Closing Bell - Closing Bell: Breakout Following the Shakeout? 2/15/24

Episode Date: February 15, 2024

Can a clean breakout follow this week’s brief shakeout? And are markets correct in shrugging off that uptick in CPI and softer retail sales report this morning ahead of PPI tomorrow? Rick Rieder – head of Blackrock’s Global Allocation team and CIO of Global Fixed Income – gives his expert take. Plus, top retail analyst Brian Nagel reacts to today’s weak retail sales report. And, we break down what to watch when Coinbase and Roku report in Overtime. 

Welcome to closing battle I am Mike Santoli in for Scott Wapner today and this make or break hour begins with a re approach of record highs. The S&P 500 on the verge of recapturing all of Tuesday's sharp drop on that slightly hotter inflation reading the index now actually slightly green for the week it is flirting with its all time closing high that was set last Friday that was at about so just above that at the moment. And once again today, small caps and financials are outperforming, resuming the rotation away from mega caps that was interrupted, at least briefly, by Tuesday's pullback. You see financials Goldman Sachs up 2.3 percent, Wells up 7 percent. We'll talk about that. NVIDIA cooling off for a change, but the AI enthusiasm continues to flow into the likes of Supermicro. Here you see it is up 12% today, up more than 200% since the start of the year. All of which brings us to our talk of the tape. Can a clean breakout follow this week's brief shakeout? And are the markets correct in shrugging off that uptick in CPI and softer retail sales numbers this morning ahead of a PPI reading tomorrow? Let's ask Rick Reeder. He is head of BlackRock's global allocation team and chief investment officer of global fixed income there.

Rick, great to see you. Good to have. Good to be here. Thanks for having me. So there you start with, you know, I think there was a lot of comfort that we had a pretty solid economy. And, you know, the central banks were a lot of comfort that we had a pretty solid economy and, you know, the central banks were in a good place because they could be patient. The economy didn't need too much help and inflation was going the right way. Anything interrupt that view at all this week? Yeah, I mean, listen, you have to respect when that CPI number printed, it wasn't the headline was a little scary in terms of where it was relative to the trend you described. When you dug into it, though, there are a couple of things you need to respect.

One is service-level inflation. When you go down the list, insurance, medical services, education, it's pretty firm. You know, the Federal Reserve has a hard time bringing down that level of inflation. By the way, those aren't areas that are really interest rate sensitive for the most part. So we have sticky service-level inflation. However, the markets took that as, oh, my God, inflation is going the other way. If actually dug in, there was a quirk around owner's equivalent rent that my sense is going to you're going to see that start to balance out over the next couple of months. So listen, I think you have to respect that inflation. The Fed can be a bit more patient. Are they

going to start in May or June? I think they are. I still think they're going to get 75 basis points off the funds rate this year. But, you know, think about where we were two weeks ago. The consensus in the market was they were going in March, which was crazy to start with. But, you know, now they can be a bit patient. But, you know, listen, I think you have to have respect for the number. We've got to watch the inflation numbers from here. But if you take the long term trend, inflation is coming down. It's service level inflation that may remain sticky high for a bit. And then on the economic growth side, I mean, look, the Atlanta Fed number is a snapshot. It still looks good. It's above 2 percent real growth for the first quarter.

But then you had some noise in the retail sales number today was give back from a strong December. Now, it's so hard to tease out what is genuine weakness or a new trend and what is just kind of a return to some kind of normal activity. So I'm on the, I'm on, we're having an outbreak of normality thesis. And so, so by the way, if you think about where we've come from, if you go back to 2021, we had nominal GDP of almost 12%. Then we had 7% plus in 22. And then last year, five and a half, five plus, you know, listen, I think we're going to run 4% nominal GDP. If you go back three decades, for the last three decades pre-COVID, that's kind of a normal rate of growth. So when you look, when you parse the numbers and you say retail sales a

little softer, some areas of retail is softening up a bit, but I still think you have a good economy. I think the idea that recession, deep recession, when you go through it quantitatively, you look at consumer spend, you get a 3.7% unemployment rate at 4.5% wage. Consumer is going to keep spending. Business, you look at R&D spend. We talk about AI and other things. Pretty good. Government spend is still there. Economy is going to chug along. I think you'll see 1.5% to 2% real growth this year. Put some inflation on it, you got a 4%, 4 plus percent nominal GDP. It's pretty good. Pretty good. Historically, in the range of where nominal GDP is running is where 10-year treasury yields tend to, you know, oscillate around. So does this make sense to you where we are right now? I mean, the bond market did get a jolt on Tuesday and maybe it

was an outsized reaction because of the positioning. But, you know, you've given back some of that yield pop. So I think you gave some people say, you know, where should the 10-year be? Like you say, for decades, nominal GDP was where the 10-year was. You know, there were points in time we were behind at points in time we were through. But generally, the intermediate trajectory of it's pretty close to nominal GDP. If you take the metric that we just talked about, 10-year at about 4%. We are, I think the 10-year has found its home. If you get, you know, once you get some of the stronger inflation data, you back up a little bit. I think you're going to end the year with a 10-year 3.5 to 4. We'll get in the second half

of the year. Fed will start cutting rates. You'll move the forwards down. I think you'll get to a place. You're 3.5 to 4. But I don't think, you know, the trade for 2024 is not let's bet on long-end interest rates 10 years and out as rallying that much. I think they're basically found their place. So if the Fed is really the markets have come in the which definitely reinforces the idea that at least the stock market wasn't banking on deep cuts starting very soon to justify their levels. So I think there's way too much focus on the 10-year and what it means for the equity market.

It's the same thing about where we are point in time. First of all, companies turn their debt out. And so the companies are in really good shape. They're actually their debt burden. If you take their debt service costs, it's actually come down the last few years. Companies are in great shape. Second thing I would say, if you think about asset allocation today, you could buy long-end interest rates at 4%. The long bond is just above 4%.

The average return on equity for the S&P 500 is 18%. That is incredible. So you think about it, I'm a long-term investor. My book value, my equities is growing 18%. Is a multiple a figure high? Maybe. If I'm going to compound, maybe the economy slows a bit. I don't compound at 18%.

I compound at 15%. It's pretty good. Like if you're a long-term investor, think about compounding. I think the world's going to change. This traditional, I got to own long bonds because they're my great hedge against equities. I just think you should own equities, build a lot of income in your portfolio, and then just and you'll generate return. I just don't think there's these valuations are stretched for the equity market. Now, when you say that, I mean, clearly the economy doesn't need help, so to speak, with lower interest rates. You mentioned the economy

is much less rate sensitive. So it's not as if it's pulling a lever that has, you know, a really tight gearing to the economy. What about this idea that financial conditions have loosened up, right? Stocks are up, valuations are up, some frothy stuff happening in some of the smaller names, credit spreads are really tight. Does that matter? I mean, I guess at one point in time, the Fed needed to target those things. Now we're already. So listen, I think financial conditions are part of the calculus that the Fed's got to build in. But so now you take where we are today, the funds rate, 5 and 3-8 is midpoint of the funds rate. Core PCE, even though CPI was high, core PCE we think is going to be 2.8 this month, 2.75, 2.8 this month. We think we're down to 2.4 by April.

You've got a Fed funds rate that's 5 and 3-8, and you've got core PCE now down to 2.4. You have an incredibly restrictive interest rate with an economy that is very slowly moderating the fed almost definitionally has to get that funds rate down do they have to get it down by the end of march absolutely not but in the next couple of years i think you get 75 off this year you get another 125 base points off next year because you can yeah and uh core PCE is at a level, and we think that level will be pretty stable. Can it trend up a little bit? Maybe. We were running at inflation was 9%. We're talking about, you know, it's the delta between 2.3 and 2.8. It's not that dramatic. Yeah. I mean, that is always worth emphasizing that even though the Fed has the stated target

at 2%, you know, the world, the markets have done fine at slightly higher levels than that or, you know, or a range around it. I guess the question in terms of when you say generating those returns. So if you have your core, you know, equities can do OK. How are you piling income into that? Like, how do you implement that view? So, you know, we're at a really unique point because the Fed's got the rate here. Companies we talked about are in great shape, have paid down their debt or termed out their debt. Their cash flow coverage is great. Companies are now borrowing off the risk-free rate. And so you can now buy investment-grade companies, 5.5% to 6%. You can buy them out of Europe for 6 plus when you include the currency. We just launched this ETF, this

income. It's called BlackRock Income. We're generating 6%. Actually, now we're closer to 7 percent yield on that fund. And we're not really taking that much risk. We've got some high yield, high yield markets in good shape, investment grade credit, agency mortgages. You can build six and a half to seven. So you think about this year, interest rates, are they going to do much? I think they'll come down a bit. If you can build six and a half to seven yield, not take a lot of volatility risk, keep your volatility in the equity market, I think equities will do their job. I think equities will get you a 10, 12, maybe 15 percent return this year. That's a pretty good portfolio. And I don't think you need long bonds to hedge at four percent. That idea that, you know, the Fed can just basically narrow that gap between Fed funds rate and where inflation is running right now over a couple of

years, right? Let's say 200 basis points as you laid it out for two years. That does suggest that they don't have to respond to any real emergencies. In other words, are we looking at two years of a decent, steady state economy in your view? So listen, there's a lot of things that are, you know, it's Mideast, whether it's U.S.-China, whether it's the election, there's stuff. You know, I'm predicting normal and assuming something abnormal is going to happen. That will create some shock. The idea being, though, I think today you can build a portfolio that's reasonably stable and work your way through it. But listen, I think the economy, the U.S. economy is a service-level economy. You think about why

is service-level inflation high? Service-level growth is high. It's hard to bring that down. Service economies don't really go into recession. It's very rare for them to go into recession. You think about spend on medical, spend on education, spend on technology that will continue for a period of time. So listen, I think we're going to be in a very normal period, and then I'm certain I'll be disrupted in something that comes out over the next couple of years. But I think you can position your portfolio in a way that's durable and still create decent return. That suggests that, you know, you wouldn't necessarily be too concerned with a lot of the talk this morning was Japan and the UK dipping into technical recession at this point. I mean, for years there's been that worry and then the U.S. tends not to be the thing that gets dragged

along. But we'll have to. So I think people need worth thinking things to worry about. I think, by the way, you know, I lose a lot of sleep every night. There are always things to worry about. U.S. economy is definitionally an open economy, functionally is a closed economy. U.S. economy is pretty extraordinary in what it is able to produce domestically. You think about the size of our GDP and our lack of reliance on the rest of the world. I mean, our economy, the amount of stuff that you can throw at the U.S. economy is pretty extraordinary. Economy, you think about the technology spend, the amount of spend that's going in on R&D now. Like we looked at, you know, if you go back 20, 30 years, R&D relative to CapEx was a small fraction. Today, R&D is a huge percentage of the CapEx.

That R&D creates velocity, creates ROE for companies, and it creates a stability in the economy because we continue to innovate different than Europe, different than other parts of the world. The innovation is pretty, you know, I think the last time we did an interview, I called the U.S. economy the polyurethane economy because it bends, it flexes, and I still think we're in that mode today. Yeah, and there were, I mean, maybe two decades, even in the U.S. economy the polyurethane economy because it bends, it flexes. And I still think we're in that mode today. Yeah, and there were, I mean, maybe two decades, even in the U.S., where people were saying, where's all the aggressive capex? And you have, you know, a lot of it being brought to bear right now. I guess the final thing I want to hit on is a lot of people, you talk about things you maybe look to worry about.

A lot of people were worried about the Treasury supply, how much they had to sell, what it's going to mean for the market's ability to absorb it. I'm not saying I was all that worried about it, but there was a storm of concern around that late last year. Are we through it? No. So I'm very worried about that. It's a question of timing of everything. So you think about what's going to happen over the next two, three years. The amount of debt that we're going to issue, quite frankly, I think is just too big. I think there's going to be a problem in terms of absorbing it. However, when you have a central bank that's actually cutting rates, there is a receptivity to funding that debt domestically. So if you go back two, three years ago, international was buying treasuries, banks were buying treasuries, Fed was buying treasuries. You don't really have that today, but you've got to rely on U.S. domestic demand. But people haven't bought, you know, the underweight to fixed income has been profound.

Yeah, a lot of cash, but not... You can absorb, you know, we ran it. I know, the underweight to fixed income has been profound. Yeah, a lot of cash, but not... You can absorb, you know, we ran it. I mean, just to get to the level of normal, $4 trillion to $5 trillion of demand for treasuries that can come in. So I think while the Fed cuts rates, people, and we're seeing it in our flows, you're seeing people putting money in, investing, there's going to be a period of time

over the next two to three years where I think policymakers, if they don't address the amount of debt and the size of these deficits, we are going to have one of those moments. I think we'll have an auction that will fail aggressively and people get nervous. And that will stimulate the conversation. There's a lot of debt to place in the market every day. All right. So worry long term. We'll see how it goes. Rick, great to talk to you. Thanks so much. Appreciate it. All right. Well, stocks still solidly in the green, down more than 300 as Wall Street attempts to regain momentum lost on that Tuesday shakeout. Let's bring in CNBC contributors Joe Terranova of Virtus Investment Partners. Sorry, Joe. And Stephanie Link of Hightower Advisors. Good to

see you both. So, Joe, let's talk about the big picture here in light of what Rick was saying, but also in light of the retail sales number, in light of where we sit with earnings season right now. I still think we're in a good place. And quite candidly, you know, we woke up this morning and you mentioned it to the news of economic weakening. I'll call it both Japan and the UK. And you wonder, can the U.S. decouple from that or eventually does that get exported to the United States, similar to the way the Chinese deflation is getting exported into Europe itself? And I think it creates an economic environment where maybe it's not a soft landing, maybe it's a firm landing. And that firm landing is probably the best outcome for risk assets to continue the appreciation, because at that point it tests the patience of the Federal Reserve. The Federal Reserve finally delivers on what the market has been clamoring for that

first rate cut. And I think it also leads us to a place where the Federal Reserve ultimately is going to address quantitative tightening. And I think that's the big issue on the table. We see the reverse repo facility down at 500 billion. It was two point two trillion in December of 2022. So the excess liquidity is being drained out of the banking system. The financial conditions are getting tight. It's time for the Federal Reserve to back off off that balance sheet tightening. And that's good for risk assets. And Steph, you know, a lot of these dynamics are obviously encouraging.

I'm wondering how you kind of integrate that with what we're hearing from some companies out there as we go through this earnings season, as you're seeing what companies are reporting and guiding toward. And we're hearing anecdotally a lot more about layoffs and about some softer demand in some end markets. Are you concerned about that or is that just the normal noise of a first quarter in earnings season? I think it is kind of noise, except for technology companies who beefed up during COVID. And you're seeing companies shift within technology into more AI-centric products and initiatives. So that doesn't really surprise me that you are seeing layoffs. We know what's happening in the financial industry. And so you're seeing some layoffs in that sector as well. But as a whole, if you step back, I mean,

even though we got mixed economic data this week, we're still running GDP, Mike, at about 2.9%. That's pretty healthy. And Rick just mentioned the consumer. Sure, retail sales were disappointing today, but real consumer spend is still strong at 2.3 percent on a seasonally adjusted annual basis. And real wages are 3.4 percent. So consumer is still pretty good. We have pockets of manufacturing that are seeing kind of a mini renaissance. We have private construction growth of 11 percent, public construction growth of 20 percent. The regional PMIs are actually indicating that factory orders are about to recover and move higher. So all of this is really good. I know it's leading to more inflation than what we want. However, I take better growth,

a little higher inflation, because that means you get double digit earnings growth. And I would just say one thing, because Rick did mention about cash flow. In the S&P 500, free cash flow in the last year is up to $1.4 trillion. And we've had over $600 billion in buybacks, and we've had $3.2 trillion in M&A. So the free cash flow is there, and these companies are putting it to work. And that's very exciting to me. Yeah, I mean, that story has been pretty consistent. And I know that free cash flow generating companies have been, you know, one of the ways to very few ways to outperform in the last year or so. Joe, I guess the question I would ask in terms of overall field position of what the market's already priced in is, you know, a week ago when we were pretty much at the highs that

we're at right now in the S&P, you'd say, look, looks like 5,000 is where this rally was headed. Probably time for a breather. Back half of February, sometimes weak. You know, maybe we have run out of a sort of a cushion underneath this market. And, you know, we're in for a gut check. Was it a one day, 1.4 percent gut check? And that was it? Yeah, it seems like that's the case. And it's interesting because you mentioned the seasonal weakness rather in the back half of February. I think everyone's identified that and everyone's looking towards NVIDIA next week and saying, better be careful with NVIDIA. That potentially could be a problem. But I think Steph nails it. I think it comes down to earnings. You're not going to get the multiple expansion.

If you're relying on multiple expansion or rate cuts in 2024, you've got the wrong investment thesis. It's about earnings and it's about the ability for earnings to continue to grow. You're relying on multiple expansion or rate cuts in 2024. You've got the wrong investment thesis. It's about earnings, and it's about the ability for earnings to continue to grow. And the one area where we have not seen the growth is in small caps. Small caps are still in that earnings recession. I think the market is anticipating that they are going to come out of that earnings recession here in the next quarter or so. And I think the market is currently pricing that in. That's why you're seeing value equal weighted and also the small caps themselves outperforming over the last several days. Yeah. And Steph, I noted yesterday that, you know, the industrial sector made a new record high. It was like a one day break from that run. I guess the question to you mentioned the reasons to be

confident that the consumer is going to stay in decent shape. I know you've been shuffling some stuff around in that general sector, selling TJX and McDonald's. Don't know if that was macro calls, but also adding to Home Depot. Yeah, I mean, I just I think they're both really good companies. I just think they're both at fair value with McDonald's. It's up 19 percent from the October lows. And they have very tough comparisons coming forward in this year because they did so well last year. And they also had pricing power last year. And I think that's going to be kind of challenging for them. So nothing wrong with the company just at 24 times forward estimates.

It's full. Same with TJ. And it's a great company. It's a beautiful looking chart. Nothing wrong with it. I just wanted to sell both of these, raise a little cash, and then deploy it into Home Depot, which I know they report next week. And I'm going to look foolish because it's probably going to sell off on the news. It always usually does. However, I just continue to like housing. And I like that theme for 2024. And we got NAHB numbers today that were pretty encouraging. If interest rates come down, I think you're going to see homes actually really start to improve and home builders in general. So I like that one a lot. When homes improve, you need home improvement retailers. There you go, Steph. I appreciate it. Thanks. And Joe, we'll see you in a little while in the market zone. Let's send it over to Christina

Partsenevelis for a look at the biggest names moving into the close. Hey, Christina. Hi, Mike. Well, Shake Shack's share price isn't the only thing moving. The burger chain expects to grow total 2024 revenues by 11 to 15 percent and open 80 new restaurants this year. The company also lowered prices, which is helping store traffic. That's why shares are up 25 percent. Contrast that to Wendy's, though, which had a higher average spend rate but saw customer traffic decline in the latest quarter. So sales actually wound up missing expectations. Shares are down about 2% today. Meanwhile, shares of cloud firm Twilio are moving in the opposite direction of Shadeshack, down about, look at that, 15% after a weak current quarter forecast and refusing to give a full year outlook. The company plans to review

its underperforming business segment after months of activist scrutiny. The goal? To identify the appropriate path forward. Shares down 15%. Christina, thank you. Thanks. We have a news alert on Toast. Kate Rogers has the details. Hello, Kate. Hey there, Mike. Yeah, take a look at shares of restaurant technology company Toast. They were falling by about 7 percent last I looked. This is on a report from Bloomberg citing a source familiar that the company is reportedly laying off 550 workers. Toast is also set to report earnings after close today, so we will

likely get an update there. Again, this is just the latest technology company we've seen cutting its workforce to start the new year. As you can see, yeah, shares down nearly 8%. Now we've reached out to Toast for comment, and we'll bring you any update as we get it. Back over to you. All right, Kate, thank you. We're just getting started here. Up next, top plays for your portfolio.

Trivariate's Adam Parker is breaking out his market playbook, highlighting the sectors he's betting on right now and how he's navigating the mega caps as well. And later, we're getting you all set for earnings in overtime. What to watch from Coinbase, Roku and more. That is still ahead. We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC with the Dow up 322.

Stocks climbing for a second day. The S&P on track to just about hit its record close from last Friday as Wall Street attempts to claw back the steep losses from earlier in the week. For the best places to invest right now, let's bring in CNBC contributor Adam Parker, CEO and founder of Trivariate Research. Adam, good to catch up with you here. I guess bring us up to date on what you think makes sense here. As we've come through most of earnings season, you've probably gotten some themes to pull out of that. But you've also been saying for a while, like, just, you know, maintain exposure to the big dominant mega caps and then look elsewhere, I guess, to try and beat the index.

So what does that mean at the moment? It's funny. I just listened to your last segment, people I know very well, all of them. And I don't see it the same way necessarily. Nobody has asked me, not a single institutional investor has asked me about a second half of February trend for a slowdown. So that's the first I've ever heard of that. And I do think multiples can expand. I mean, if you think small caps are going to work, the way that'll happen will be gross margins will expand to the average small cap. And when gross margins expands, multiple expands. So I think a median company can have multiple expansion. And I never heard of the second half of February slowdown. So I guess that's what makes markets. And those are people I know

and respect well and talk about markets a lot with. So I guess today I'm looking at it a little differently. I remain constructive. I think Rick Reader's comments, I echo a lot of them. I think the risk reward for equities looking out is positive. You have pretty good earnings trajectory. I think earnings will be up this year. I think they'll be up next year versus this year. I think gross margins can expand. I think ultimately the Fed will be accommodative, and that's a pretty good cocktail for equities, Mike. Yeah, I mean, just to be clear, this whole second half of February thing is just like a seasonal stock performance pattern that's shown up over the years. I mean, it's not any more fundamentally based than last year on July 31st saying, you know what, August and September, they're like the weakest months of the year pretty much. And guess what?

We went down 10 percent. Of course, there were other reasons. But again, it's not saying it's going to be an economic. Sometimes it could be. Yeah. Look, sometimes it could be a self-fulfilling prophecy. But I think, yeah. Yeah. When you analyze data, you'd need a lot more sample size to reach any statistically significant conclusions on like a, you know, 10 to 12 day trading window. So I think that's that, you know you know me i think that stuff's a little bit uh astrological um and you know i do i do agree with joe the nvidia print will be big uh in terms of you know people's view about the the trajectory of ai potential shortages etc so

that's obviously a corporate earnings event that everyone will watch but um i'm seeing a lot of signs that gross margins can improve, whether it's, you know, lower logistics, lower labor, you know, less labor pressure, more productivity, you know. And so to me, that's the most important thing. And a lot of the fundamental work that we do is focused on the specter of margin expansion for the average security. Right. And now you actually think that that is going to be pervasive enough as a trend, margin expansion, that you're going to have a more inclusive market? Or where would you be looking to really pick your spots on that?

Yeah, I think there's a lot of opportunity. Yeah, I think margins bottomed in July of last year for the median or average company. And I think a lot of them have seen margin expansion, or at least there's been a pretty steady kind of bottoming in gross margins for the average company since last July. So I think we're already seven months into that. The trough's been put in. So I'm already observing gross margins expanding and the forecasted gross margins are up for about 70% of the companies. Analysts, sell side analysts aren't great at forecasting things, but they're pretty good about knowing whether gross margins are up for about 70% of the companies. Analysts, sell-side analysts aren't great at forecasting things, but they're pretty good about knowing whether gross margins are up or down in absolute terms. And a pretty high percentage of analysts, about 75%, are thinking gross margins will be up next year.

This is for the average company, each company one at a time. So I think there's a lot of people that think margins will go up. And yeah, if that's the case, more stocks tend to do well. But the point that you're talking about that I've been making for a couple of people that think margins will go up and yeah if that's the case more stocks tend to do well um but you know the point that you're talking about that i've been making for a couple years and continue to believe is the the magnificent seven if you will are really a risk management sect uh group of stocks they're not really for alpha and the reason i say that is i can explain a lot of their returns from basic factors you know if i know if the market's up and growth beats value and large beats small i can explain 70 80 of microsoft return. So they're not very idiosyncratic. They're covered by, we always joke around, what was it, 4,000 analysts, right? So the idea that I could know something that's

not in the price for Google that nobody else knows is really low. And then lastly, kind of statistically, I can't really create a replication basket, meaning I can't find 30 stocks that trade just like one of these mag seven that I can own the 30 and disseminate the risk. So for me, it's like basic logic. Why would I have humongous outsized overweight or underweight positions in securities that I don't know anything about that nobody else knows are totally macro and can't be replicated? To me, that's just common risk management sense. And then I did want to touch on energy because it felt to me like it was people stuck with it for a long time last year because it had been done well the year before. Now you hear less about it. The commodities haven't fully cooperated. But why is that relatively attractive to you? Well, yeah, I mean, I've liked it for three years and it's been wrong. I mean, I'd start there. There's been more supply than I would have thought given some geopolitical risks.

There's been a little bit weaker demand in a short-term pocket. But what keeps me buoyed to a bull thesis is really two things. One is the capital spending to sales from the biggest companies has not picked up. And so I don't see a lot of imminent supply coming online from the company perspective. And then two is demand, I think, in the medium to long term still looks pretty robust because the installed basic vehicles and the new vehicle sales have been less EV than most people would have predicted. So peak oil demand will be whatever it is five, six years from now, something like 107 million barrels will be required. And I don't think we can really produce that with today's, you know, setup.

So to me, that's bullish in the long term. We just have to navigate, you know, whatever it is, the 19 variables we try to navigate in the short term. So I don't know what a six month view might, but I'm pretty confident that, you know, the stocks are cheap. People hate them. They're on their own. They generally have a free cash flow in the interim. So the risk-reward feels pretty good. I think oil probably wants to go higher over 12 months.

Yeah, it's been more resilient. And you see the energy sector there having a pretty good day. Adam, good to talk to you. Thanks so much. See you, Mike. Be well. Take care. All right.

Up next, trading the retail sales slump. Consumer spending seeing a sharp drop in January based on the government figures. So what's the best way to position your portfolio ahead of retail earnings next week? We'll get a top analyst take right after this break. Consumer spending falling sharply last month, breaking a two-month streak of increases. January retail sales coming in worse than expected, down 0.8 percent. Joining me now to discuss it is Oppenheimer's Brian Nagel. Brian, it's good to see, I mean, a give back from a pretty strong December, also revised down for December. What's your read on it? Is it something that seems like a new trend,

or is it a little noisy? Well, look, thanks for having me on the show. I think there's a bit of noise here. I mean, January is an odd month, right? It's between the holidays, which is obviously a big spending period, and then before spring. So there's kind of a lull, if you will, in spending generally. The other factor is we had some really erratic weather

in the month of January. A lot of my companies were talking about that. So clearly the numbers, the data decelerated. I've been looking at it closely here with my associates. But again, I wouldn't read too much into that given the oddities of spending in January overall. Yeah. And then within the group, the areas that you cover, I did note that you had recently downgraded the home improvement retailers, Home Depot, Lowe's. We'll hear from them soon. What's happening in that area that you felt the risk-reward wasn't great?

Yeah, look, the basis, like I've said a lot to our clients, it's very much a shorter-term type downgrade, right? My view is I think the longer term for home improvement is still very attractive. But I think here in the nearer term, we're still going to see this weaker demand until, you know, we get past further past the pandemic. And then probably also as we wait for for race to moderate. I think we've got some time there. So in the very near term, I think that the market's a little bit too optimistic about a rebound in home improvement. I think we need to reset those expectations near term. And then I think the stocks could set up quite well on the long side. Is there a pervasive theme that you're seeing in your company work that says, you know,

there's some fatigue in terms of lower end consumer households? Or is that something that we're, you know, over extrapolating at this point? No, look, I think, you know, there's some ways out there, right? I mean, because I would characterize the spending environment as generally okay, but not great. Okay, but what we are seeing, you know, the higher end seems to be doing better. Again, like I was just talking about almost in January, between events, there seems to be some weakness in spending. You know, so you kind of have this episodic spending trend. You know, I think in bigger ticket, we're still seeing some weakness. I talk about home improvement. I think a lot of that has to do with the pull forward in demand that happened during the pandemic.

And so, you know, we're still seeing that. But overall, the book relative to where expectations for the consumer were, the consumers holding up very, very well. Yeah, I mean, those long term charts of total retail spending show you that all we're doing is sort of coming back to the long-term trend line. We were so far above it for a couple of years. Finally, I wanted to get you on Lulu. I know it's one of your favorites. Is there anything fresh about the story, or do they just keep sort of delivering in a similar fashion? More the latter. I mean, that's a brand that just continues to work really well.

I mean, every time I talk to Lulu, every time I go into their stores, you see very good consumer traffic. The consumer is reacting very favorably to that product. I think this is still a relatively small brand, and it's obviously bigger than it was several years ago, but still a relatively small brand that's taken a lot of share there across the clothing category. So I think Lululemon sets up quite well here. Yeah, it is a good reminder that they don't really have anything close to saturation out there. Brian, good to speak with you. Thanks so much. Thanks for having me. I appreciate it. All right. Up next, a big bank bounce. Shares of

Wells Fargo on the rise. They are now up seven and a half percent on the day. We'll tell you why a crucial move by one regulator has investors cheering this afternoon. That's after this break. Closing bell. We'll be right back. 17 minutes till the closing bell. The S&P 500 up about half a percent, sitting right on its prior closing high from last Friday. Meanwhile, shares of Wells Fargo popping as we head toward the close.

Leslie Picker is here with the news behind that move. Hey, Leslie. Yeah, a bit of good news today for Wells Fargo, Mike. Wells Fargo saying that regulators have terminated that 2016 OCC sales practices consent order, sending shares up seven and a half percent. This had required the firm to revamp how it offers and sells to consumers following that scandal that erupted about eight years ago. Wells Fargo CEO Charlie Scharf saying in a release, quote, I have repeatedly said that implementing a risk and control framework appropriate for a bank of our size and complexities are top priority,

and closing consent orders is an important sign of progress. Now, this is the sixth consent order that Wells Fargo regulators have terminated since 2019. The firm still has eight more to go, including the one from 2018 that prevented Wells Fargo from growing its assets beyond a certain threshold. Mike. Yeah, Leslie, that was exactly what I thought immediately of is that asset cap and whether the market is implicitly thinking that maybe that's not too far down the road that it might be lifted. It seems like that that's the the material one that has gotten the most focus. Yeah, it's important to make that distinction because it's stifled growth for Wells Fargo because it limits the amount of deposits they're able to take in.

Obviously, last year, there were a couple of other West Coast bank failures that took place. Wells Fargo would have been in a prime position to acquire some of that business, although their growth is capped due to this consent order, specifically from 2018 that limits the size of assets they're able to have. So, yes, the market should and is very acutely focused on this. However, this 2016 one means that at least they're moving in the right direction. For sure. Yeah. And the market rewarding the stock, even on an otherwise pretty good day for the banks.

Leslie, thank you. Coming up, countdown to Coinbase. That stock higher ahead of its earnings in overtime. We'll bring you a rundown of what to watch when those numbers hit the tape. That is just ahead. Closing bell. We'll be right back. Coming up, your earnings rundown. Coinbase and Roku among the big names reporting at the top of the hour. What to watch when those numbers hit that and much more when we take you inside the market zone. We are now in the closing bell market zone. Virtus' Joe Terranova is back with us here to break down these crucial moments of the trading day.

Plus, two earnings reports for watching in overtime today. Kate Rooney on what to expect from Coinbase and Julia Boorstin has eyes on Roku. Joe S&P 500 actually is slightly above its former closing high it was set only last Friday

fifty twenty six the intraday high fifty forty eight. So two days without without a record is maybe all we have to suffer. Maybe three days. I wonder about the rhythm and tone of this market, though. Because in addition to the S&P 500 making its way back, NASDAQ 1% below, a lot of the speculative stuff is really starting to get jumpy and to fly. Supermicro is one of the most overbought stocks in the market coming into today.

And it's up double digits again. You've seen the crypto stuff move. So what does that tell you? Yeah, no, I think, you know, I came out to set. I asked you, is Tesla a value stock? Yeah, right. Value's outperforming, and Tesla's up 5% today, really literally on nothing, clawing back from what it lost from earnings towards 207. But I do think right now the market is about this broadening out narrative. And we've been able to kind of move away from where we were on Tuesday where we had this overwhelming concern that that broadening out wasn't going to happen because rates are going to back up on us further.

But you're seeing the broadening out happen again. I think the critical index to really watch is the Russell right now. The Russell is trying to get back to its December high at 2071. If it gets above that level, you'll finally see non-discretionary funds tap into the small caps. And they've really, they've stepped away from it. It's been a large cap story. Yeah. I mean, look, today is a broad rally and you do have the financials working and some of the cyclical stuff is doing better. Although, as I pointed out earlier, Supermicro is in the Russell 2000. It's the largest holding. It's like 1.6 percent of a 2000 stock index and it's 50 billion market. I mean, it's it seems like there's an element even in the Russell of a little bit of new economy,

you know, nuttiness. Yeah. But that new element is the reawakening of the momentum factor. Right. And the momentum factor was dormant for the better part of the last three years. Momentum's back. Momentum's a leading factor year to date. It's up nearly 15%. And I think that's driving a lot of the price activity that we're seeing in those individual stocks.

No doubt about it. All right, Kate, let's hear what we should expect from Coinbase in a little while. Yeah. Hey, Mike. So Coinbase is really tied to what we've seen in the crypto markets, this ebb and flow. But you can really see crypto trading and that volume in real time. So it tends to be less of a surprise around Coinbase earnings.

The rebound in crypto prices, though, in the fourth quarter, it's expected to have a boosted volume for Coinbase in the quarter. Any updates that we get on January trends as Bitcoin prices rebound today past $52,000, that will be key. Any of the curtain quarter commentary, the company is not expected to turn a profit. Street's looking for a loss of a penny on EPS. Watch the revenue mix, though. Anything they can do to really diversify away from some of the less predictable trading volume and trading fees.

Also, potential boost in subscription revenue is seen as a positive. Watch monthly active users and growth there. Bears have for a long time been worried about Robinhood taking market share, especially with these ETFs being launched. You can't trade the Bitcoin ETF, for example, on Coinbase, only Bitcoin itself. So that could add pressure to things like fees. Watch the take rate. Speaking of fees, a number you kind of have to back into. They don't provide it right away, but it's a way to measure profitability and see if there's any pricing pressure going on.

Watch expenses. It's an area to watch as the company is among those in Silicon Valley really tightening its belt, and it reduced headcount last year. So we'll see if any of that improves some of the expense outlook for Coinbase. On the call, investors are going to really watch for commentary around regulation as well. Coinbase is locked in this legal battle right now with the SEC, which is suited for operating an unregistered securities exchange. We'll see if we get any updates on that, Mike. All right. Sounds good, Kate. Thank you.

And Julia, Roku, often an eventful report in terms of the stock reaction. Set us up there. Yeah, the stock does tend to swing on its report. Now, Roku shares may have plummeted 9% Tuesday and reports that Walmart is intoxicated by smart TV maker Vizio. But shares are still up 57% since the company reported better than expected third quarter earnings results and shares did more than double last year. Now, this quarter, Roku is projected to report a much smaller loss than the year earlier quarter,

while revenue is expected to grow by 11.5%. A key number to watch is active accounts. That's projected at 79 million. And investors are also watching to see if last quarter's ad rebound continues. Analysts are concerned that a Walmart-Vizio deal would pose a meaningful challenge to Roku's ad business as well as TV sales. But on the upside, a number are hopeful that the company's guidance for the quarter is actually conservative. Back over to you. All right, Julia, thank you. Joe, in the time we have, if your ETF holds applied materials as well as trade desk, both going to hear from them right after the close as well. What are your thoughts on

those? Different feeling on each one of those. Yeah, that's for sure. So look, in the case of applied material, you're expecting a really strong report. KLA Corp and Lamb Research already gave you the insight to what you can expect. Recovery in China, coming back demand once again, memory demand returning once again. So margins around 47%. You feel good about applied material material and this is a significant semi equipment name with a market cap above 175 billion guidance that's going to be critical and it is technically overbought but let's caution the viewers technically overbought can become really technically overbought it's about 22 percent above its 200 moving average trade deaths totally different story yeah totally different story horrible Horrible earnings report last November. Stock has not recovered from that earnings report.

The high from the stock was in last July. This has been a significant underperformer. They've got some challenges as it relates to ad on video with Google and with Amazon as well. And the street hasn't capitulated here. My 12-month price target is 77. This is really a make-or-break quarter for this company. And I am concerned going into the report. I mean, you mentioned the high from last year. But the all-time high goes back to, like, late 2021, when this was seen as really a one-way trade. One of those non-profitable companies back in 2021 that we just paid the premium for it on the belief that the profitability would come at some point. Yeah. Is AMAT feeding off of any of the same energy as ARM has pulled in? Just in terms of the design aspects of SEMI? To a certain extent, but it's really about the belief that

we've seen the trough in memory chips. And I think that's been what's most important for applied material for KALa Corp., and for Lamb Research. Yeah. Joe, great to see you. Thanks a ton. Appreciate it. We are still on a possible record close watch here for the S&P 500. We are at 4026 and change. That's just about where the record close was on Friday. The Dow is now up 340 points. We've been talking about it being a broader rally today. That is the case. It's about 5 to 1 up to down stocks on the New York Stock Exchange.

83% upside volume. Treasury's calmed down today. They actually backed off a yield on that softer than expected retail sales number 423 on the 10-year note. Volatility index finally coming in. It's still above 14. Kind of agitated with a lot of those speculative stocks having these mercurial moves on this day. It looks like we are just going to make a new record on the S&P

50-30. That does it for Closing Bell. Let's get into overtime with Morgan and John.