Closing Bell - Closing Bell: Bull Market Still Safe & Sound? 01/02/24

Episode Date: January 2, 2024

A new trading year is officially underway so the big question is: is the bull market safe and sound… or just taking on a different look? Dan Greenhaus of Solus Alternative Asset Management and New York Life Investments’ Lauren Goodwin give their takes. Plus, tech saw a year of strength in 2023. VC investor Rashaun Williams breaks down whether he thinks its time to trim tech or if the sector still has room to run in the New Year. And, one of the street’s biggest bulls - NFJ’s John Mowrey – reveals his 2024 playbook. 

Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the messy mega caps. Whether today's selling is a sign of things to come in this market. We'll ask our experts over this final stretch. In the meantime, your scorecard with 60 minutes to go in regulation is not very pretty on this first trading day of 2024. NASDAQ, the big decliner today. Tech taking a pretty big tumble, a rare downgrade for Apple, sending those shares sliding sharply today. Meta, Nvidia also giving back some of their outsized gains of 2023. There you go. Deep in

the red there. Elsewhere, yields, oil, the VIX, they're all rising. And the major averages thus are broadly lower. It takes us to our talk of the tape. The state of stocks as a new trading year does get underway. Is the bull market safe and sound? Just taking on a different look? Let's ask Dan Greenhouse, Solus Alternative Asset Management's chief strategist, and Lauren Goodwin, portfolio strategist for New York Life Investments. They are both here at Post 9. So let me ask you first, Dan. Do you think the bull market is intact?

It's just showing its face a little differently. Now, right now, it's a frown. The face is a frown. It's amazing what one down day will do. You know, we're giving a little bit back, obviously, as we start with the Nasdaq, the weakest. Yeah, I don't know that I would read too much into one day. I think, obviously, you could have on all the guys to talk about the Santa Claus rally extending into the new year. Seasonality is still in your favor.

January and February are still terrifically strong months. And the function, the change in the calendar as a function of the economy or earnings doesn't really make a difference. I think the bias is still to the upside right here. There's little reason for now to be bearish. And again, that's just for the immediate future. And so I think stocks should keep going, going higher. I mean, right now, the Dow's down by, you down by 300 or I'm sorry, the Nasdaq's down 300. That number just pops out at you because it's leads to the conversation that's really dominated towards the end of the year as we begin now this this new week, whether this change of makeup of the market is taking shape. I hate being on with Dan because we tend

to agree on so much and that doesn't make for great TV. You're not the only one who hates being on with me. No, I think that the Magnificent Seven have moved higher over the course of 2023 for reasons that don't have a lot to do with a lot of the market narratives that are floating around today around rates in the Fed, etc. I agree that this is probably just a little bit of beginning of year consolidation. The market sort of taking stock of what we've seen over the past year, what to expect ahead. And this rally probably does still have legs, at least for a few more weeks. I don't see strong, compelling reasons why we'd see a reversal in the rally. Yeah, I mean, are you overall more positive on the market than you were for a lot of 2023?

I'm fairly constructive on the market on a very tactical basis, but our economic view hasn't changed a whole lot in the sense that some of the boons, the reason for upside surprises over the course of 2023, largely liquidity-based. And those are very difficult to anticipate in advance, and I expect that the Fed tightening cycle that we saw over the course of the year is still likely to bite here in the next few months. But really, I mean, it's more than that. How is it just that? We wouldn't be where we are. And certainly we wouldn't have had the broadening out as we ended 2023 without the idea that the economy is going to remain pretty decent.

And we may have that soft landing that we've talked about. That talk of recession seems to be in the past for many. That's true. But I think that there's the shift in narrative towards a real consensus around soft landing has a lot more to do with the terms people are using than the forecast that they're putting out. Most analysts and economists still expect economic growth to slow. And really, the argument we're having is, does it slow slowly or quickly? And are we just below or just above 0 percent? And so I don't actually see that as a strongly compelling reason for the market to move higher and higher and higher from here for much longer, because the earnings outlook is still deteriorating,

even in a soft landing circumstance. You know, just to take, just to widen this out a little bit, what Lauren's getting at, and I think not to put words in her mouth, but if you're an economist, what you're focused on right now. You have that in your title, I think. Well, yes, I do. But I'm referring to the Royal Group of Economists. I'm just saying, you have that. I have several things in my title. Managing Director. Before you dump on the economists, I just want you to know what's in your title.

I'm in the royal group, by the way. As you should be. If you were an economist, you're focused right now on the quote-unquote long and variable legs. Do you think if you were in the camp as Goldman is, that the long and variable legs already happened, so to speak, and we've moved beyond the worst of monetary policy tightening? Or do you think, as a lot of other economists do, think that the long and variable legs will hit, they just haven't hit yet? That's an interesting debate and leads you to be, as Lauren said, on which side of zero. Which side are you on? This is a much larger conversation than we're going to have now, but I

think I'm certainly in the former camp. I think Jan and the team at Goldman will end up winning this argument that the long and variable legs were not as long or as variable as we thought. But it's not a much larger conversation that that nails it. Right. It either is or it isn't. I'm very good at tidying things up. It either is or it isn't. Right. That's right. We're not going to have the economy fall off a cliff because those long and variable lags already happened.

We already had rolling recessions across a number of different industries. Now we're coming out on the other side of that when inflation has come down far greater than many thought, including the Fed. The economy has remained much stronger to this point than many thought, including the Fed. Earnings are going to hold up. Rates are going to come down. Yeah. So what I was going to get at the second part of that conversation, also in my title, is if you're a strategist, the question becomes, well, what do I do with this? And I think the problem with this entire conversation is not much. If the economy is

going to be on either side of zero, there's no meaningful, meaningfully different effect on risk assets, be it equity or credit or whatever. Isn't there a different effect on how you express that, like the makeup of the market? You know, the important part of this conversation, yes, the important part of this conversation is for all the conversation that we put into what's Belsky's price target, what's John Golub's price target, that's really a sideshow. What really matters is your sectoral allocations. Do you want to be exposed to energy? Do you want to be exposed to technology, overweight, underweight? Because ultimately, from a portfolio performance standpoint, that's what drives whether you beat the market or not.

Lauren, we learned our lesson on that very clearly. Those who were too underweight, large cap tech throughout much of the year paid a steep price for that. Now we're debating, as the Nasdaq's down 300 plus points on the first trading day of the new year, whether we're going to have a rotation away from the winningest trade of 2023 and into these other areas if you do believe that the economy is going to hang in there, interest rates are going to come down, the Fed's going to cut because they can, not because they have to, then the story remains intact. What about that makeup, though? I agree with Dan that the makeup of your trade from here is really important.

Where I disagree is actually in sector allocation. What we're finding over and over again is that it's really just profitability that's likely to drive a portfolio, especially when there's still so much uncertainty around the economic narrative ahead. So we're looking at, frankly, security selection, whether it's in equities or in bonds. Where are you going to see persistent revenue growth? Because for many companies, compensation costs are still higher than revenue growth at this point. And when it comes to bonds, where are you going to see your defaults? Where are you not? That's what's going to drive income growth and price appreciation in 2024. Do you think the S&P, Lauren, has a positive year in 2024?

And what kind of return would you think is reasonable? High single digits, no digits, positive? What do you think? I think that the best chance for the S&P 500 to have a positive year is actually if we get my mild recession. I think it's the most optimistic 2024 scenario, because while you probably see some price downside in stocks and bonds in a recessionary scenario, you also get in an election year a swift hit at policy support and probably one of the stronger rebounds from what is unlikely to be a strong recession. That's actually what I think is a more optimistic scenario on a year end basis. And then you can get low double-digit growth.

How would you answer that? Let me go further. Let me really hit some home runs here. Do it. I can make a case, and others already have, if we're not going to have a recession, the S&P is going to earn somewhere around, and I despise this game because being a strategist is about so much more than what's your multiple on what your EPS is. But let's have fun for a moment here. We're going to earn $220 this year. If we're up, have fun for a moment here. We're gonna earn 220 bucks this year.

If we're up, call it 10% next year, you're gonna be 240 and change. 10% the year after that's 265, 266, something like that. If we end the year at roughly the same multiple we're at right now, 19, 20 times, that's gonna put you at somewhere between 5,100 and 5,300 at the end of this year. Is that multiple reasonable to you

or does it sound too expensive, too rich? It's probably going to be a bit too high because I don't think, and this is, I can't prove this out in a spreadsheet, but I think the Magnificent Seven, as you were discussing at halftime, those stocks are probably a little rich. And if they come in a couple of multiples, the individual stocks, that's going to end up affecting the market multiple. But even if you're down at 19 times. Will it if the other stocks, like the equal weighted stocks, which are like 15 or so times, can't they get multiple expansion if mega cap has a little bit of a deflating impact on those valuations? The math is probably a little difficult because those

stocks are called 25, 30. So just mathematically, it's going to be difficult. It certainly can be done. But even at the low end, you're talking $5,000, $5,100 for next year. At the upper end, if you just, again, hold a multiple constant, I'm at $5,350 for next year. And again, that's assuming there's not a recession and no meaningful sell off in those larger stocks. And I don't think that's a particularly, it certainly might not come to pass, but that would make that analysis, I don't want to say me, that analysis would be the most bullish of all the strategists on the street. But I do have an advantage. I'm doing this on January 2nd. They'll have to do it at the end of November. So I have to bet. Yeah, but you know what? Even the ones, Lauren, that did it towards the end of November came back before the end of December and bumped some of their targets up

because nobody saw the magnitude of the rally that we were going to have from the end of October to the end of the year. Well, the Fed's done something incredible, which is a complete about face in their language around inflation. That's why we've seen the strong Fed relief rally that we've seen. And that's why it may have legs. I'm really curious what we see in the minutes tomorrow, because Powell did something in December that frankly surprised me, which is after two years of leaning hawkish, he said the risk to overtightening might now be larger than the risk of undertightening. That is a complete shift that's completely changed

financial conditions towards the looser. And so you could have written your outlook on December 12th and on December 13th, you would have needed to re-review. And let me, because it's don't, he's essentially saying we don't want to snatch defeat from the jaws of victory. Like we actually might win this game, actually might win it. Let me just color in what Lauren just said. I've spoken to almost every economist on the street and almost everybody was surprised by the degree of the tone at that Fed meeting. So Lauren is certainly not alone. I'm in that camp as well. There was very little to suggest that that shift was going to come as quickly and as vociferously as it did.

Again, what do we do with that? It gave you permission. And we saw, again, with the seasonality and the underperformance that you've discussed on your show at Infinitum, it gave you reason to rally into year end and presumably into the beginning of this year. And again, I don't think the shift in the calendar does anything to shift that narrative. You're an investor and you're exposed. I don't know why today, tomorrow, the next day you would want to be unexposed. No, but if I look at areas of the market, let's say I'm looking right at the small caps, Russell 2000. It's at 2000. It's down about 1%.

It was a huge winner towards the end of the year. Some strategists say you could get 50% gains. Like Tom Lee, 50% out of small caps. They lag so bad throughout much of the year that they're the most primed for a huge gain. Mega cap is still going to outperform. It's just not going to outperform nearly as much as it did this year. Does that logic make sense to you? That logic makes sense. But in that environment, you have to have growth, not only holding up, but also reaccelerating. And if that's happening, then inflation is not only sticky, but also then potentially moving in the wrong direction.

But see, I want to take issue with that for a moment because I feel like the Fed chair went there, too, when he was suggesting that the reason that we've had the inflation that we have is not for the traditional reasons of over-demand. Initially, they thought, well, we have to crush demand to kill inflation, slow the economy to further kill inflation. Now I'm not so sure, because in at least the Fed chair's mind it sounded like. He suggested that now they've come to the view that this inflation was caused by a lot of other stuff, the pandemic, supply chain disruption. Sure, we stimulated the economy too much and probably piled on top of that with,

you know, the Inflation Reduction Act, et cetera. But maybe the economy actually can remain strong and inflation is still going to come down. It's it's just so hard to do. I think that the Fed, when they started on this rate hiking cycle and they did it so quickly, I think they wanted to cause recession. I think they thought and I agreed with them that that was the best way to give the economy a medium term probability of making it through this relatively intact. Conventional wisdom says the only way. And you have to break. Well, it's not conventionalism. It's the models. It's the model. Well, that's what I mean. It's the model. Right. The model says you have to crush demand. You have to hit the economy and then inflation will will come down. Well, maybe not. Maybe not. Because it wasn't caused by the traditional stuff

that causes the economy to be red hot. That's right. But that was then. And if we have a reacceleration in growth now, it won't be because of necessarily tons of stimulus or weird factors in the supply chain or everybody staying at home and buying different stuff. It'll be because we're in a new and renewed cycle.

And then perhaps you do see inflation stabilize, even reheat. And that's a more traditional challenge for the Fed. That's exactly right. But I will push back by adding, saw that should have seen this coming on September 20th, when the Fed meeting on September 20th, when they put out their the the additional materials at that time of the meeting. That's when they told you, we don't think inflation is going to get back to 2% until 2026. We forecast stable growth, inflation nowhere near our target, and barely any movement in the unemployment rate. That told me on September 20th, the Fed is not going to do what it has to do to get inflation

back to target any sooner than three years from now. That to me was and remains an incredible green light for risk assets. Whatever worry you had about the Fed crushing demand in order to bring inflation back to target, they put in print that they would not do it. Okay, so then don't fight the Fed. Then that's why you should be- We had 15% up in two months. That's why you should be optimistic, more optimistic about this year in stocks for that very reason. And to take that back to what Lauren was saying, I don't think they care if inflation's 2.5% or or two and three quarters percent. Again,

my interpretation is they're saying if it were two and a half percent for the next couple of years, two, three to two, seven. So what? I'm not willing to do, especially in an election year, what's necessary, i.e. tightening policy even more to get inflation back to target any sooner than three years from now. And if I'm an investor, and fortunately for this conversation, I am, what do I do with that? That gives me, again, like the red flag in front of the bull, so to speak, bye, bye, bye. And again, we saw it in November and December. My chief concern at this point is that when we see a strong Fed pivot rally, as we're seeing right now, it's usually a few months before we see the reason why the Fed is pivoting its perspective, which is that growth is slowing.

And so, yes, I completely agree that over the last three months of the last year, that was your time to get into risk assets writ large, including bonds. Now what do we do? I think you need to have a balanced portfolio. I think you need to be focused on... You mean like 60-40? That old thing we used to talk about all the time? Now it need to be focused on... You mean like 60-40? That old thing we used to talk about all the time? Now it seems to be back. Actually, I think I mean sector balanced and value

growth balanced and sort of all around the horn balance. But when it comes to stock bond allocation, I would be, and we are, taking gains in stocks right now and exercising them in areas of the fixed income market as a result of this rebalancing in Fed expectations and growth that we've seen over the last couple of months. Bonds and stocks, they're going to go up together? Treasuries and stocks. Yeah, I think they certainly can. There's no reason they can't.

I think the big debate- I'm not suggesting they can't. I mean, I'm simply saying that this playbook sort of plays out. Then why wouldn't bonds go up, in your mind, treasuries and stocks? Well, I say that because we do a lot of credit and there are bonds also, but I apologize. Well, yes, they can certainly rally. Do I think the equity market is contingent on perpetually lower interest rates? No, I don't. I think if we hold in and the Fed says the economy is doing just fine, there's no great rush to reduce interest rates, I think stocks can still do well.

They may not get to 5,300, the bullish scenario I outlined, but I think they can still do pretty well. The big conversation is going to be, and it's happened on your show a bunch of times, is will people like Greg Branch always take this view. Will earnings be up 12% if the economy is only growing 2% or something like that? That'll be the debate that fleshes out next year. Although historically, it's certainly been the case that earnings can grow much more quickly than the economy does, although there is a relationship over time. That will be, if earnings disappoint, it might be something to do with that

than the Fed or a misstep somewhere else. I'll give you the last word. I completely agree. Will earnings keep up if growth isn't totally keeping up? Will inflation reaccelerate if financial conditions are loose as they are right now? And then is the Fed really favoring the employment side of its mandate now over inflation, which does appear to be the shift that they're making? It's probably the right idea. We'll get more clues on that tomorrow from the minutes. All right. Appreciate it very much. Look forward to that. We'll have you back soon. Guys, thank you. Thank you, Dan. All right.

Let's send it over to Kate Rooney now for a look at the biggest movers in this market right now. Hi, Kate. Hey there, Scott. So let's start with Bitcoin continuing its bull run to the new year. The cryptocurrency topping forty five thousand dollars to hit its highest level in nearly 21 months. That's helping shares of some of the crypto proxy stocks, especially those miners. These are the companies that use high powered computers to mint new coins. You've got Marathon Digital, Riot Blockchain, two of the outperformers in that group today, MicroStrategy and other Bitcoin proxy getting a boost. Not Coinbase, though, the trading platform taking a bit of a breather today after a record run last year. It's down roughly five out nine percent at this

point. It was five percent earlier. Switching gears there, we're going to talk about Rivian shares plunging to start the year. Following a 40 percent rally in December, the EV maker said it delivered close to 14,000 vehicles from October through December. It's down 10.2 percent from the third quarter of 2023, but it is in line with the streets expectations. Scott, back to you. All right, Kate. Thank you. We'll see you soon. Kate Rooney, we're just getting started here. Up next, time to trim tech. Well, that sector saw some serious strength in 2023, as you know. Question is, is the space due for even more of a pullback? Well, more than we're seeing today and throughout this year.

We're going to hear from VC investor Rashawn Williams. We'll get his forecast for the mega caps just after this break. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. Tech stocks leading the downside today. All of the mega cap names are in the red. And with the sector coming off its best year in more than a decade, the question is, is now the time for one of the market's hottest trades to take a bit of a breather? Let's ask venture capitalist Rashawn Williams of Antimatter Business Partners and Manhattan Venture Partners. Welcome back. Happy New Year. It's nice to see you. It's great to see you. Glad to be here. So we're looking at an ugly day, obviously, for mega cap, but it only it only, you know,

adds to the narrative that this is just the way it might be for a little bit as we get a repositioning. How do you see that? You know, I keep hearing people use fear to try to convince the American investors to miss out on the biggest bull run of tech stocks that you'll see in the last hundred years. And I'm going to say the same thing this time that I've been saying every single time. If your portfolio isn't diversified with the S&P, but with an extra special dose of tech stocks, especially something like QQQ or just Nasdaq stocks in general, you're missing out. All the revenue growth for the last 10 years, tech stocks. The magnificent seven tech stocks. When I grew up in the business, it was oil and gas companies, and then it was the banking industry. In this year and in this decade, your portfolio is all about tech stocks. So I'll even take the downside of daily, weekly, monthly volatility if I can get the upside of the annual returns and the revenue growth that I'm getting from my tech portfolio.

So I love it. I'm excited about this year. I don't think people would necessarily disagree with you, but they may quibble with the multiple that you're willing to pay for everything that you just said. And even though you're willing to pay a premium for it, are you willing to pay that big of a premium for it? How would you answer that? Seven years ago, when we launched our first late stage fund, every single person told us that tech valuations were bloated and too inflated. Now we have multiple tech companies that are valued at more than a trillion dollars. So to me, it's not about the multiples per se. It's about how big these companies are and how dominant they are. All

of these things are a relationship together. Multiples alone don't tell the full story. Dominance tells the story. When you have companies like Amazon, Apple, and Google, and Meta, they deserve the type of multiples that they're getting. But also in my world, in a private world, where you have a company that starts from zero revenue and it does 20 million in revenue the first year, then 100 million in revenue the year after that, then 300 million in revenue. That's going to trade at a much more significant multiple than a company going from one to two to three million in revenue. So for us, we're looking for hyper growth and we're looking for dominance. And even though multiples are high, the only reason that VCs aren't getting the liquidity events that we need to get out of the market today is because multiples still haven't even rebounded from when they were two years ago, which is why most of these companies aren't even all public. So multiples are here to

stay. And when multiples expand even further back to two years ago levels, that's when you'll see the IPO market pick back up for tech companies and VCs able to get those liquidity events that we're used to getting in a bull market. I want to get to that, but work with me for a minute on Apple and the valuation there, because we're talking a lot about it today. It gets a rare downgrade, which you hardly ever see, especially when it's an underperformed. Last year, the multiple on Apple, OK, a year ago, it was 20 times. Right now it's 28 times. Yeah. What has Apple done that justifies 20 times to 28 times when I could say, well, they just had three consecutive quarters of negative revenue growth and the smartphone market has been weak. So how do I justify that one specifically when I didn't even say the word AI?

Good question. It's something that's more important than smartphone sales numbers and tablet sales numbers. It's revenue, reoccurring revenue from services. That's the key to Apple's growth in the future. Look, they've made a killing off of innovation. But I think a lot of people are realizing that future growth and future margin increases are going to come from that service revenue that they're receiving from all of those little monthly $3.99s and $10.99s that you're getting hit from your account. So as Apple migrates and start increasing their revenue, which they have been at that same timeline that you're describing, to the reoccurring revenue that's coming from services, not just from product innovation, you will see

that those multiples increase because the market values that revenue higher than product sales. So if we talk about your wheelhouse venture, obviously AI dominated a lot of the conversation throughout all of last year. What else is on your radar? What else do we need to pay attention to? Now, stocks in other areas have obviously done quite well, software, cyber, chips, and things like that. But what's on your radar outside of AI? Well, when you think of AI, you think of it as software. What AI needs to be computed on, the hardware, you think of quantum computing. So if you wanted to go one step further, start really thinking about quantum computing as a companion to the growth that you will see that's happening in AI. But we also mentioned cybersecurity, which has been at the top of my list for two years.

Cybersecurity, AI, and of course, quantum computing. But we have some companies that are coming down the pipeline now that, look, I'm super fired up about that. I think they're going to be game changers, just like a lot of the big trillion dollar companies today. And we have an IPO pipeline that's so full and robust. And yes, it is dominated by a lot of AI new entrants into the unicorn space, but it's still some of the old industry guys,

like the Toros of the world, the Adapars, the Epic Games, and the Automatics. So we have a pretty diversified list of portfolio companies that are coming out. It's not just about AI. AI has gotten all of the excitement in a market that was otherwise pretty unexciting in the last couple of years. And I know you alluded to this earlier. So you've given us names. Are we looking at a second half of 2024 story for the IPO window to truly, you know, get pulled open nice and wide? Or is it even later than that? It's all about one factor. This is the only thing people need to follow if they want to know when the IPO market is going to open up for us. Revenue multiples. As soon as revenue multiples get back to the level they were when these

companies were priced, that's when the VCs and all of the founders will be willing to list these companies because no one wants to take a loss. No one wants to set a price at 15 times revenue and then go public at five times revenue, right? So everyone's willing to take their medicine if the company trades down because of lack of performance, but not because of technicals and where multiples are trading. So as soon as we get back to historic multiples on the revenue side, that's when you'll see every company that is queued up and has the S1 waiting or the F1 waiting, and they'll price those IPOs all within 30 days, and it will be a very exciting time. Yeah, but I mean, in order for there to be,

you know, robust investor demand, I mean, the days of willingness to pay to use your same model, you know, 100 times sales, those are probably over, no? Well, they're over for now, just because of how much fear is in the market. I think we surprised on the upside with the economic environment. Most people were we were teetering on a recession. Everyone was panicking the world was going to end again with inflation and rates and all of these things. That uncertainty makes people a little reluctant. But one thing that is going into the favor of your argument is as rates go up and you can get money markets and you can get treasuries for 5 percent, now people don't have to figure out how to get these multiples back to where they were while the economy is still hanging in there. Because if the economy just deteriorates and if rates continue to hang there, then all of the assets that are going into venture capital

and private and risky assets will be reallocated to these safer assets in a risk off trade, which will then have that negative reaction that you're describing with multiple contraction. Yeah. I mean, I didn't even mention more scrutiny over profitability, which that, I have to believe, is here to stay for the foreseeable future, if not for a longer time than that. Rashawn, I'll see you soon. Thank you. All right.

That's Rashawn Williams joining us once again on Closing Bell. Up next, your 2024 playbook. NFJ's John Mowry, one of the biggest bulls on Wall Street. He'll tell us if he still thinks this rally has a lot of legs and where he sees the opportunity best right now. Closing bell comes right back. Markets are lower to start the year this after the S&P closed 2023 with its best weekly winning streak since 2004. My next guest maintains his bullish outlook for U.S. stocks in a few areas outside the U.S. as well. Let's bring in John Mowry of NFJ Investments.

Happy New Year. Welcome back. Happy New Year, Scott. Great to see you. You as bullish as we enter a new year? I still remain bullish. You know, I will say at the end of 2022, you had very depressed prices really across most parts of the equity market, particularly cyclicals. Today, Scott, I think that investors would be wise to be positioning a little bit differently. We've talked about moving down the cap scale. I like small caps. I like mid caps. We can discuss that. But I also look at our portfolio today, and we're building it on a bottom-up basis, Scott. But it does look

pretty different than it did at the beginning of last year. We're overweight staples. We're overweight REITs. We're overweight banks. We're overweight some of the utilities. So all those areas that are tied to interest rate sensitivity, more bond proxy areas, those look attractive, Scott. And we are underweight big tech names. Some of the names, those have gotten more rich from our perspective. What kind of year do you think those are going to have first? I know you said you're underweight them. Put that into real terms about what kind of year you think they're going to have. Ask you, of course, and just to remind our viewers, Nasdaq's down by a little more than 2%. So we do have some kind of movement going on within those areas that you speak of.

Well, I mean, just to contextualize this, the S&P just put up its top five calendar year return over the last quarter century. That is material. The Nasdaq 100 just put up its best year since 99. So, you know, when we look at large tech, posting a year like that is pretty substantial. You've got a lot of multiple expansion, Scott. The one thing that big tech does have going for it is it has a lot of earnings growth and it has a lot of recurring revenue. Recurring revenue garners higher multiples. And those companies also have very forged balance sheets. But I would argue that I think the returns are going to be much more muted, Scott. I think it's very plausible that you get positive returns in the S&P 500. So I would be bullish there. But I would be much more bullish as I look down at small caps

and mid caps, particularly value, Scott. I mean, we're starting out the year in a pretty big note for value. You're seeing, you know, the RLV, the 1000 value ahead of,000 growth by nearly 150 basis points, the same in the small and mid-cap arenas. So we're seeing a pretty substantial rotation there. And if you look outside of just the broad value indexes, regional banks, which is an area that I know that you and I have discussed throughout last year, those are now beating the S&P 500 by 1,700 basis points over six months. So they're not as cheap as they were six months ago, but they're still historically cheap. And I think investors need to be rotating out of many of the larger cap growth areas and looking down the cap scale and its cyclical value.

Well, what happens if the economy, inflation and the Fed don't go according to plan? Because everything that you've said about what you like and what you don't is baked on the idea that it does. Well, what gets me so fired up about some of the bottom up positioning we're seeing, Scott, is you get to play offense with defense. Utilities have gotten cheap. Staples have gotten cheap. REITs have gotten cheap. Banks have gotten cheap. So you're seeing a lot of areas that historically, other than maybe banks, looking a little bit more reasonable on valuation because all the look, the reality is investors made a kind of a barbell decision last year. They said, OK, we're going to pile into fixed income to clip coupons and we're going to pile into large growth to try to get equity returns. That has left a real opportunity in areas that have yield, growing

yield, and they're still deeply discounted. So what gets me excited, Scott, is if we do get some choppy months and quarters, which I expect we will, as we always do in equities, you get to play some defense with utilities, staples, REITs, those areas like health care, those look attractive today. What about the banks? Up 10 percent last year. You know, the idea that short end comes down, re-steepening of the yield curve, better for net interest margin. Financial stocks are going to, this is their moment. They waited. You know, the bullish case has always been, well, they're so much cheaper than book value.

And the stocks really didn't do that much. Now, some of them obviously have done better than others of late. But what about now? So these are all great questions. So if you look back at the 2007-2008 financial crisis led by banks, you have to contextualize that. Banks were very expensive as they entered the middle of 07, the top of the bull market.

Why were they expensive? Because they got very cheap coming out of the tech bubble. So in 2001, 2002, banks were statistically very cheap and they went on a massive run through 07 and they got expensive. Today, what we're looking at is price to book multiples that are still very discounted relative to the rest of the market, not as discounted as they were, but to the rest of the S&P, still very cheap. What I would say is that the 2007-2008 crisis was an asset-driven crisis. This is a liability-driven crisis that occurred back with SIVB in March. So we've alleviated some of that with what the Fed has done by opening the discount window for banks, as well as just rates coming down. I mean, the two-year bond, Scott, actually finished down. The two-year bond yield finished down on the year. Incredible.

So as the yield curve unwinds, which I think is a very plausible argument to make for equity investors, that is going to be a positive benefit for net interest margins. And you have the liability equation that's coming less under pressure than it was about six to nine months ago. So all those things bode well. I think the wild card is, do we get a recession sometime this year? And that's very plausible. We could get a recession, but I would argue that you're getting paid in the discount relative to the rest of the market to be there. You don't want to miss out on the upside we see in equities here, particularly banks. Which one? Give me a name. Which bank do I, you said you like small, mid, so I'm assuming you're talking regional bank. Which one do you

like the most? Leave my viewers with a name. Well, one name that I think investors should look at is Commerce Bank Shares, CBSH, based in Kansas City. It's got an amazing franchise, a wealth management business tied to it, so it's not just interest rate sensitive. It's got a 2% yield, growing dividend. NIMS are holding at around 3%, which is pretty impressive given that we got an inverted yield curve. So it's a name we like. We're bullish on and it's in both of our small and mid-cap products. All right. Thank you for the name. We'll leave it there. John Murray is your name. We'll see you soon. All right. Up next, we're tracking the biggest movers as we head into the close. Kate Rooney standing by with that once again for us. Hi, Kate.

We've got a new year and a new sector outperformer. We are talking health care coming up next and then gambling stocks getting a bid. We're going to tell you who the winners are in that group coming up after the break. We're less than 15 minutes away from the closing bell. Let's get back now to Kate Rooney for a look at the key stocks she's watching. Kate. Hey, Scott, the new year is kicking off with most of the S&P trading down. However, many of the top 10 performers today are coming from the health care sector. You've got Moderna, the big winner today, surging after analysts over at Oppenheimer upgraded that biotech company to an outperform rating with $142 price target. They're optimistic on things like more visibility around COVID-backed scene sales and then new products in the pipeline for the next few years. And then

things are looking good for casino stocks as well. Wynn Resorts and Las Vegas Sands are both higher today. Analysts note strong gaming revenues in Macau during December and then believe that these names are undervalued as well. Scott, back over to you. All right, Kate, appreciate that. Kate Rooney up next. Citigroup shares, they're popping today. Now up nearly 3%. Looks like Wall Street analysts betting big on that bank in 2024. We'll tell you why just after the break. Coming up next, JP Morgan on track for a record high close today. We'll tell you what's behind that move and the key level you need to be watching as we head towards the closing bell. That and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC

senior markets commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, Steve Kovac digging into that Apple downgrade, sending shares lower. Leslie Picker on the analysts getting more bullish on Citigroup this year. Mike, I begin with you. Dow trying to make a move positive here towards the close. Thank you, healthcare. Yeah. Maybe call it turnabout Tuesday. You've been talking about it all day.

It was sort of like a sell to winners, new tax year. It seems a little bit too pat for that to sort of be defining what the whole year is going to be like. I think the big question is everyone sort of sees the market's overbought. The argument is, is it good overbought, showing underlying momentum, and the fact that a soft landing looks incrementally more plausible? Or is it kind of overbought, meaning we deferred a lot of selling at the fourth quarter of the year? We're going to have a pullback. What do you do with the pullback? I think the bulls have kind of bought themselves the benefit of the doubt with what's happened here.

But it doesn't leave us immune to these little, you know, these jarring moves. Anything that strays away from soft landing numbers, whether it's the jobs report on Friday or something else, it's probably not going to be overlooked. Let's put it that way. What do you do with the pullback? Mega cap is where that's going to be most acute. Obviously, Steve Kovac, Apple today down near 4%. So I've got the downgrade in my hand here by Barclays. Time for a breather. Got another note from UBS talking about sell-through of iPhone in November. U.S. and China soft.

Yeah, that is the big one, Scott. And look, this is the same thing we've been talking about with Apple for the last year or so. It's just this uncertain demand environment for the iPhone. And UBS and Barclays, like you said, the sell-through on that, it's not just not selling as many iPhones, it's also which iPhones they're selling, that mix of the regular phones or those more expensive pro phones. And it sounds like, but based on these two reports,

the data showing more people going for the lower-end phones. And then services, even though we've seen that kind of return to the double-digit percentage growth that that has been really optimistic story for Apple, at least last quarter, it was Barclays note saying, look, it's it's that growth might decelerate again as we get this DOJ decision on the Google antitrust case. Of course, that's all centered around the payments Google makes to Apple and others to be the default search engine on certain devices. And then other regulations coming out in Europe, the Digital Markets Act will go into full effect,

meaning people in Europe will be able to download apps outside the Apple App Store, give them more options for payments and things like that. That all hurts the margins. And then I'll also point, Scott, back to the iPhone for a second. CounterPoint Research had a new report today on 2023 premium phone market. Those are the phones that cost $600 or more. Obviously, Apple's in there. Apple lost a few points of market share last year or two. Who else?

But China's Huawei. Yeah. I appreciate that very much, Steve Kovach. Thank you to Citigroup, Leslie Picker, where we have a stock that's getting a lot more love these days. Yeah, a lot of love to start the new year here. Scott, Citi's seeing some votes of confidence on the street. That stock reacting up about 3% today. Analysts at Wells Fargo and B of A touting Citi's strategic overhaul

under CEO Jane Frazier as a catalyst for higher returns. Wells Fargo's Mike Mayo hiking Citi's price target to $70 from $60 and saying it could surpass $100 in three years. B of A calls Citi a top pick for 2024. Analysts there writing that the valuation discount relative to peers should narrow when investors have a better idea about the expense trajectory from that turnaround plan, as well as clarity surrounding the proposed capital rules. Another banking stock we're keeping an eye on, though, idea about the expense trajectory from that turnaround plan, as well as clarity surrounding the proposed capital rules. Another banking stock we're keeping an eye on, though, JP Morgan. Those shares currently up more than 1%, reaching the highest level in more than two years. And Scott,

we're on record watch here. It's poised to notch a record high if it closes above 171.78. That's the number to watch right now, 171.99. So we look like we're about 10 cents above that record. We'll see if we can do it. All right. We look like we're going to get there. We'll see. We have about a minute left. Leslie Picker, thank you very much for that.

All right. So the buy the dip in big tech is going to get a good test pretty quickly. It probably will. And not to say it's going to start tomorrow morning. No, I mean, if this goes for even a few more days. There's a lot more air under those stocks that can certainly come out of it. I don't know if it's going to be this kind of a seesaw market where it always is kind of zero sum. One thing works versus another.

But I do think it's interesting when it comes to something like Apple, where there's almost nothing, anything smart to say about it fundamentally. Everyone kind of knows generally the outlines of it. It added $400 billion in market cap in two months on no movement in earnings estimates. So it can give up, you know, this much today at $150 on basically a change in vibes. And that's kind of what's happening. Look, you've gone from a 20 multiple to a 28 with a slower fundamental environment for the company itself. Right, so it's no surprise that maybe it's going to get some. To me, the semi being very weak today is more interesting.

All right, good fight back for the Dow, which looks like it's going to go out positive. I'll see you tomorrow.