Closing Bell - Closing Bell: Can Anything Stop the Bulls? 1/24/24

Episode Date: January 24, 2024

The rally is still rolling on … even as some are now wondering whether stocks are starting to look a little lofty. Ed Yardeni – who is still bullish – is raising some of those key questions. He makes his case. Plus, star analyst Dan Ives of Wedbush breaks down what he is watching from Tesla’s report in Overtime today. And, Kristina Partsinevelos reveals what investors need to be watching from IBM’s report.

All right, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the bull run for stocks and what, if anything, can stop it. We will ask famed market watcher Ed Yardeni in just a moment when he joins me live right here at the New York Stock Exchange on set. In the meantime, your scorecard with 60 minutes to go and regulation looks like this. A new milestone for the S&P todayes 4,900 for the first time ever. You can see now it's peeled back a little bit. Why? Because I'm going to show you what yields have done. They've moved higher as this day has progressed.

Bit of a squirrely bond auction today. So yields were moving up. There's the 10-year right now at 418. So that's a big story. Tech is too. Stocks like Netflix, NVIDIA, Meta, Microsoft continue to surge. Speaking of Microsoft, it's going for three trillion dollars in market cap as a close today. It already topped it on an intraday basis, but we have to watch it now as even it slipped just a bit, a little bit.

Apple, well, it's been in that rare air. You know, that stock, though, as we speak, is now red as I look. Well, it's toeing the line. So keep an eye on Apple. It's modestly negative today. Tesla shares, they've been choppy, too. And they're negative now, ahead of earnings in overtime. Star analyst Dan Ives with us here today as well, ahead of that key release. So we've got a lot to look forward to now.

Let's zero in, though, on our talk of the tape, the rally. Extending yet again, even as some are now wondering whether stocks are starting to look a little too lofty. Our next guest, perhaps one of them. Bullish, no doubt, but now raising some key questions today. Ed Yardeni is the president of Yardeni Research. He's here at Post 9. Good to see you in person. My pleasure. So you wrote the other day, and it certainly had a lot of people talking, and you know it was mentioned many times on this network, exuberant melt-up phase may already be underway, you said. Expand on that. Are you concerned? Well, I've had very bullish outlooks for the market and I still have a S&P 500 target of 5,400 for the end of this year and 6,000 for the end of next year. My concern is we'll get there all too fast. Too soon. Too soon. I mean,

that's what happened to my forecast last year. Last year, at the beginning of the year, I thought we'd get to 4,600. By the end of the year, we got there by July 31st. And then I had to kind of twiddle my thumbs here and say, OK, what do we do from here? And I thought we might go sideways. We had a correction. And then we went out to record highs recently. I had a very astute wealth manager on with us, highly regarded the other day, Cheryl Young. She said the market's priced for perfection. Howard Marks, right? He was on the network yesterday.

He talked about these compounding positives that have led stocks to where they are. The presumption being that they're all going to fall into place. Is that being too presumptuous? Well, I don't think it's just a presumption. I mean, we just saw Fed Governor Waller give a speech and it was titled almost as good as it gets, but how much longer? So I think we're all looking at the economy and we're very impressed with its resilience. Certainly inflation has come down dramatically. Look, look how much the market has has come up since October of last year, which I think is roughly when everybody concluded that the Fed was done raising interest rates.

And then suddenly the conversation became about lowering interest rates. Imagine what could happen if the Fed actually starts lowering interest rates. That's what I'm concerned about, is that that could spark a melt-up in the market. Well, look at what Bullard said yesterday. I mean, he's retired now, but here's a person who was pretty hawkish now suggesting, well, we're going to cut before 2%, not that that's a new thought in any way. But, yeah, it could actually come as early as March, even as the market had started to talk itself out of March and even price that. Well, look, I don't have a problem with a melt melt up as long as I figure out when to get out. And that's the problem with melt up melt ups is they do lead to melt downs.

So I'd much rather have a kind of a slower move. But it's not up to me. It's up to the market and the money that's in there. I think the Fed would be making a mistake to lower interest rates. I think I think Powell's going to start pushing back against it because he's very aware of market forces. And if the stock market just keeps going up, it creates a positive wealth effect. And then that creates a potential for inflation to make a comeback. And by the way, the Middle East is boiling and that could create a 1970s scenario. So it's either the 1970s or the 1990s. Or in my case, in terms of my base case, I'm hoping that it'll be more like the 1920s.

Wow. Except for 1929. Yeah, I was going to say, you're alluding to the roaring 20s. Roaring 20s, yes. You don't want to have 29 or 2,000. Correct. In terms of melt-ups that end very, very badly. That's correct. Are you—

That's not up to me. You know, all I can do is just kind of assess the environment. And I think I'm seeing elements that are very reminiscent of what I lived through back in the late 1990s. Well, I mean, you think the Fed's going to cut this year, obviously, at some point, right? Well, I've been, you know, I'm usually viewed as an optimist and a bull, but I haven't been in the camp that believes that the Fed's going to be cutting four or five times at all. I think, actually, that's the pessimistic view. I think it's based on the view that the economy is going to possibly have a recession. I think the economy is resilient. I think it's going to continue to grow.

Why mess with success? And I don't think the Fed has actually, what the Fed has done isn't just really tightening. I think it's normalized. We're back to interest rates that are normal. They should be left here instead of fooling around with it, because they'll really regret it if they lower interest rates and the market goes flying higher. What do we want to do with the fact that as we came on the air today, I mentioned these bond auctions and rates have backed up a bit. Are we in a danger zone area of rates continuing to back up even further, which is going to depress things like small caps and value stocks. I'm looking at, you know, well, today it is for certain.

The Russell 1000, 3000 are negative now. And the Russell 2000 was positive. And now it's in the red. Yeah. Well, as you know, the market started to broaden out basically in October of last year as people kind of concluded the Fed's done raising rates. But we did build in probably a lot of excitement about the fed cutting interest rates and now it's like well maybe not so much

and so i i think that what we have here is a situation where the the market is focusing on the bond market and the bond market is a concern i guess my next obvious question is well i don't know i feel like you you're kind of concerned about where we are. The bulls... Just the speed at which we're going up, quite honestly. Well, but I mean, the bulls listen to you and they love what they hear, right? Bulls want this, you know, reinforcement that we're all good and this bull market has legs.

But what am I supposed to do if I'm kind of getting concerned about the speed at which we're going up? What do I do? Well, you know, Scott, I've never been very good at giving trading advice. But you said no one to get out. Well, if it's a melt-up, then we'll have no choice but to trade. But I don't think now's the time to get out.

I think there's still upside for the market, and I don't think it's necessarily going to lead to a melt-up. I'm just more concerned about that possibility. My base case is that the market goes to 5,400 by the end of the year and 6,000 by the end of next year. 5,400 seemed like a ridiculous fantasy, but it's only, what, 10% away, 11% away? 5,100 was, you know, your lofty target excluded was kind of the standard that we got to, right? You had a lot of these targets going to 51, and you're like, wow, that seems lofty.

Now they're being raised. Now you look at where we're at, and we're like, wow, that's like 4% or 5% higher than where we are now. Yeah, I'm not feeling so lonely anymore. Yeah. Let's see. Speaking of that, where Bryn Talkington comes down. She's a CNBC contributor, of course, of Requisite Capital Management, joins the conversation now. So, Bryn, nice to have you back.

You hear what Ed Yardeni has to say. What are your own thoughts about this market, where we are and how fast we've gotten here? Well, I mean, definitely tech has gotten here really fast. I think you have to separate the different sectors. I think as we're talking about different decades, to me, what I keep hearing is, is this a 1998, 1999. But the reality where this is not 1999 is actually, if you look at, take a step back, two-year rolling returns. So, Scott, the NASDAQ composite is actually negative for the last two years. And the NASDAQ 100 over the last two years is only up about cumulatively 5%. And so last year's numbers were gangbusters. But if you take a step back, the median two-year return for the NASDAQ is around 25% over a two-year period. And we're still negative for

that whole composite. So I do think there's room to run. And it just does not feel like 1999 when you look at those rolling two-year returns. I will say, though, when I look at an NVIDIA up, what, 25% or 21, AMD up, almost the same, it feels like everyone's trying to bring forward AI in the next one year. And to me, where the market is ignoring right now is like the big CapEx that Meta, Amazon, Google are spending. The market's rewarding that today because they're building out their infrastructure. So to me, I want to know how long is the market going to allow them to spend CapEx and without monetizing, whereas we all know NVIDIA is just taking all of that CapEx right to the bottom line. All right. So, Ed, what do we do with this whole AI frenzy? Now, if we look back and we try and make parallels to 99, you had a lot of stocks going up.

Right. They had no earnings. Right. They had eyeballs. Okay. The difference now, we have monetizable money. Money. From NVIDIA and from Microsoft.

These stocks don't go up the way they're going up without being able to monetize AI now. This is not some distant, let's look down to the end of the rainbow and hope there's a pot of gold. Microsoft goes to $3 trillion in market cap today. Why? Because they're already monetizing it both from an enterprise and consumer standpoint. NVIDIA can't sell these chips fast enough. Does that give you any comfort? Well, absolutely. I mean, I'm not uncomfortable here. I'm perfectly comfortable. You know, have me on again if this market gets to 5,400 by the middle of the year. Are you comfortable with valuations of mega cap stocks? I am, actually. I think that these companies are really quite unique on a global basis. I mean, you're not going to find too many companies, if any, of this nature. And as you said, they kind of feed on each other,

right? NVIDIA is making money by selling chips to the other mega capators, I like to call them. So with regards to the 1999 example, I look at Cisco back then. Remember what Cisco did? It went up eightfold from 1997 to 2000. And everybody loved it. And it was the Internet play. And now we have a lot of AI plays. I don't think that AI is hype.

It is hoopla. I think there's maybe way too much excitement about it. I personally have tested some of these programs and find that I have to spend more time proofreading what they wrote than I would have if I just sat down and wrote. Sure, but there's got to be a little bit of hype there, too, for every NVIDIA and Microsoft. Those are two, you know, hundred meter yachts. OK, good analogy. But those boats don't necessarily lift every other little boat that's out there that's gotten a 30 percent appreciation in the stock since the end of October. We need to weed out the winners from the maybes. Look, I mean, the valuation multiple on the mega cap paid is, you know, is certainly excessively high compared to history.

If you take them out, then you find some values in the rest of the market, like financials. I think industrials are fine. And I still like some mid caps, the small cap and the mid cap stocks. I think they have started to outperform and they should outperform. So, Bryn, how about that? This idea that we're going to have this broadening into small and mid-cap stocks and this whoosh of money we had come into the market from November 1st, let's say, until the end of the year, belief being, well, this is just going to continue. And you've actually had to move back to quality. You've had to move back to mega caps of late.

What are we supposed to do with that? So. So, first of all, I think it is great. I do disagree, though, on the small cap. And I haven't bought into the small cap rally since it really started. Small caps, especially small cap value, are so incredibly cyclical and tied to GDP growth. And I just think we're in this unique decade, this unique environment where we're late stage in some parts, but AI is giving us a tailwind. So I just think the fat pitch and small cap and especially small cap value, I still want to stand step to the side. I do think though, like RSP, we added RSP, you know, to our portfolio late last year, which is the equal weight S&P. So I'm still large cap at equal weight because I do think that narrow breadth in a market is not positive.

You want wider breadth. So I want to have wider breadth, but stay more in the larger cap or bigger mid cap names and still avoid that cyclicality that I know the small caps, what we have to get right for small caps to do well, I still think is just too much of a gamble. You want to comment on that? Well, I'm optimistic on the outlook for the economy over the rest of the decade. You know, we talked about analogies of the past, and I think there is a lot of analogies with the 1920s, particularly the technology-led improvement in the standards of living and the prosperity that resulted. I think productivity is making a comeback.

I think it actually started in 2015, got interrupted by the pandemic. We went from 0.5 annual rate to 1.5% annual rate. We tripled, and I think we're going to go to 3% to 4% by the end of the decade. And that sounds, again, far-fetched, but it's what happens during productivity booms. And if we have a productivity boom, then GDP, the surprise will be they'll have more GDP than anyone really anticipated. But if you have a consistent, not necessarily a backup further in rates, but a steadiness at this level, four and a quarter maybe, that would make the market probably a little bit

uncomfortable. Doesn't that put more pressure on things like small and mid-cap? I think it's not so much the level as it is the move. I mean, the move up, it's got everybody jittery because nobody is quite sure, well, how high is it going to go back to 5%? And the auction was disturbing. I mean, there's still the Ray Dalio scenario, which is what we're not that far away if if we're not in already, a debt crisis. And so that is a big, big issue.

He's not the only one talking about that and the cost of funding the deficit and the long-term rise in yields as a result. Yeah. So the deficit and the debt issue is certainly still a problem. And as I said, we're not out of the woods with regards to a 1970s scenario if things go badly in the Middle East. I mean, I don't want to sound like I've covered all the scenarios so nothing can go wrong for me. But I guess what I'm getting at is my base case is 5,400, 6,000, end of the year, end of the year, and better than expected real GDP growth over the next few years. So maybe instead of 2 percent, it's more like 3 percent or more. Bryn, the important thing is going to be earnings,

obviously. You don't have to be a rocket scientist to suggest that earnings are going to be the driver of stocks, you know, outside of whatever Fed policy move you may get. So how are we feeling about that as we're about to get really heavy in the bigger names? And I'm going to ask you about one particularly after you answer this question. So if you look at all the 11 sectors, which sector has the biggest earnings year over year growth? I mean, drumroll, technology. And so I think that Satya, I think Mark, I think Andy Jassy, I think Tim Cook, their earnings will be what they are. They will be solid. But I feel quite certain their guidance and their vision around what we're doing,

what they're doing around AI and monetizing it and that excitement is just going to continue to fuel this narrative in the, I'll just say in the queues, in those names, because that guidance is going to be strong around AI and the market just can't get enough of it right now. You're an earnings bull, right? You have a big number. I have a big number. Last year I was at 225. Maybe we'll come in coming in a little bit shy of that. But I think 250 this year and 270 next year and then 300 by 2026. So as the market looks at 2026 at the end of 2025, I think we could be at 6,000

on the S&P 500. So 20 times 300. And we justify an elevated multiple because of that and rates have come down. Economies remain robust. The valuation question has been out there forever.

And of course, Chairman Alan Greenspan made a famous comment, how do we know whether we're at irrational exuberance valuations? I've looked at the history of valuations, and you know what? They don't have as much to do with interest rates or inflation as with the business cycle, which is affected by those. So if we're not going to have a recession anytime soon, and I'm still in that camp, then I think valuation is sort of up in the eyes of the beholder.

Well, the problem is, though, you learn your lesson too late. Correct. As what happened in 2000, right? For, you know, like the JDS Uniphase stocks and things like that, right? You never learn that valuation was too rich until something blows up. And then you're like, oh, well, how do we know that? Well, look, we had the tech wreck in 2000. And yet, notwithstanding that, the Internet continued to proliferate. And look where we are now with that. And it's the same thing with

artificial intelligence. You know, I think we're getting maybe a little bit ahead of ourselves in terms of what it can really deliver in terms of productivity. I mean, I think the market's already discounting the roaring 2020 scenario. I think it started to do that when OpenAI introduced ChatGPT, and that was November 2022. The market's been going up. And I agree with Bryn that, you know, the NASDAQ's looking great. But, you know, it can also look too great. Well, we wouldn't be talking about Microsoft at three trillion dollars in market cap without that chat GPT and open AI thing that happened late last year and has fueled, as you said, this whole thing. Speaking of tech, Bryn, Tesla,

earnings in overtime, you have the stock. This thing has not traded well after the last three releases, down almost 10 percent in each occasion. What are your expectations? So, I mean, the chart looks terrible. Lower highs, lower lows. So from a technician, that's never a good sign. You want that $200 to hold. There's really pretty decent support there. I mean, you want earnings to be going higher. Q4 2022, they had about $1.19. I think expectations are for $0.79. So, Scott, that needs to start going the other way. So, I think that, to me, the most important point

is, are we going to get mercurial Elon or are we going to get visionary Elon? The second part that I'm sure will get asked by one of the analysts is, you know, he made that commentary of he doesn't know if he wants to innovate a Tesla unless he has more ownership of the stock. Well, that's not going to get worked out in the next few days or weeks. So I think that's going to be a headache and like a wet weight on the stock right now. And so I think longer term, though, this year can be one of those transition years. Elon, there's no better innovator and there's no better person that has the manufacturing prowess coupled with innovation than Elon Musk. We just need to get the sentiment and we need to get the earnings in the right direction.

It's going to be exciting to watch in overtime. Bryn, thank you very much. Ed, it's great to see you in person here at Post9. My pleasure. We'll see you soon. That's Ed Yardeni right here on Closing Bell. Let's send it now to Christina Partsenevelos for a look at the biggest names she's watching into the close. Christina. Well, let's talk about ASML, because shares are up about 10 percent after posting strong

earnings and orders that more than tripled sequentially. What we're seeing from the semiconductor equipment maker is that the 2024 guide was weak, yes, but that was already factored into the stock price. And management really focused a lot on the 2025 catalyst that should drive new EUV orders, which are really expensive, and in turn help growth. And that's why you're seeing shares pop 9% now. And AMD, Advanced Micro Devices, jumped more than, let's see it, 5% right now in today's trading after Newstreet Research upgraded the stock to buy.

There's been a lot of upgrades lately. The firm said AMD is the best play for data center AI chips, especially if the company's $400 billion addressable market forecast actually bears out. Both AMD and ASML hit new 52-week highs today. Say that five times fast. Christina, we'll see you soon. Thank you. That's Christina Partsenevelos. We are just getting started right here on Closing Bell. Up next, we're gearing up for that Tesla release. Star analyst Dan Ives is standing by to break down what he'll be watching when those numbers hit in overtime. He's going to join us here post-9 next. Just after the break, we're live from the New York Stock Exchange, and you're watching Closing Bell on CNBC. We're back.

Tesla shares lower ahead of the company's Q4 earnings release in overtime. That stock's been under pressure on track for its longest losing streak now since 2016. This amid ongoing price cuts, shrinking profit margins and slowing demand alongside increased competition. Joining me now here post nine to discuss Wedbush's Dan Ives. Welcome back. Great to be here. So I'm not sure if you heard Brent Talkington a moment ago, a shareholder, big believer in Elon and Tesla.

And yet she says the most important thing she's watching is all about Elon, not pricing, not margins, not market share, not this, not that. It's all about Elon. Not pricing, not margins, not market share, not this, not that. It's all about Elon. Look, I mean, he definitely, you know, you can't put the sort of issue back in terms of what he talked about with AI, 25% ownership. And that's definitely caused some nervousness out there. And that'll be something I expect him to sort of reiterate, that he's committed to Tesla. He's not going anywhere. I think that's something that's important on the conference call to hit.

But no doubt, the margins, the price cuts, that I think is front and center for many investors. Okay, so let's take those. Margins, are they going to be hurt by more price cuts? Look, we believe coming in that 90%, 95 percent of price cuts were done. They've continued to cut prices. You've told me that like three appearances ago. Yeah. And look, the problem is, is that as they continue to cut margins, last year it was the right move. This year, you got to hold the line. I think you could have around the edge of some price cuts. They need to draw a line in the sand that the vast

majority of price cuts are done. You're going to have a sub $30,000 vehicle, we believe, over the next 12 to 18 months. And I think that's the important thing. You cannot keep giving away that margin advantage. That's the important thing that we believe they ultimately do line the sand this quarter. And I think that's something that the streets focus on. He's in a price war with the Chinese, right? I mean, he's already losing or has lost the lead there. So where does this go from here? Look, in China, this was a record quarter for Q4. So the one thing is from a demand perspective, that poker move has paid off. I think now when it comes to Tesla, the focus is 2024, you can't continue to cut prices.

And I think if margins start to trough, and they talk about that and upticking from here, I think volumes 2.1, 2.2 million, then at that point, I think the bottom is in for the stock. What if the new reality here is just lower-priced vehicles from Tesla going forward? And that's just the way it's going to be. Because in an environment of slowing EV uptake, I think it slowed more than people thought. Now he's in this battle in China with the competitors there that there's no other option. Yeah. And look, and I think for the recognition now, you've definitely seen boom come off the roads for overall EVs. We've seen that globally. But the question is, do you want to own a Tesla

or do you want to own an EV? I still believe they continue to own the market along with BYD, but now you got to hold, you really have to hold serve in terms of what's happening from a price perspective because this is all, in my opinion, the reason that we're long-term bullish, it's just the start of the next phase of the

Tesla story in terms of autonomous, FSD, the rest of the Tesla story. So we are going through. I view tonight, it's a moment of truth. I think it's going to be a moment. Again? Again? It's a moment of truth around margins. And I think this is, I think investors' frustrations built. We've seen that the last, especially the last month. You use that a lot, the moment of truth. I mean, maybe investors are getting sick and tired of waiting for this. And why also has the stock over the last three earnings reports the day after

traded down near 10% in each occasion? Well, it goes back to the last few quarters. You need good communication on the conference calls. Last conference call, we talked about it was a disaster. We talked about those movement of truths, but you haven't had the inflection point. And even though the stock worked last year, this is important for the next phase of the Tesla growth story. You need adults in the room. I expect Musk to step up tonight and I do view this as an inflection point rather than the start of a negative

cycle. You've had to on occasion, like anybody else, whether it's, you know, us in the media or investors or an analyst decide what he says in certain occasions is like legit. Like, should I take him at face value or is he just throwing something out there on social media, like the 25% thing? What am I supposed to think about that? So I think the 25%, I mean, and we talked about it, it's something where it's an issue from an AI perspective in terms of a big part of the Tesla story. But right now for investors, you don't want to see Musk adding uncertainty in some sort of issue with the board. And that's why I think that's a little

more talking rather than action. But that's why when he talks to investors, he needs to lay it out in terms of I'm here, I'm committed. The price cuts was a 2023 story, not 2024. We're gaining share. China's strong. If that happens, then this is a stock that starts to significantly reverse from here. The elephant in the room, I suppose, at this point is the future of Twitter. What happened? Do you think he's going to have to sell more shares in Tesla? I don't think he's going to have to sell more shares. I do think he's going to get outside capital to ultimately build X into a super app. X, I keep forgetting. X, X, X. You don't think, you think he's done selling Tesla stock to deal with any, you know, debt related issues with X? I think for now he's done. And if he needs ultimate capital,

that would be outside capital. I think that black cloud is more in the rear view mirror. Okay. Let me ask you about two other things you cover. One is Microsoft. We mentioned, I'm going to look at it right now, because it was over $3 trillion in market cap today for the first time ever. Now it's slipped a little below that, and we'll watch it between now and the close. How did it get here? Is it all about the chat GPT, the OpenAI thing? Yeah, and me and you have talked about on the show, you know, really for the last year, the OpenAI, the co-pilot, Nadella really leading AI, along with the godfather of AI, NVIDIA, this right now, from a monetization perspective, for every $100 of cloud spend, this is an incremental $35 to $40.

I mean, I could argue the Microsoft story, you still have a trillion, trillion and a half of value not captured in the Microsoft story, which is why I think we sit here a year from now and we're only halfway through the monetization. Let me ask you about Apple, too, because that stock looked awful, right? The chart was a mess. Here we are. We're on the doorstep of 200 bucks again amid some suggestions that maybe last quarter they sandbagged it and now they're going to blow it out of the park this time because they sandbagged it. Yeah, I mean, look, first two weeks of the year in New York City, cab drivers bearish on Apple. And I think what started, and we've seen with our checks,

I think it's going to be a strong quarter relative to iPhone. I think the China demise story is more of a fictional story. I'm not saying it's champagne and roses, but I think better than expected. And the renaissance of growth. You're going to see iPhone growth, services back to double digits. And I think this is one. That's how you get to a $225, $250 stock going forward. Lastly, because I do have to go, what about regulatory issues around this company? Not only with the watch, but these reports that DOJ is looking around. What do we think? I think it's going to be background noise and especially, you know, it's something in the Bellway.

It's going to be more and more front and center. But I don't necessarily think for now it's going to impact the stock because the growth versus regulatory. Right now, investors are focused on renaissance of growth with Cupertino next Thursday. I appreciate it, Dan. Thank you. Thanks for having me. That's Dan Ives of Wedbush joining us up next. Big opportunity in small caps. Well, Bank of America's Jill Carey-Hall is back. She's drilling down on the top regions that she does think small caps are just getting started. We'll do that after the break. And as we do head to break, let's get a quick check on

shares of Netflix. They are surging today after that strong subscriber growth and revenues that beat the street. Closing bells coming right back. That stock's up near 11 percent. Welcome back. Small caps again sitting out the rally. The Russell 2000 is lagging today and also heading for a negative month. Our next guest sees five reasons the group is poised to spring higher from here. Joining me now, Bank of America Securities head of U.S. small and mid cap strategy, Jill Carey Hall. Jill, welcome back. Nice to see you. Thanks. Thanks for having me.

You know, it looked like it was going to be a great trade, now kind of sputtering around a little bit, and it's down the Russell is today. What are we thinking? Well, I think even though we're starting off with a bad January after the 4Q rally, it doesn't necessarily mean we're going to have a bad year. There used to be these January effects in small caps where January used to be the best month and it used to be predictive of the year but we haven't really seen that it's not necessarily a great signal of how the year is gonna end up anymore in recent

decades and we do think this is going to be the year you want to buy small caps I think a lot of the macro indicators that are most correlated with small caps performance when you think about PMI. When you think about PMIs, when you think about, you know, consumer sentiment, small business optimism, a lot of those are inflecting, turning more positively, bottoming off troughs. And, you know, this is an environment where profits growth is bottoming and picking up. And that's an environment where smaller stocks usually tend to outperform larger stocks. So, you know, I think this is good. No, no, no, please. You finish. My apologies.

No worries. I was going to say, I think, you know, investor sentiment is starting to turn a bit more positively. And obviously we've seen, you know, some of the mega cap leadership from last year persist amid earnings this year. But, you know, a lot of those mega cap growth stocks are the more crowded areas of the market. And, you know, small caps are an area that even though sentiment is finally starting to turn positive on small caps with what we track with investor flows and surveys, investors aren't really all there yet. So I think there's still a lot more room to run on positioning and flows relative to the more crowded areas of the market. A headwind, you have to believe, is going to continue to be yields, though, right?

Today is a perfect example. You have, you know, as yields move up, smalls go down. I think if we're in a backdrop where Fed is cutting rates, which we expect them to start cutting in March of this year, looking for 100 basis points of cuts throughout the year. Typically, small caps outperform in those environments. I think the biggest risk is if rates stay high, you still have small caps with a lot of short-term floating rate debt. So refinancing risk is definitely the biggest risk out there for small caps with respect to rates. I think the somewhat good news is that it seems largely priced into the index when you look at how much multiples for small caps have contracted over the period that rates have gone up.

But I do think for some sectors within small caps, real estate, consumer, some others, this is one of the biggest risks to watch. Usually comes down to banks whenever you bring up the Russell because the regionals are such a large portion of that. And in many cases, it's because of the refinancing risk and all of that around commercial real estate. Are you concerned about that? Well, I think, you know, commercial real estate exposure is still relatively small, but certainly a risk we're watching. I think looking in tandem with credit conditions, a lot of the credit signals that we're monitoring is important. And we got more negative on small caps last year in the winter-spring after everything happened with the banks.

But I think we're seeing an incrementally more optimistic backdrop for banks. You know, I think if M&A picks up, that could be beneficial to some of the bigger parts of small caps, you know, biotech, financials. We've started to see that happen for health care. So, you know, I think some of the biggest parts of small caps look, you know, incrementally better than they did last year or the year before. We'll leave it there. Good to see you again. Jill Carey Hall joining us today. We'll see you again soon from back of America. Up next, Microsoft's latest milestone. We mentioned it already, the tech giant doing something for the first time in its 48 year history. We're going to drill down on it and find out what could be next for that stock when we come back on closing bill mentioned we are watching shares of microsoft very closely after topping three trillion dollars in

market cap earlier today we're going to be penny watching over this final stretch steve kovac because we're literally pennies away to see if we're going to close at this level yeah and it's it's a huge milestone for mic, Scott. I mean, this is, like you said, first time hitting $3 trillion. We saw it a few days ago, passing Apple to become the most valuable company on the public market. And the reason why is really clear. It's the AI leader right now, and it's unquestionable that it is the one company that has a real product to sell to consumers, to businesses.

It's that co-pilot product. Expect a lot of chatter about this next week when Microsoft reports earnings. On top of that, all this glow around AI, Scott, is also adding to the Azure cloud business, which they were doing a lot of cost-cutting, helping their customers spend less on Azure cloud, which really damaged that hyper-growth that Azure Cloud has been experiencing. But now we're seeing it reaccelerate because not only are people buying into Microsoft's products, the relationship with OpenAI running on Azure Cloud, anytime people are using OpenAI, that indirectly or directly, rather, benefits the Azure Cloud growth again. So that's going to be a huge number to watch in addition to any commentary

around Copilot next week, Scott. Yeah, Steve, I've got Mike Santoli sitting here as well. I just love your thought as you've watched what's happened with this name over the last 12 months, but especially lately with this additional ramp. Everything Steve said is true and has been true for some time, which is an interesting part of the market where it just sort of decides to capitalize something in a more aggressive way. Now, it's never been at $3 trillion before market cap, but it has been more expensive than this based on forward earnings. So it all is relative to how big the company itself is growing, how much it's also just

sort of rolled up other businesses, even with the investment in OpenAI. So you can see why it's there. I still think it's going to make people uncomfortable that we're talking about these huge numbers. You got three trillion, three trillion and now meta with a trillion. And, you know, Alphabet is between the two. So it's obviously still not going to detract from the top heaviness worries. But we know why Microsoft's there. By the way, also software really overtaking semis as the leadership of the tech sector. Yeah. And Steve, Mike makes a great point in terms of where the valuation of this company has been throughout the years. You do have commentary out there now that all the mega caps are are so expensive now on a forward price to earnings ratio. Microsoft is one of those that's mentioned in that conversation.

Yeah, that's that's exactly right. It does seem expensive. But look, if you want to look, let's exactly right. It does seem expensive. But look, if you want to look, let's chart out a little bit farther, Scott, but beyond this, you know, the more immediate term of copilot of AI, anything they're planning on the PC side, probably coming this spring. Activision, we're forgetting about that. That deal closed last year or last fall, rather. And this earnings report coming up is going to represent Activision. I think they said something about $50 million in revenue just from that Activision acquisition.

And we also know Satya Nadella is not done. He has plans to make this a $500 million a year in revenue company. We're not even close to that yet. So this is just the very early innings of the plans

that Nadella has had. And by the way, like I was telling you on halftime earlier today, he's been laying the groundwork for this since he started this job a decade ago. That meant putting more emphasis on cloud, realizing they lost in the mobile world, basically negating that Nokia acquisition that his predecessor, Steve Ballmer, did and really focusing on and building out the infrastructure needed for this AI moment that they're in now. And then, again, building towards the future where this, in his view, will become a $500 million a year revenue company. Yeah, great points. I appreciate you joining us here on Closing Bill with Steve Kovach. All right, still ahead, your earnings setup. IBM is among the big names reporting results

next hour. We're going to break it that down next Welcome back some news on Ford that company recalling nearly 1.9 million of its Explorer SUVs due to a trim piece that can fly off the vehicles and Potentially be hazardous for other drivers watching that stock. It's down about 3% on the day. Closing bell's coming right back. 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, we look ahead to two major earnings releases in overtime. Christina Partsenevelos watching IBM and Phil LeBeau watching Tesla. Micah, turn to you. Bad bond auctions have been a bit of kryptonite for the market, at least momentarily. Yields crept up today after that and stocks went down.

That was definitely, I guess, the sort of little bit of grit that the market had a hard time swallowing. We did talk, you know, three hours ago and I say, you know, it's starting to look a little bit like a chase. Maybe we go looking for something to worry about. That was pretty much a handy excuse. And also all these landmarks and these round numbers getting hit. The $3 trillion, the trillion dollars on Meta, the $4,900 on the S&P. And NDX up 50% in 12 months. All of this stuff together, you know, kind of makes it seem as

if we've come a long distance. I don't think it necessarily changes the overall picture. There was certainly a willingness to believe in the old favorites today, even off of a Netflix number that really had no ripple effects on the other businesses. So we'll see where it does go, if it was just kind of a short-term hiccup. All right, we'll see what IBM does in overtime. Christina Partsenevelos reports earnings. Yeah, well, it's definitely trying to reposition itself as a software-led company, and this upcoming earnings report

should shed some light on those AI endeavors, like its Red Hat business and its new WatsonX AI data platform. But investors are expecting a bump in consulting business, but constrained IT budgets could put a cap on software sales. Both those two categories contribute 75% of IBM's total revenues. JP Morgan also expects a more favorable foreign exchange environment and a renewal cycle for IBM hardware. The big question is, though, whether the company

can hit $10.5 billion in free cash flow for the year and you have shares trading near all-time high valuation highs ibm will really have to report in line with this quarter and an expansion to their previous 2024 guidance in order to support the stock at these levels and keep the bears at bay but you can see shares are up what 23 percent in just a one year period all right we'll see it over time see what happens 23% in just a one-year period? All right. We'll see you in overtime. See what happens there, as we will with Tesla, Phil. Scott, four numbers we're going to watch for.

First of all, it's the earnings per share. 73 cents a share is what the street is expecting. That's not going to be the big driver here. It's gross margins, automotive gross margins, excluding zero emission vehicle credits. 15.7% is the metric, the number to focus on. There you see free cash flow. One other number. What do they say about delivery guidance for 2024?

The expectation is 2.1 million vehicles will be delivered this year. Do they give us a number for guidance or do they give us the, well, we're always shooting to increase by 50%. Some years we'll make it, some years we don't. We'll see in a couple of minutes when Tesla reports its results. Scott, back to you. Yep, Phil, thanks so much. Phil LeBeau, we'll see him in overtime, of course, when those numbers hit. Stock has not traded well. No. The last three periods in the day after earnings. Right. And the earnings have come down quite a bit. I mean, even for this calendar year, which we're not going to hear about right now, come down substantially. The stock is tacked in the same direction. You know, it's hard to call

it much of a bellwether of anything except for a certain segment of investors who really do kind of use it as a gauge of whether they want to take on more risk or shed it. So we'll see how it does trade. I don't think that we can really lean back on the 50 percent volume growth type vague numbers. It's much more about what does the market look like right now? How are margins holding up based on how you're having to price the product? So we touched, as you said, these milestones today. Microsoft goes over $3 trillion in market cap for the first time.

Doesn't look like we're going to get a close above that level. The S&P goes above $4,900 for the first time ever. Doesn't look like we're going to get a close above that level. And the Russell 2000 fails at 2,000 again. That's another one that's been in play for quite some time. So, again, see if it's just maybe a stutter step or something worse. We shall see. We can't wait for those earnings as well.

The bell's ringing, which means those are moments away. Into OC now with Morgan and John.