hotel pricing and the like.

You haven't seen great data out of the booking companies over the last couple of quarters. So cruises, et cetera. So some of that is slowing a little bit in the middle end. But I don't think you want to own Target or Ulta or Dix or the things that sell things in physical boxes. But hasn't Target already gone through these trials and tribulations as stocks really reversed? It's up 60% from October 7th. I know, but look how far it fell. And I look at it now and I think, so I'm paying 19 times nine bucks, which you got it to, nine bucks in bed, some mean reversion of margin and growth. What am I looking at? I comp negatively in the store. I comp negatively online and don't add new boxes. That sounds to me like every hedge fund guy I talk to says, I short melting ice cubes. You got a giant one in front of you. It's overvalued because everything worked. Why did it work? When people think the Fed's going to cut, the playbook says buy discretionary,

right? So the multiples expanded four turns in that sector so far this year, and I don't see any fundamental follow-through. With the other things we talked about, housing, electrification, industrial semis, I've seen some follow-through. I can believe that- You wouldn't buy a Costco? Costco might be a little different. Harder to steal from them. Employees get paid more. They don't steal as much themselves. A little bit harder to resell on Amazon. Fifty percent of the operating profit comes from the annual fee. So obviously there's some little nuanced differences, but I think the poster trial would be like a TGT. All right. Let's bring in CNBC contributor Shannon Sekosha now of

NB Private Wealth. Hey, Shannon, it's good to see you. Glad to have you on today. So we have a new quarter. What's your view? Well, Adam said a lot of great things there, but I think there's a couple of things that I really want to drive home as we go into this next quarter. Clearly, we've seen a little bit of weakness here, Scott, more recently in that momentum factor. And I think that's an important sign for people that are looking for the continuation of the rotation. Momentum was really leading the trade when it was technology and communication services. So it's really opening up the avenues to some of this diversification, some of this dispersion, if you will, in the underlying sectors. I think the other thing to remember is that as we're going forward,

you talked about rates earlier. Rates as a sort of a near-term transitory mover of stocks, that's one thing. Expectations, to your point about the Fed pivoting, is another. Our view is that that's not going to happen. And so some of this incremental move, if you will, in rates may offer some opportunities both on the equity and the fixed income side, frankly, to manipulate your positioning. But I think more importantly, this is really about the potential for the reacceleration of inflation. I think growth has a foundation here. We looked at the economic data that's come out over the last couple of days.

It seems like the growth story is intact. So the question is now going to be for macro thinkers, does this lend itself to a reacceleration of inflation, perhaps in the short term? But it's likely transitory. But I feel like you guys would disagree on positioning in terms of when when you're watching the momentum trade, we're speaking about tech and some of these growthier names. Here's Adam increasing his exposure to an already bullish stance, right? He takes it up from 26 to 28. And I almost hear you suggesting that you would take your exposure to that area down. Is that right? Well, thematically, Adam's not wrong. On a longer term basis, there clearly are drivers for that. And I think, you know, from our perspective, there's opportunities outside of kind of mega cap technology to be able to take advantage

of the productivity enhancement, to be able to catch the steam, if you will. I think more importantly, Scott, it's less about how you feel about the technology sector, whether you're neutral or slightly underweight or slightly overweight. It's really about how you're positioning within that sector. There are clearly some winners and losers this year, even in those top names. And so being able to position for that, but also allowing you the capital to potentially get some insulation

in a more volatile rate environment, but also to pick up some growth in other sectors. The economic picture is allowing you that right now, Scott. It's allowing you to see names like materials, for instance, that are trending quite strongly as we enter into the second quarter. Yeah, but she's also looking for, as you clearly hear her talk about, the idea that rates are going to be a little sticky, that inflation is at risk of reigniting or at least just remaining where we are,

which would be problematic in some respects, right? The Fed is kind of banking on this number getting down to target. Yeah, I don't see, first of all, of the people that I go on with, Shannon is one of my favorites because she usually makes total sense to me. And if I disagree, I understand why. Does she make sense? And she makes sense to me here again in that that I think the debate is just, we have growth now. Does the growth turn into the stagflation fear I briefly mentioned? If it does, then I think we would agree

we're going to get a sell-off. At the moment, I still think the growth in economic data is in the lead. But if we start getting worried about, I guess, as she put it, a non-transit increase in inflation, and the Fed says, well, forget accommodation, as she put it, a non-transit increase in inflation. And the Fed says, wow, forget accommodation. We might hike it up a couple of times. Then I think we all agree. Well, I mean, all bets are off. If they mention the H word, forget it. Right. But I think for now, the growth's in the lead. And that's why. Look, I think what I focus on every day, can gross margins for the average stock expand? If they can, and I still dream of accommodations someday, that is the Goldilocks you talked about earlier.

Margins are going up, and I dream there will be accommodations. Shan, just a sec. Your, I don't want to say entire, but I'd say 90% of your bullish case of what you've articulated to me here, appearance after appearance after appearance, margins. You think that margins are going to tell the story this earnings season. I think if margins go down, stocks go down. And if they go up, they go up. And if I can dream, I have a combination plus margin expansion. That's why we're up double digits the last couple of quarters. Shan. And I don't actually disagree with that. I think margins are critical. But Scott, the challenges here is that there's a lot of opportunity outside of mega cap tech for margins to improve and earnings to reaccelerate. Earnings may still be strong for mega cap tech, but that's going to decelerate potentially multiple expansion, excuse me, multiple expansion will come outside of those names. And that's why I think this diversification sectors like health

care. I mean, we talked about this earlier, health care, industrials, financials. You talked about banks. There are opportunities for multiples to expand and there's less vulnerability outside of mega cap tech. I don't disagree that those earnings can continue to be strong but the but they don't have to they're not going to be accelerating as broadly as they are in other sectors you just took you but you just took your exposure to health care down yeah but we're already we went from very overweight to a little bit less overweight but it's our you know one of our energy and health care are two biggest overweight so it's more and i just thought we were a little out over our skis with how big overweight we are, but I agree with her there. Probably.

Where is energy on your list now, which was the best performer in March? Yeah, we have been and remain overweight energy in health care. I still really like energy. If you have any investors who aren't worried about this month but are looking out sort of 12 months, 18, 24, I can't see why they wouldn't be massively overweight energy. We do not have enough supply to meet what's a certainty of demand. And I like that it's got low correlation to the AI trade and other stuff. So I'm going to be hedged.

And there's days where some of the tech stuff acts bad and energy is great. And the portfolio recommendations can still be the S&P. I mean, the goal for us, and I think Shannon's the same, is you want to have a portfolio that outperforms in an uptake and in a downtake. And you can't just be pedal to the metal with one sector. So we're 28% tech and 7% energy, and we're more overweight energy than we are tech. I mean, that's just how the S&P is constructed. Shan, last word to you. Yeah, I mean, listen, we're right before earnings season, Scott.

So in the next couple of days, there might be some macro blips, if you will, that could upset the narrative for the short term. But I think we're really looking at earnings to continue to see in the second half of the year. Will we get the guidance to be slightly better to account for the fact that earnings estimates have come down a little bit in the first half? Guys, I appreciate your time. Good to see you, Shannon. We'll see both of you soon. Bye.

Shannon, thank you. Adam Parker, thanks to you as well. Take care. Disney's big board battle entering its final stages, and some are saying this week's vote could be quite close, maybe closer than expected a couple of weeks ago. CNBC dot com's Alex Sherman is here to discuss what's at stake. That's sort of where we've progressed. Right. We've we the four hearing is that this could be a lot closer than people thought. Yeah, I think originally after Disney's last quarter, it seemed like Bob Iger and the board were the drivers. The shares popped. They sort of threw out a whole bunch of different things in terms of what the future of Disney might look like. New announcements and investors were pleased. What I think we've seen more recently, though,

is that maybe hinging on the ISS and Egan Jones recommendations just in the past week or two that recommended Nelson Peltz, in fact, be voted on to the board, is that the focus has turned to succession. And I think that's a much stronger argument for try on and enacting the slate, because it's hard to argue that Disney has nailed succession. Bob Iger has pushed back his retirement five different times. He has actually walked away from the CEO job and handed it to Bob J. Beck. That turned into a borderline disaster. And now he's back as CEO and there's no clear succession candidate. So this argument that helps getting onto the board can act as sort of an adult in the room when it comes to succession may be fairly persuasive to shareholders.

What happens if Disney loses, do you think? What does it mean for Iger? Well, look, Iger has said he's leaving as CEO at the end of 2026. Some people believe him, some don't. At this point, you know know if if pelts gets nominated to the board i suppose you could say investors have said look enough is enough now like we need to get serious about this we need to pick a real successor you need to leave and we're going to turn it over now to not not necessarily to someone else because nelson pelts is just one person and even if jay rasulo gets voted under the board also which b Brian is recommending, that's still just two people on the board. But I do think it would be a sign that would say sort of like a lack of confidence, a no confidence vote in the Disney board, at least when it comes

to that. I think it's a weaker argument for Peltz to say, I know the direction that Disney should go in more than Bob Iger. And look, even Nelson Peltz says, I still want Bob Iger to be the CEO of this company. So even he is not making that argument. But at least when it comes to succession, I do think that it would be a vote that you'd have to say, look, Bob, we've given you a chance here. We need someone else in here because we just don't trust you alone, even in conjunction with the board at this time. I mean, Mr. Iger himself would say, I agree with you that we need someone else in here eventually, right, when he's ready to step away.

And that's part of where your reporting lies today on CNBC.com, correct? Yeah, look, the board and Bob Iger have been looking at internal candidates really since he's come back, I've been told, in late November of 2022. I wrote a profile today of Dana Walden, who was one of the favorites to potentially take over for Iger. She has led up the Disney TV division for the past several years. And I'm told internally from people that work at Disney that at least some of them feel like she's actually the favorite to get the job. Now, that may be proximity based. I also have heard similar things about head of parks, Josh DeMauro, from people that work in the parks division. But still,

Dana Walden has been consistently successful as a TV executive. The question is, can she make the leap to CEO? And I think that's why there's no clear favorite at this point, because whether you're talking about Jimmy Pataro, the head of ESPN, or Josh DeMauro or Dana Walden, you can find flaws with all of these candidates. There is no obvious answer here. So there's going to need to be sort of a leap of faith, either on an internal candidate or an external candidate. And that's part of Nelson Peltz's argument about why Disney Sport has failed when it comes to succession planning. Alex, I appreciate your time. Thank you. Check out his article, by the way, on CNBC.com. That's Alex Sherman. We're just getting started here on Closing Bell. Up next, top wealth advisor Cheryl Young is breaking out her Q2 playbook,

revealing where she's seeing strength outside of tech these days. She joins me right here at Post 9 after the break. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. We are back, stocks. Starting off the second quarter under a little bit of pressure today is bond yield spike, and some of the market's momentum winners take a bit of a breather. Our next guest still finding upside in a number of sectors that hit new highs just today. Top wealth advisor Cheryl Young of the Rockefeller Global Family Office is back at Post Nice. Good to see you. Thank you, Scott. All right. So so you you were positive on the market before many. So here we are. We're in

the midst of what's been an incredible move. Now what? Well, that is the question. We're kicking off the quarter today, so it's an exciting day to join you, Scott. Look, we're starting to see some broadening. You look at the Equal Index, for example, the last month, it's up 3.5. S&P is up only 2.8. So we're finally starting to see this broadening you and I spoke about in January take hold. And I'm optimistic that'll continue. But concerned about some sectors, maybe some overbought areas. Okay. So why do you think the broadening is going to continue, first of all? Well, first of all, there's more trades than one stock. The number one performer in terms of the S&P 500 is 25% of the returns, 25% from one name. We were concerned- What would that be, NVIDIA? I can't talk individual names. We were concerned last year, as you know, that 32% of the returns came from seven stocks, and that was horrific.

So I would just like to think there's other places to invest. I kind of think it's like going to Vegas. When you see a table in Vegas, and I'm not a Vegas girl, but if you see a table that's crowded, you start seeing more and more people crowd around. We call it a hot hands fallacy in behavioral heuristics. It's concerning. So we want to see some broadening and the markets can broaden and should broaden from here. I think it was either the last time that we spoke or perhaps the time prior where you were starting to get a little bit nervous about valuations on mega cap. I remember the conversation that we had. So if that was you then, where are you now?

So in January, I started selling calls on a lot of these names in the Magnificent Seven, 10% of the money. Now, some of those names are in the money and I'm going to be really happy if I get the 14% I have remaining in terms of the call income for the year. 14% will take all day long. I don't see how this market goes up 14% from here, especially on the mega cap tax. Do you think we've gone up too far, too fast overall? Or does this just make sense to you? We're expecting rate cuts. The economy's strong. There are many reasons, Bulls would say, to be bullish. Yeah. And I think it's a good reminder to have a pause. First of all, we are still expecting rate cuts. But there are some

questions around how many. I know in January you were saying six and I was like two, maybe none. I'm still saying two, three, maybe none this year. I think it'll happen, but the data is good. Look at the PMI numbers. Well, that's one of the reasons why yields went up and stocks got a little skittish for a moment. Anything about 50 signals expansion. And so when we have data coming in this strong, the job numbers are good. The industrials are good. I just don't see how the Fed cuts rates in June. Is that a problem if there are no cuts this year? Why are you shaking your head? Yeah. So that still matters more than a strong economy. Well, some would say, well, the economy is this good. We don't need rate cuts. I would argue the stock market started rallying in December when the Fed appeared more accommodating.

Oh, well, there's no doubt, right? The pivot sort of set this whole thing off. So the pivot set this tone. So if that doesn't happen, I would have to believe the stock market has some cooling off to do. Even if the economy is stronger now than it was then, or at least we thought it was, right? Part of the belief was, well, the economy's got to cool off. So we're going to need rate cuts. In addition to the fact that inflation is coming down, they're going to be able to cut for the right reasons. Well, and remember, not all of the stock market has participated.

Last year, it was technology and nothing else. Year to date, we have seen other sectors start to bleed ahead of technology, which is what we talked about in January when I was here about some of this pivots into some other sectors. Like energy, which was great last month. Energy, number one. Industrials, materials, I still like. I still really like financials. And I still like healthcare. We have not seen as big of a rally. And some of these sectors, energy is still behind where it was three years ago. So there's a lot of catch up to do. So again, I would say look at the market in terms of not necessarily broad indexes, but which sectors can work, what's going to work well with the AI trade and support the AI trade. Again, energy has to be

energy. It's the biggest bottleneck when we think about AI expansion. And we have an election this year, which really probably could benefit, you know, sectors like industrial. I mean, you have to be reasonably broadly bullish if you like all of those sectors. I mean, that's almost the whole market. Well. Right? If you like tech a little bit less, but you still like it. But I don't like real estate, for example. Not keen on that area.

And that's worked out well for me. I've had no exposure. Thank goodness. All right. But that's one, right? I mean, you like energy. You're adding more to utilities, as you said, industrials, materials, financials and health care. So you're trimming technology, which, by the way, the first time I've ever put on your show was the last two times I've said I'm trimming technology.

And five of the magnificent seven, as you are very well aware, since I was on the show last time, have underperformed S&P. So I think that can continue. I'm not excited about hardware right now. I hate to say it. I like some areas in technology. I like AI still, but be careful. Maybe add a little. We talked about my rock climbing. You know, as I climb up the wall, I like to add just a little bit more protection into walls and make sure if I take a fall, it's a small fall, not a big whipper fall. I want to continue to think about using options because I don't want to create taxes. Remember, I'm not just a portfolio manager. I'm a wealth manager. If I sell all of these magnificent names in my portfolio, I'm going to crush my clients in taxes. So can I hedge them with some options and creating some ability to keep those names? Maybe there's some upside,

but if there's not, I'm going to get 12 to 14 percent income on the options. I'm OK with that right now from here on out for the rest of the year, frankly. What about small and mid caps? And we'll make that the last one. Yeah, I like small and mid, maybe a little bit more than Adam does. I think, again, there's some opportunity there. You have to be careful. Again, the Russell 2000 has a lot of regional banks. Yeah, a lot. And so that's why it has probably— Biggest weighting, I think, is made up of regionals. It's absolutely the biggest weighting. It's why it suffered this year.

We had a nice return on small caps in December. They were up like 12%, I want to say. I think there's legs in that area. But again, be picky about what you own. Okay. That's the bottom line statement for everything. Be picky about what you own. Always enjoy the conversation.

Thanks for being here. Always a pleasure. Cheryl Young joining us here at Post 9. Up next, charting out opportunity. Top technician Jeff DeGraff, he is back and we'll find out where he thinks the momentum trade is heading from here in the one sector he says about to break out. He'll make his case next. Clothing bell is coming right back. All right, the S&P 500 kicking off the second quarter by pulling back from record highs set just late last week. Our next guest, though, says the technical suggests momentum hasn't been exhausted quite yet. Let's bring in Jeff DeGraff, chairman and head of technical research at Renaissance Macros. Good to see you again.

Good to see you, Scott. So I was going to say we're about as overbought as overbought can be, or at least it seems that way. But you say not exactly quite yet. Well, yeah, I would say not exactly quite yet um if you look at the percentage of issues that are above their 200 day moving average it's right around 82 percent that number can get a lot higher obviously um people have a tendency to worry about that number when it is over 80 percent but all our work shows that that's a sign of momentum, where you really want to be concerned about the overall market is when that line's contracting, say, 75 from 80, and the market's still going up. That's a sign that you start losing the participation.

So that ascending reading, actually, for us is good news because it's a broadening of the market. So the very tip-top of momentum, the highest momentum names have come under some pressure versus the low momentum names hasn't been bearish for the market. It isn't usually bearish for the market, but it usually implies that there is an expansion going on and that tends to have durability. So I actually think we're still in pretty good shape. Well, I mean, there definitely has been a broadening. But what about the momentum trade in and of itself? What are the charts telling you about its future? Yeah. So the last time we were on, we talked about that getting into the 90th percentile and we got to the 94th percentile back last week.

And so for us, that's a pretty stark yellow flag that we raise up the poll and say, hey, this isn't really how we want to be positioned right here. So look for some of these laggards to kick in. And that's what we're seeing out of copper, a little bit out of energy, some of the other material names, some of the chemicals, et cetera, starting to perform a little better. So I think momentum will take a pause. The very high momentum names will take a pause. But that should force the money down to the lesser aggressive names. I think that's going to end up being good news. Still, and I think it's very obvious what's going on, still with this bias towards cyclicality, right?

So it's not people fleeing, say, discretionary on their way to Procter & Gamble or a bunch of the staple names. They're actually looking for some other type of cyclicality that they can get exposure to. And a lot of those are showing up in materials here. Yeah, I was going to ask you what you make of the materials more broadly. It's been one of the better performing sectors, obviously. And we sort of, you know, we know gold's hitting a record high yet again today. How much room does that have?

I think gold's got another 20 percent in it, believe it or not. So I think gold is the real deal with this breakout. I like it. The positioning, when we look at small traders as an example through the CFTC, this is not being driven by the retail crowd. Some people would look at that as being a contrarian indication that historically has held up statistically. So these are big money buyers that are pushing this higher.

And I think that's got some duration to it. What's interesting is the physical looks a lot better than the equities. So much more a fan of the physical gold market than we are the underlying stocks in gold. But copper really to us is the more interesting play here because we're seeing the breakout in those names. I think there's kind of a global element to this of an improving economy, maybe not so hot that it's detracting from some of these other areas that people can make money, but certainly shows that this whole concern, which I think has been modified pretty aggressively about recession,

really is back of the back burner. What about energy? Leave us with a good thought here because it's ripped. Obviously, it's the best performer in March by a lot. It's a hard one for us. So momentum is good with energy. That's OK. Nothing wrong with that. But the trends on a relative basis still aren't there yet. So we'd stick with stick with the transport names, stick with the marketing names. The big integrated still don't look that good to us. You know, I'd rather steer you towards materials than I would energy. But if you have to be an energy, stick to the smaller cap names and those with the strong relative performance trends tend to be transports and marketing.

Even with the kind of momentum that this space apparently is showing. I mean, that we've learned our lesson about, you know, when momentum gets going, it's hard to break. This space was up 10 percent last month. Yeah, so you'll get a pause or consolidation. The hardest part that we have for energy right now is it really shouldn't be doing that well in our market cycle clock. And so it's just kind of it's doing well. It shouldn't be doing well. So we'll have some exposure,

but we don't make big bets there. We're far more interested in materials because that aligns with how we think about the world in a cyclical fashion. Yeah, maybe China picking up a little bit too helps that. Jeff, we'll see you soon.

That's Jeff DeGraff. All right, up next, we're tracking the biggest movers as we head into the close. Christina Partsenevalos standing by with that. Christina. Well, a media company

that has a valuation of over $6 billion but still expects losses for the foreseeable future. Shares are tanking. Can you guess which firm? Details are next. We're about 15 out from the closing bell. Let's send it over to Christina Partsinovalos now

for a look at the key stocks she's watching. Christina. Well, the rollercoaster ride continues as Trump Media and Technology Group sinks more than 20 percent after the social media company reported a 58 million dollar net loss in 2023. This came from the company's 8K. And in that filing, they said that they expect, quote, to incur operating losses for the foreseeable future. The move does come after a multi-day rally just last week after the stock began trading.

IPO'd on Tuesday. Keep in mind this company has a valuation of more than $6 billion, down 20% trading at $49.29. And shares of 3M on the rise after the manufacturing company announced this morning that its spinoff of healthcare company Solventum was completed. 3M also announced a $10 billion settlement with public water suppliers and a chemicals lawsuit had finally received approval. And that's why you're seeing shares up almost 6% right now. Back to you in a few in the market zone, Christina. Thanks. All right. Still ahead of chip check. Micron shares are moving higher in today's session. We'll find out what's behind that jump and how the rest of the chip space is reacting. Closing bells coming right back. I want to remind you of a big interview we have on tap this week. I'll be sitting down

exclusively with Greenlight Capital's David Einhorn. That from the Sohn Conference, 2.15 Eastern this coming Wednesday, and we're very excited about that. Up next, your earnings setup. Retailer PVH reporting at the top of the hour that stock seeing sizable gains over the last year. Big question now, can that strength continue? We will discuss that and much more when we take you inside the Market Zone next. All right, we're in the closing about Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Christina Partinellos with a big call on Micron and the chip name shaking off this market weakness.

And Courtney Reagan looking ahead to PVH and those results coming out in overtime. Michael, the first trading day of the second quarter. Assess it for us. Well, just a little bit of kind of recoil from some of the action that closed the first quarter. And specifically, there was a bit of this move, you know, rebalancing out of stocks into bonds. Pretty strong bid into treasuries. We've gotten that reversed today. But we've been greeted by further evidence of a more resilient economy. We're still growing, you know, 5 percent plus nominal GDP. Earnings

revised lower in the first quarter at a slower than normal pace. So that seems to be holding up. It's really hard to if you go looking for faults or looking for things to worry about in this market. All I really come up with is it's been too good for too long. And markets don't go in one direction indefinitely like this. And you have to be careful that the macro data and treasury yields don't kind of go off the, out of the guardrails of this zone that's been very comfortable for the market for months now. Well, I mean, just job support on Friday, right? I mean, here we go again with a report where we're going to watch every little tick,

and we're going to decide whether too good is too good, whether yields move up on a better report and stocks get unsettled. There is definitely a chance of that. I'm more focused on the market action itself almost being too good. I mean, the amount of rotation and dispersion in the market is protecting the indexes from every potential little buffer. You haven't had a 2% pullback. Maybe we don't get one for a while. The market is acting a lot like it has the beginning of some of the best years ever. I keep talking about this, 95, 2013, 2017. But even there, at some point, you have a bit of a rethink of the ideal macro scenario coming along at some point.

I'll come back to you in a moment. Christina Partinovalos is watching the chips today. There's a lot of talk about what these stocks are going to do in this quarter ahead. And not a great day for the market, but no big deal for the chips, apparently. Well, definitely no big deal for Micron. It's one of the biggest S&P 500 gainers today. And that's driven partially because of a B of A analyst raising its price target to $144. In that report, they said that high bandwidth memory,

which is really critical to the AI systems that we keep talking about, is taking up all the supply. And Micron is going to be a main beneficiary of that. They also bet the high bandwidth memory market will grow to more than $20 billion by 2027. So it's not all about GPUs, and that's helping drive micron shares to an all-time high, dating back to its IPO in 1984. We do have some other winners, too, in the chip space. The largest manufacturer of chips, that would be Taiwan Semiconductors, TSMC. You can see it's up almost 4% right now on a report from China's Commercial Times that suggests TSMC is going to increase its

CapEx guidance, and that's to keep up with demand for high-performance computing chips, particularly with AI. You can sense a theme here. And since I'm talking about AI, let's talk about Microsoft and OpenAI discussing plans for a $100 billion AI supercomputer called Stargate, which would require, according to this report from the information, millions of server chips to power the supercomputer. It's unclear if it's going to be benefiting NVIDIA, AMD, or in-house chips from Microsoft. But in that report, OpenAI reportedly told Microsoft it does not want to use, I should say, NVIDIA's InfiniBand cables and would rather use Ethernet cables that are more open to developers. And that could benefit Broadcom and Arista Networks. You can see Arista Networks shares are up over 2 and a half percent on this news. According to the report,

this major next major AI upgrade is expected early next year. Scott. Christina, I appreciate that. Mike, this is going to be a closely watched sector all quarter long, just given what these stocks have done. And it's not just an NVIDIA story either. No, not at all. And every time, you know, I think you plausibly wonder whether the market is sort of over discounted the fact that there's going to be this rapid, urgent build out. It seems as if you have one of these reports that comes out says, actually, we need even more. So for now, I think that the market's kind of buffered against that concern that we're pulling everything forward. Huge question is whether there's a payoff for everybody, you know, spending all this money to build out right now. That seems like the market

treating it as tomorrow's problem. Maybe we do get a big kind of, you know, splash of cold water on this in terms of the overall opportunity. But for now, as long as they're buying gear and it even goes into the power generation areas of this market, you see copper moving the way it's moving. And so it is animating a lot of different parts of the market. Yeah, no doubt about that. Court, what do we need to know about PVH? So, Scott, there's always a lot of good read-throughs in PVH's earnings, frankly, because you've got this parent of Tommy Hilviger and Calvin Klein and others,

but it's global. It operates wholesale and direct-to-consumer networks with the way it sells its goods. It also has licensing partnerships. And shares of PVH have actually well outperformed the main retail ETFs, the XRT, the XLY. Over the last three months, it's also outperformed the S&P 500. Now, TD Cowan analyst John Kernan tells investors consensus is underestimating. PVH's ability to elevate its brands, drive faster inventory turns and higher margins. Kernan actually thinks the European margin opportunity also is underappreciated.

And he notes that it's Calvin Klein digital engagement. North America hit its highest level in five years in January. Options implying a move of about 10 percent on earnings. So we'll see what happens here. But I really like the read throughs for the consumer around the world globally. Of course, what we're seeing right here in the United States. And I expect a note of caution because of that. All right. We'll see in a couple of minutes in overtime. Courtney Reagan,

thank you very much for that. Mike, I'll send it back to you. You know, NASDAQ, very interesting today, given the overall tape and some of these large cap tech names that are green. Yeah. You know, it shows once again that that is not a really directly interest rate sensitive part of this market. It is doing a little bit of outperformance on a day like today. It's just driven, as we were saying, by other themes and storylines. And that makes some sense in the short term. I do notice, if you look at what's dragging the Dow down today, it's things like Home Depot and Goldman Sachs. The interest rate sensitive parts of this market, the cyclicals,

they really ramped into the close of trading for the first quarter. So you probably need another day or so to see if a lot of this is just, you know, the spillback from the portfolio rebalancing we did last week. Then see if yields catch a flight. You know, as much as we can say that much of the market is not that yield sensitive, this market could find an excuse in yields breaking out above the top of their recent range to say that we have to at least have a rethink. Yeah, a lot of talk about the market being overbought, but DeGraff doesn't think, you know, the momentum is done quite yet. Well, yeah, so it's overbought for sure, but the question is, what does that actually translate

into? It doesn't mean it's likely to go down. It's more likely a sign of ongoing strength, at least in the coming months. All right, Mike, I appreciate it. We'll see you tomorrow. So we'll go red on the Dow and the S&P. NASDAQ's going to fight it to the last moment to try and stay green. Don't forget about PVH coming in moments in OT. I'll send it there with Morgan and John.