Closing Bell - Closing Bell: Can Apple’s Momentum Continue? 2/28/23

Episode Date: February 28, 2023

Investors are closely watching the road ahead for the biggest and most popular stock in the market: Apple. It’s bounced 19% off its recent low – but can the momentum continue? Morgan Stanley’s Erik Woodring gives his expert take. Plus, we debate what’s next for the banks on the back of Goldman Sachs’ investor day. And, top-ranked retail analyst Matt Boss breaks down his rundown of what every investor needs to watch ahead of this week’s flood of retail reports. 

All right, Kelly, thanks so much. Welcome to Closing Bell. I'm Scott Wapner. This make or break hour begins with stocks finishing a tough month with some critical weeks ahead for your money. Here is your scorecard with 60 minutes to go in regulation. Will this be the day the S&P closes back above 4000? We shall see. And how about rates? The 10 year hasn't closed above 4% since November. Yields on the move again, and we are watching those very closely as we head down the final stretch. We do begin, though, with our talk of the tape, the road ahead for the biggest and most popular stock in this market, that, of course, Apple. It's bounced 19% off its recent low. The question is, can that momentum continue? Let's ask Eric Woodring. He is Morgan Stanley's Apple analyst. The executive director of the firm's equity research department. Rarely does TV, but as you can see, he is today. And we are glad to have you. Welcome.

Thank you, Scott. You know, it's been a nice move, obviously, off of the recent low. What is your outlook ahead for the stock in, you know, a new month that is on our doorstep as we sit really, as I said, between the 52-week low and the 52-week high? You know, it's an interesting period to to be an Apple analyst here, Scott. Clearly, what we see in the market today is consumer challenges when it comes to electronic spending. Right. We're coming off of two years of record growth. There is some digestion going on. But again, Apple is one of the companies, you know, has industry leading

loyalty rates, very low churn. You can gain confidence that people are going to come back and buy iPhones. So as I look out over the next 12 months, I actually see a fairly robust catalyst path, whether that's the launch of new AR VR glasses this summer, whether it's the launch of the iPhone 15, where we think there is pent up demand, given some of the challenges that we've seen over the last, let's call it six months. You know, the other part I'd say is Apple has guided to a decade high gross margin that cannot be lost upon investors. And you add this up and with the last factor being services reaccelerating. And I actually think you're checking a number of different boxes that get me excited about the next 12 months as an Apple analyst.

So I love the fact that you brought up what's happening in the services area of the business, which obviously is so critical to moving forward. You use the word re-accelerating because you really have had sequential declines in that part of the business. You had an incremental tick higher in Q1 of this year versus Q4 of last. But there seem to be real questions, particularly around

the App Store and what a slowdown in revenue there means to the overall services business. So how do you square that? So the App Store is, call it, 33% of services revenue today. It has slowed. I would categorize the App Store as kind of a COVID beneficiary. We were at home. We were downloading new apps. We needed to keep ourselves entertained while we were at home. We're now seeing the other side of that. We're digesting that spend.

I don't think the app economy is broken. Of course, we all spend more time on our phone. We continue to download and use our phone more than we ever have before. That's a good long-term driver. But ultimately, right now, quarter to date, we see the App Store growing at about half a percent, maybe 1%. So it's not necessarily robust. But you have to also consider, over the last six months, Apple, and specifically the services business, has faced, call it anywhere from five to seven points of FX headwinds. So I'd actually argue that on a constant currency basis, the services business is growing low double digits relative to what we think would be kind of a mid-teens constant currency growth rate over the next three years.

So it's been challenging, but the services business has slowed. But we don't necessarily think the underlying drivers of the services business are structurally challenged. And again, as you get further out into the year, FX does become a tail end. Services maybe slightly, excuse me, App Store maybe slightly re-accelerates. But then you have to consider the other 66% of services, which we think is either growing robustly, I call it mid-teens to high teens, or the relationship with Google, kind of the Google tech digital advertising business, which we see rebounding in the back half of the year. I mean, you have it as your number one hardware play at a time where we're talking about a slowdown in consumer electronics,

generally speaking. Is Apple immune to that or not not i'd say they're more immune of course they're not fully immune if you if you look at what apple reported for the december quarter for example where the wearables business down seven percent year over year despite launching a new apple watch a new apple watch ultra new airpods um that that shows that apple is not fully immune but you have to remember, there's 1.2 billion people in this world that own an iPhone. I would call that the technology product that largely controls their world. That to me is a staple. I'd argue the iPad and the Mac are a level below that. And so are they fully immune? No. Are they more immune than others? Yes. And just one data

point I'd throw out there. In calendar 22, Apple revenue grew roughly 4 percent year over year. The rest of my consumer hardware coverage, the median revenue declined 6 percent. To me, that shows that Apple is more immune than the large majority of the consumer hardware universe. What about speculation around hardware subscription service? And I want to make shows that Apple is more immune than the large majority of the consumer hardware universe. What about speculation around hardware subscription service? And I want to make sure that I read this correctly in the notes. Do you think that that can really unlock an additional trillion dollars in potential market cap for already what is the largest company by market cap? Scott, I'm happy you asked me. That is what gets me excited as an Apple analyst today. Remember, if we think maybe five years back, Apple was viewed as a cyclical hardware company.

I think what we've learned over the last five years is that having a services business that's 70 to 80 billion dollars represents more than 30 percent of gross profit dollars, ultimately makes it more like a platform, not necessarily a cyclical hardware company. I think the shift to subscription is the next evolution of this model. And really why that's important is because it gives consumers and analysts better visibility into cashflow generation, more stability in financials.

And when you look at peers, whether they're staples peers, streaming services, software subscription companies, they all trade at a premium to where Apple trades at today, roughly 22 times our fiscal 22, our fiscal 24 EPS. So my argument is when you put on the lens of, hey, Apple is more of a subscription company than it is a cyclical hardware company, that actually can unlock value. We'd size it at about a trillion dollars of market cap. For me, that's my bull case. That's about two hundred and thirty five dollars. My bull case valuation that incorporates the shift to subscription or at least the market viewing Apple from the subscription labs. Wow. I mean, I'm just looking at it now and thinking about, you know, $3.3 trillion in market cap.

I'm wondering also how you think about China, given the reopen and these stories, even a new one today suggesting that suppliers for Apple are, in the report's words, rushing to leave China. So China is obviously a very important market for Apple. On the supply side, obviously, it's the core of Apple's manufacturing base. That won't necessarily change, but we are seeing a shift on the margin to companies, excuse me, to countries like India, like Vietnam, like Malaysia. I think that will continue. Again, diversification from your manufacturing base, especially after what we saw in the December quarter, to me is the smart thing to do. Then you think about the demand side of things. China is in the process of reopening.

It's Apple's second largest market from a demand perspective. China open is better than China closed, right? The one factor here that I would say, maybe where I differ a bit, is I actually think that China is probably more of a tailwind. The pent-up demand in China is more of a tailwind when we get further out into the year, simply because China is a very aspirational market. The Apple brand is a status symbol. I think that Chinese consumers are going to wait, call it five to seven months, to get an iPhone 15, a brand new iPhone 15, rather than buying a four to five month old iPhone 14 Pro. So we'll see how that thesis plays out over the next few months. But again, China open much better than China closed. Second largest app store market as well.

So China is obviously very key, again, to unlocking pent-up demand, both on the product side and on the services side. Let's get to the buzzword of the moment. And I know you know where I'm leading that to, and that's AI, right? It feels like we're talking about everybody but Apple when it comes to this, right? Whether it's NVIDIA or Microsoft and Alphabet, et cetera, and the names of the biggest players out there who get talked about the most. What about this one? What about Apple? And how does that all factor into how you view the next several years for this company and the stock? Listen, I think if you're a company today in

the technology landscape and you're not thinking about artificial intelligence, there's a chance you get left behind. Ultimately, we know that Apple has a number of different artificial intelligence capabilities. They launched their core machine learning product or APIs in 2017. I think that Apple is still very much working on AI, but they are not at the same level of Microsoft and tech GPT. They're not supplying the GPUs to the hyperscalers like Nvidia is.

And if you think back in time, Apple hasn't always been the first technology in new markets, right? If you think about 5G, they weren't first. Quad cams, they weren't first about 5G, they weren't first. Quad cams, they weren't first. Flip phones, they weren't first. I think Apple is watching the market develop and understanding where they can use their expertise to monetize AI. Where I think that ultimately happens is edge compute. Remember, Apple is the only vertically integrated smartphone vendor that is major

in the markets today. They optimize their software, their hardware, and their services together completely vertically integrated. So when there are applications that come out that require compute on your iPhone, the iPhone is a much better and more sophisticated and powerful and more efficient product than other smartphones. So I do think eventually AI becomes a product that Apple can better monetize. But I think it's a crawl, walk, run. And Apple is evaluating the market today to understand where they should pounce ultimately to monetize it. Speaking of pouncing, you know, before I let you go, this idea of whether Tim Cook will ever do a monumental acquisition and who knows what that might be. But they've sat on this mountain of cash for such a long period of time. I just wonder how you think about what what he wants to leave his legacy and mark on on this company beyond you know an an amazing

installed base and all of the other stuff that we always talk about in a dislocated market which you certainly have in some parts of this market does he use the opportunity to in your word pounce on something a big fish that's just too good to pass up. I think you cannot rule Apple out of that opportunity. But I do think recent history shows that Apple is more adept to building than buying. You know, we've talked about these rumors of what Apple could buy for many years now. And ultimately, what we learn is that Apple has had internal initiatives to develop those products, whether it's smart speakers, whether it's, again, AR, VR glasses, obviously video and TV plus is another one. So I don't think we can rule Apple out of the running. But I do think that today Apple's kind of capital allocation priorities are obviously reinvesting in the business, returning $80 billion of cash to shareholders.

That's good, too. Paying a dividend. And listen, if there's something opportunistic that Apple can do that's actually transformational, I'm sure they're evaluating it. They'll continue to do tuck-ins. That won't cease. But I do think that Apple sits a very, very high bar when it comes to doing something transformational. Valuation isn't the only factor here, but I would venture to guess with probably a high degree of confidence Apple's out there evaluating all of the opportunities. Yeah, I'm sure they are.

It's been a pleasure. I appreciate you coming on Closing Bell with us, Eric. We'll see you soon. Thank you so much, Scott. All right. That's Eric Woodring again joining us from Morgan Stanley. Let's bring in CNBC contributors Joe Terranova of Virtus Investment Partners and Shannon Sikosha of SVB Private. Shan, you just heard the conversation here. He sees the potential for a more than three trillion dollar market cap company. You own the stock. Yeah, sure. I mean, as an owner of the stock, that would be fantastic. I do want to touch on a couple of the points that Eric made. And I think it goes back to the consumer experience.

You know, with so many handsets being out in the marketplace, Apple's really focused now on being able to continue to enhance the user experience. And so I think when we think about where are they investing, it's really to make sure that we continue to be on our phones. And so I do agree that services is the path forward in terms of revenue generation. If it affords them a higher multiple in a future state, that's fantastic. But I think we have to get to the second half of the year where we start to get to the back half of this refresh cycle and see if we can get some demand back from China and Europe, which has essentially been dormant over the last few quarters, in order to get some momentum back in terms of investor sentiment. See, at some points, Joe, you need to look past the ebbs and the flows of the near-term movement

of the stock and look out over the horizon like Eric does and suggest, you know what, they can unlock that level of success in the stock that you could get another trillion dollars in market cap through that hardware subscription service. I raised the question to you that way because you sold out of it not that long ago, saying that it had both lost its quality and momentum, at least in the near term, the way you look at things for your ETF that you actively manage. Yeah. So Apple has always been a steady hand in a portfolio. And when you study the two factors of quality and momentum, the real deterioration, if you want to even call that quality, was just the slowdown in the revenue growth over the last three years. You're talking about a company that's hit revenue growth in the mid-teens. You actually had a contraction

in the revenue growth. And we know that was attributable to subscription. So that can restore itself quickly. What also can restore itself quickly is the momentum factor, and the momentum factor for Apple for the very first time in several years was lost in the last quarter. Apple's in the same place, Scott, that it was in July of 2021. Now, that's where the red light turned on. The red light turned on because of momentum, not because of quality. And if you look at the fundamentals of this company, I have never called that into question. They I don't believe it's not in their personality to do the acquisition.

Apple doesn't buy the growth. They don't need to. Apple is all about investing in achieving organic growth. And they'll achieve that once again. I'm sure that I, as well as the strategy, will go back into Apple once again. And by the way, Apple so far, year to date, it is in the process of rebuilding some positive momentum. 155 to 160 over the next call at 45 to 60 days. You were able to sustain at that price level. You've restored the positive momentum in Apple once again. If you didn't actively manage the ETF that you do, would you own the stock? Without question. You would? Without question.

I ask you that because I'm wondering how you think our viewers should think about this name. Now, I would ask you... I used the two words before, sorry, but I used the two words before steady hand in a portfolio. That's what they are. They don't do that. Apple has the purest discipline of all the technology companies. They don't go out and make risky bets in markets. They don't go out. And Eric is 100 percent right. They sit back. They are the second. I love the way he said it. They tend to be they like to build rather than buy. They're the second mover. They sit back, they observe and then they make the environment or the product better. That's exactly what Apple has done so successfully over the last several years. Listen, fundamentally, you're giving me

a company that's going to buy back a boatload of their stock, return a little bit of a small dividend to the shareholder, that's a great company. I'm following my strategy. That's why, for now, I'm out of the stock. Shan, what about tech? Let's just use this as an opportunity. Ending a month, you know, January, February, pretty good year to date. Tech's the second best performing sector. Does it continue?

And this stock is obviously going to have to still do well if it, as in tech as a whole, is too. Absolutely. I mean, I think we're still going to end up talking about major tech players here as we think about the potential for the Nasdaq to continue to perform. Scott, there has been a ton of excitement coming into this year about a pause or a pivot. We've seen rates rise. And, you know, frankly, I've been surprised at the resilience of big tech. You know that we have a pretty large weighting in the sector. But I think it's important to continue to look at technology and differentiate, as we've talked about, from tech companies that have strong operating margins, from really strong balance sheets, free cash flow and profitability. And I think if you continue to think

about tech being able to lead us through over the next couple of years I still think we're going to see some fits and starts especially if we see rates kind of creeping up higher over the next month or so but I think that right now is a great time to consider if you don't own some of these market leading tech companies and I would say Apple and Microsoft are two of them, that, you know, initiating a small position, we're certainly down from our highest point weights over the last three or four years. But that's not because we don't like the companies. It's because we continue to diversify in the sector. Okay. Leave me with your last thought here, Joe, before we move on.

This notion of AI, which Eric addressed as well. The buzzword of the year so far. I think we can all agree with that. Fundamentals or fad and froth? AI, which Eric addressed as well. The buzzword of the year so far. I think we can all agree with that. Fundamentals or fat and froth? Well, I think that I think some of it is froth. Or all of the above. I should have given that choice.

Yeah, I would say all of the above. And if we're looking at month-to-date performance, maybe some energy companies could attach AI to their corporate names. It would help the performance because it's been a tough month for energy. All right, Stan, we'll see you soon. Thank you. Joe's going to be back in just a little bit as well. Let's get to our Twitter question of the day, and it is right on Apple. We want to know whether you think it will hit a new 52-week high this year. It's just above $179.

You can head to at CNBC closing bell on Twitter. Please vote yes or no. We'll share the results a little bit later on in the hour. We're just getting started here on the closing bell. Up next, Goldman Sachs holding its investor day. It's only its second ever. And CEO David Solomon lays out his game plan for the big bank. We'll find out how to best trade that space just ahead. Plus, one stock is up 20 percent on reports of a private equity takeover. We reveal that name, bring you the details you need to know.

We'll do it next. We're live from the New York Stock Exchange. Closing bell. Be right back. Got about 35 minutes left in this trading day. Let's get a check on some top stocks to watch as we head into the close on this final trading day of February. Christina Partsenevelos, what do you have? Let's start with shares of Arconic.

They're surging right now, over 20% on news that private equity firm Apollo Global Management is in talks to acquire the aerospace parts maker. Sources tell our CNBC Morgan Brennan that there is no deal just yet, but talks are ongoing. You can see shares almost 20.5% right now. Shares of EV maker Rivian chugging higher ahead of its earnings out after the bell today. Wall Street analysts are expecting the company to post a loss for Q4. Its 2023 production outlook will be a key metric, considering some other EV makers like Lucid are struggling to ramp up. Shares are almost 5% higher.

And last but not least, the parent company of your beloved Wrangler jeans, Contour, is seeing its shares jump over 20% higher after beating earnings estimates and guidance earlier this morning. Wrangler jeans were up 15% in the quarter, sending shares up to a 52-week high. Scott, are you a Wranglers guy? You don't strike me as one. Inquiring minds want to know. That answer will stay with me. Christina Parts and Avalos, we'll see see a little bit later up next up next shares of goldman sachs slumping on the heels of its

investor day a look at what the road ahead might mean for the stock and during february we are celebrating black heritage through the stories of some of our cnbc teammates contributors and leaders in business here is former federal reserve vice Vice Chair and CNBC contributor Roger Ferguson. My heritage and culture as being an African-American male has had a major impact on my career. And the main thing is that it is focused in on areas where blacks have frankly been disadvantaged with a real focus on financial security, financial literacy, retirement savings, you know, that range of topics. And I think it's really important for everybody, but it's particularly important for our African-Americans who have been forced to be at the bottom end of the income and wealth spectrum. And anything we can do to overcome, you know, all of that

years of heritage and discrimination, I think is really important. Goldman Sachs shares hovering near session lows. It's the worst performer in the Dow today, which, by the way, is also at session lows. That's after the company's second ever investor day. CEO David Solomon telling CNBC in an earlier interview, the company, quote, tried to do too much too quickly in its consumer business and will now refocus on opportunities and asset and wealth management. Joe Turnover of Vert is back with us, along with Liz Young, head of investment strategy at SoFi. Joe, I'll go to you first. I mean, what do you make of the sell-off we see today? Mike Mayo warned it could be a sell-on-the-news event, which it

appears to be. It appears to be. There's more work that needs to be done by David Solomon and the management team. I want to see them shed those consumer-facing assets. That's not who Goldman Sachs is. Goldman Sachs is the best in investment banking. Goldman Sachs is the best in trading. And let's pull the lens back for one second, if we could, and understand both in the case of Goldman Sachs and Morgan Stanley. They've done remarkably well since where they were pre-pandemic. Morgan Stanley's up 60 percent. Goldman Sachs is up 45 percent. The rest of the banks, JP Morgan, Citi and Bank of America, they're flat pre-pandemic. So they've done a good job. This is a step in the right

direction. More needs to get done. I want you to listen. I mentioned Mayo. I want you to hear what else Mike Mayo thought about this investor day because he joined us on the halftime report, talked about the challenges that Goldman and David Solomon are facing. Listen. They did have a terrible fourth quarter. They are likely to miss their targets this year and next. I personally asked a lot of questions around that. But, you know, just like in sports, as in Wall Street, winning cures all. So if they can get to their targets, then all this other stuff will just be noise. See, one of their targets, Joe, is to grow their asset management business, which is the very reason why you're bullish on Morgan Stanley over Goldman Sachs. That's the stock you choose in the group.

Of course, and I've wanted for years. Everyone wants the asset management. Everyone wants the wealth management business right now. It's so incredibly important. You're seeing a lot of the big players going out and purchasing some larger IRAs. So I want there to be a bigger presence on the part of Goldman Sachs. But there isn't right now. And there is, in the case of Morgan Stanley, they've done the right thing. Morgan Stanley, Eaton Vance, E-Trade, two fantastic acquisitions. It's benefiting them now. And quite candidly,

the reason I'm in Bank of America is for Merrill Lynch. Without Merrill Lynch, where would Bank of America be? I think it would be in the same position as Citi. Okay. So, Liz Young, how do you view this space? Do you like the financials as, again, we wrap up February and we go into a new month? Well, so a couple of things. First of all, the asset management business, if you look at asset management and the consumer business, and also it's not lost on me that I sit here representing a very consumer-facing bank, right? If you look at asset management, there was likely to be consolidation in the space as ETFs took over, passive management took over,

there was so much compression in fees, it's difficult to get that space right and still make money. On the consumer side of things, there's been such a proliferation of fintech. Competition is fierce, also very hard to make money in that space. And this competition over deposits that's going to take place probably for the next year or so until rates actually come down. That being said, I think you do have to separate financials and banks and look at them in different ways. So if you look at just the financial sector overall, still the second cheapest in the index, and I think valuations matter. If you take Berkshire Hathaway out of there, even cheaper, right? Banks, on the other hand, even

cheaper than the financial sector broadly. So seems like a good entry point. I would caution people that this is a timeframe issue too, though. If what I think is going to happen and the consumer kind of hits the skids, banks are probably also going to hit the skids. However, that's the entry point. So if we see some stress in financials, in banks, I think that financials and other sectors like materials, industrials are what probably lead us back out of this. Because as we know, the sectors that lead you into a peak in the market are rarely the ones that lead you out of a trough. Sometimes first in is first out. But I'm wondering, you know, Joe, how you think about it's beyond the consumer, just about the economy in general. If we have a recession or not, as long as you have those questions hanging over bank stocks, what does

it mean? Because if you have in the back of your mind to be worried about credit risks, should something get dislocated, you know where I'm going. So I'm more concerned with the S&P just sitting here and continuing to wrestle with 4,000, because for Morgan Stanley, for Goldman Sachs, and even in the case of Bank of America, JP Morgan and Citi, trading revenue has been resilient, surprisingly strong at times in 2022. And that's supported the valuation. If we're going to be in an environment where we're really consolidating for the S&P, I'm concerned having ownership of Morgan Stanley, looking potentially at some point to purchase Goldman Sachs and having the other three banks under consideration. All right. So we have,

as we just saw from our heat map, we do have some work to do to see if we can close above 4000 on this final trading day. You know, there it is. It looks a little dicey. By the way, the Dow's at the lows of the day down to 37 and changed to 40 or so, Liz. So we enter a new month. What's your outlook? Well, OK, look, we had this huge rally into the year, which I continue to say I thought was overdone. It was overdone in the wrong sectors, too. Everybody got really excited about beta again and valuations got stretched. I think we've lost a lot of momentum on that rally, as we probably should have.

Looking at what's happened with rates since the beginning of February, and even just forget about rates for a second. Look at what's happened with inflation expectations. Two-year inflation expectations went from 2% to above 3% in a matter of less than three weeks. That is really important for investors to pay attention to. Something has to move to make these relationships work the way that they usually do. Rates don't usually go up as stocks continue to go up with them. So one of the two has to come down. A reduction in a two-year rate would be bearish for the economy. The only reason that happens is if

people expect the Fed to cut. So I think we have to really remember what all those relationships look like. Again, I know I sound like a broken record. I don't think that the stocks can hang on to this much strength for that much longer. All right. Thank you guys very much. That's Liz Young and Joe Turnover. We'll keep our eyes on the market, of course, as we head into the close. Dow Jones, as I said, was at the lows of the day, down by more than 240. Watching the S&P, looks like you got a lot of work to do if you think you're going to close above 4,000 once again today. That looks highly unlikely. Up next, we track the biggest movers as we do head into the close of this month.

Christina Partsenevelis is standing by with that. Christina. We've got a direct-to-consumer wellness brand that's seeing its shares surge right now. I'll tell you that name right after this short break. We have about 20 minutes to go until the closing bell rings. Let's get back to Christina Parts and Nevelos for a look at the key stocks to watch. Christina. Hims and hers. That stock is up 20 percent. That's the direct-to-consumer wellness brand I was talking about. After posting a narrower-than-expected loss, its revenue also came

in ahead of estimates, along with a strong first quarter and full year guidance as well. The stock right now is at its highest level since June 2021. You can see shares are up over 15 percent. Norwegian Cruise Line plunging right now about 12, 10 percent lower on a wider than expected loss for Q4 and weak forecasts due to soaring fuel and labor costs. But like other travel names, Norwegian says demand has been pretty strong and it expects occupancy to hit 100 percent this quarter, Scott. So it seems like people are still willing to go back on those big boats despite all that COVID. All right. Yeah. Christina, thank you. All right. Last chance to weigh in on our Twitter question.

We want to know, will Apple hit a new 52-week high this year? It means the stock would have to get above just a little north of 179. Yes or no? Head to at CNBC Closing Bell on Twitter. Vote. We'll send you the results after this break. And a quick programming note as well. Do not miss our interview tomorrow with Greenlight Capital's David Einhorn. It is tomorrow, 12 o'clock on the Halftime Report. Closing Bell, back in two. Let's do the results of our Twitter question now.

We asked, will Apple hit a new 52-week high this year? That means it has to get above 179 and change. It is close. Look at that. 50.7, 49.3. The yes has it for the moment. So it is a true battleground question. We thank you for voting up next.

A slew of retailers set to report results in overtime and tomorrow, giving us another key read on the consumer as we enter a new trading month. We have your setup ahead of all that with top analyst Matthew Boss. That and much more when we take you inside. Where else? The Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day, plus Samir Samana of Wells Fargo sharing his market outlook. We've got the number one retail analyst on Wall Street, JP Morgan's Matthew Boss. Good to have everybody with us. Mr. Santoli, begin with you.

Stocks are going to go out with a whimper, it looks, and rates taking a bit of a breather today. Yeah, so it's noncommittal all around. I don't think you could really work too hard to draw a lot out of what's going on, except that we're just sort of hovering above whatever level you were going to worry about if you broke below it, right? You can call it 39.25. You call it the 200 day average. Very split market still. And I think that's something that's been a theme. I mean, even within broad sectors, transport's weak, machinery's strong, things like that. So it's been selective. I do think the fact the bond market's giving us a breather is allowing things to gather, you know, allowing the market to gather its feet under it. And I just think it's almost

offsetting confusion. The soft landing bulls have had too hot data and the recession is here bears just are not getting a confirmation of that view. Maybe that's why the Apple poll was so split. That's right. Basically, 50-50. It really underscores the point you're making here. We are. And look, you can also say, look, we're still like well off the all-time highs. We still have not broken above August levels. You could talk about all the ways that the market is still under pressure and in a bearish phase. On the other hand, it's an uptrend for the last four or five months.

We're trading right at levels like up 4 percent in two years. I mean, this has been a super long multi-month consolidation. So I don't think that's necessarily in itself negative. All right. So let's bring in Samir Samana, as we said, of Wells Fargo. What is your view? Right. January good. February not so much. Where does it leave March? So we'll probably take the under. We think the inflation and economic data probably still remain too hot for the Fed's comfort. They probably will now at least hike rates beyond where the market currently expects and probably keep them there all year. And that probably means that stocks are in for some volatility, especially as those positive seasonals fade into May through

October. You know, one of the debates is whether we go back to the October lows and have to retest it. Mike Santoli just said the uptrend we've been in since October. How do you address that question? I think the tricky part is those short-term rates, right? Those short-term rates are higher than they were last fall. And if they drag long-term rates to those same levels that we saw last fall, I think this time around, because earnings are falling, I think it means the S&P probably trades at those levels or at least around those levels. So if it's going to be dicey, what about this issue of bonds versus stocks?

Do you find more opportunity outside of the equity market? We do. We think that longer end of the bond curve, especially as you get close to 4% on the 10-year, is worth locking in. Now, that doesn't mean that rates won't go higher, but this is the highest level of yield that people have been able to lock in for some time. And when you look at one, two, three years, when those short rates are coming back down, you're going to feel pretty good about the long

duration of yields that you locked in. I think it's interesting as a spot, because I wouldn't argue with that. And if you look at getting 5%, 6% on investment-grade debt, but we're in a mode right now, it seems the regime has changed to when bonds rally in price, it's better for stocks. In other words, the scenario under which you're compensated well for buying a 6% investment-grade bond is one where the stock market should be able to stay supportive. You know, so I'm not saying they have to go step for step and that stocks maybe don't have to create a little more of a margin of safety with lower valuation. But it's not the world where it's either bonds or stocks anymore. No, and, you know, Samir, it's going to get hot and heavy pretty quickly, right? Jobs report a week from Friday. You've got CPI.

And then we have to start worrying about another Fed meeting and the commentary from the chair himself. Yeah, I think that's the tricky part. It's kind of what Mike said, right? I mean, look, if your trading range is 42, 43 on the upper end and it's, let's say, 35, 38 on the lower end and you're kind of smack dab in the middle of it. So I would agree that you can probably make money in both stocks and bonds and the combination thereof. The tricky part is you're kind of in the middle of the range. I'd rather get paid to take the risk in equities. And I think, you know, if you revisit kind of 35 to 38, which doesn't seem that heroic if the data come out wrong, I think that's the part where you kind of step in and start to kind of retake the equity risk. So I think you have to be a lot more tactical this year and really have to try and trade the

range. All right, Samir, thank you. Big questions, of course, still about the strength of the consumer. It's a big week, as you know, for retail earnings. And on that note, let's bring in top ranked retail analyst Matthew Boss, JP Morgan, joining us once again. You don't cover Target specifically, Matt, but what does it tell you, if anything, about where the consumer is today and how retailers are dealing with all of the issues that they've had? I think as a whole that the retail picture right now is stable. Now that's tied to the unemployment level sub 4%. Wages continue to rise for the low end and the high end consumer is sitting on a tremendous amount of wealth creation over the last five years.

Now to me the picture beneath is more mixed. I think the high end is solid, the low end consumer is on stable territory. It's the middle where we're seeing a lot more mixed. I think the high end is solid, the low end consumer is on stable territory. It's the middle where we're seeing a lot more volatility. That middle income consumer I think is tied to some of the layoffs that you're seeing larger picture. Have companies worked through this significant inventory issues that they've had and how does that impact your view on where margins could go in the months ahead? So I think you're in the second half of the game from an inventory perspective. The trough was in the summer and in the fall. The inventory actions that you're seeing take place in the third and the fourth quarter. That's why

you're seeing the bottoming in the margin picture. I would say by late spring, we're going to be in the seventh to eighth inning. And I think coming out of that, heading into the summer this year, you're going to start lapping up against some material margin deterioration. You're going to have freight moving in the right direction, gas prices and some of the inflationary pressures easing. And remember, it was in the late spring into summer. That's when the consumer started to rebudget a year ago and really make up for some of these costs of living that were rising materially. We've got Dollar Tree reporting that's in your universe. Stocks having a good day in a down market up 1.5%. I'm looking squarely at it.

What are your expectations for something you have rated at overweight? Yeah, so we like Dollar Tree. We like Dollar General. We like the off-pricers, TJX, Ross Stores and Burlington. That to me is the key. Value and convenience. Low income is stable. Middle income value is becoming more important. That's where you're seeing the trade down.

So I like that, and I like best-in-class brands on the other side, particularly casual. Nike, Lulu. I think that's the mega trend coming out of this. Yeah, Mike, the real question is to whether the consumer is really as strong as it appears to be. Yeah. You know, I know there's a lot of concern about the ramping of, you know, credit card borrowing recently and the idea that the savings rate has gone down. But if you ask me, the bigger kind of unique aspect of this environment is that you had a huge run in credit card debt and it just went back to trend.

And the fact that the savings rate is down because people already have the savings cushion. So I wouldn't doubt that there's fraying around the edges. Delinquencies picking up a little bit. Absolutely. But from such depressed levels. I mean, anything you look at, I look at the household financial obligations ratio, which bundles in all kinds of debt service payments. And it's just not at a level where historically it's paid to get

super worried about it. So you'd have to see wages soften up a lot. You'd have to see actual job losses. But maybe we're also in this weird moment where the whole pull forward of goods demand and the fact that we don't need as much stuff is also clouding the picture as, you know, hotel stocks go to the moon every day. Hey, Matt, I know who you like. I know who you think could be a little challenged. But who do you think has the most to prove this week? I think most to prove this week is is off pricers and dollar stores, as you said. And the two within there, I would say the show me stories are Dollar Tree, as you cited, and Burlington. So one dollar store, one off price.

Or TJX that you saw earlier, late last week. I mean, 7% same store sale shows that value convenience. The question is, can Dollar Tree do it? Dollar General has been the best in class in the space. And the question is, can Dollar Tree pull up the, pull up the, from behind as well? We will see. And I know we'll talk to you about it soon. Matt Foss, JP Morgan, thank you very much. Time for Mike Santoli's last word on this last trading day of February, trying to get off the lowest levels of this session as we head towards the close.

Yeah, it really is. It's just sort of ping-ponging between a couple of these clusters of exporters. The small cap's been outperforming all day, also outperforming on a year-to-date basis. The Dow is made to look much more ugly by Goldman and UnitedHealth, which is to say, in general, on balance, you have a pretty neutral setup for a day. Two months into the year, S&P 500 up 4% or so. I think most people probably would have signed up for something like that. The issue is nobody's comfortable about it because nobody, either they're suspicious about how we got here and therefore it means there's got to be payback or you kind of missed it. And you're kind of

hesitant to try to bet that it can be the start of something bigger on the upside. Direction of yields is going to be critical in the weeks ahead. I saw a note that you passed earlier noting that the 10 year note yield has not closed at 4 percent or higher since November 9th of last year. That's one hundred and twelve calendar days. It is 72 trading days, excluding holidays and weekends. But that's where the action is going to be. That is true. What is interesting about that is when we cross 4 percent on the upside, it was not curtains for the for the stock market going to be. That is true. What is interesting about that is when we cross 4% on the upside, it was not curtains for the stock market on that run. Remember, we kind of rallied into mid-December or so. I mean, not in a straight line, but we did top out at 4.2. So without a doubt, we are fixated on these levels. It doesn't mean it has to translate to an exact index price. But yes, there's no doubt about it. If in fact we're starting to price in the higher

for longer. Again, I think the slow pace, relatively slow pace of what the Fed has to do is still going to be a little bit of a cushion because last year we got used to basically running full speed by the Fed to try and catch up to inflation right now. The bottom line is we head towards a new month. The bullish narrative is harder to come by. I know you read Tony Pasquarello over at Goldman Sachs, passes a new note around on the weekend. That's a principal thought that he has is he says, you know, look, positioning, that game's been played.

Some of it, yeah. Or a good amount of it. It's just harder to come by to make a bullish case. It is. And I do think that that's why the bullish case rests on the behavior of the market itself. When we have seen this type of an advance off of a low, for example, you've never gone down 20 percent in the S&P and spent 25 days above the 200-day average and had that not be the ultimate low for the bear market, right? So it's all these kind of almanac-type things that say we should be in a good place, but it's not because you can tell why, right? The economic macro is not there telling you

what the story is that the market might be suggesting. I'll see you tomorrow. I'll see all of you as well. February is done. Dow's going to be down more than 200 to end it. It's going to overtime now. It's all been done.