Closing Bell - Closing Bell: Can the Rally Really Roll On? 7/31/23

Episode Date: July 31, 2023

Will the upward trend in the indexes remain investors’ friend or has the market already taken account of enough good news for now? JP Morgan Asset Management Global Market Strategist gives her expert forecast. Plus, King Lip of Baker Avenue Wealth sets us up for the big tech reports this week. And, Strategas’ Chris Verrone is flagging two parts of the market that he thinks will see serious upside as we head into the end of the year. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner here at Post 9 at the New York Stock Exchange. This make or break hour begins with stocks coasting toward the close of a fifth straight winning month as Wall Street fully embraces the economic soft landing story and bets that corporate profit growth is now potentially bottoming. And strategist groups Chris Verone says a leadership change is underway beneath the surface. He'll break down the two areas of the market he's now bullish on into year end. But first, our talk of the tape. Will the upward trend in the indexes remain investors' friend, or has the market already taken account of enough good news for the moment?

Here to discuss that is Meera Pandit, J.P. Morgan Asset Management, global market strategist. Meera, good to see you. Good to see you. It seems clear we've gone from, oh, relief rally because inflation is lower and the Fed might be done, to something closer to really a fuller belief that, in fact, we might have an expansion in the economy indefinitely and earnings look like they've seen the worst of it. How does it make you feel?

Do you want to bet against that happy scenario or believe that it can continue like that? Markets seem to be pricing in immaculate disinflation, but the reality is that might be transitory, because we are seeing that disinflation is occurring while growth is actually accelerating. But the reality is they often move in similar directions, and I do think that as you see more gas come out of inflation, you're going to start to see that over time happen to growth as well as things like the consumer soften. So when I think about markets, there's a little bit of a ceiling here in terms of how far I think markets have left to go. Because when you look at valuations, for example, valuations are a bit stretched.

Even when you strip out the top 10 stocks, still about 15 percent expensive. When I think about what's driving markets this year, it's very much multiple expansion. You actually only see earnings being a big driver of performance in areas like Europe and Japan. So if I think about this as glass half full, I don't think we're going to retest the lows from last year. But if I think about this as glass half empty, I also don't think we're going to retest the highs from last year anytime soon. The highs from last year in the S&P anyway, just a couple of hundred points really from from here. So in striking distance, perhaps, but maybe, you know, the backdrop has changed enough that it might make it challenging.

Although, what do you say to folks who say, look, multiple expansion is exactly what happens early in every bull market? I mean, that's how you get into a bull market. The market leads earnings. And we have, even if it's rare, seen soft landings before. It's rare and we have seen them before. But I also think when you look at the earnings picture versus the valuation, sometimes you also see towards the later end of the cycle, people get a little bit exuberant about valuations and multiples when the earnings growth is just not there. So I think we want to be a little bit careful of that. Now, look, earnings have not been that bad. They've actually been better than feared for about six quarters now, including this one. But I don't know if that's enough to break us out to the next level and to have a durable expansion quite yet. Until

we start to see more earnings upward revisions and we start to see that the worst is truly behind us, I don't think we're there. And so what could be ahead of us that looks a little bit more dour when we come to earnings? Because margins have stabilized, but we're seeing actually the beats on a revenue basis have been pretty low historically. And so that's a concern because the other side of inflation is it's great for margins because we see that as inflation comes down, wages and input costs start to stabilize. But on a revenue side, if you're buying that same cup of coffee every day and it's getting more expensive over time, that benefit accrues to the company if they pass that cost on. But the reverse happens when you start to see inflation come down. So I think we want to keep

a close tab on revenues to really understand whether we're out of the woods on a profits perspective. Yeah, there's no doubt true, although it is funny in a sense that we're now going to start to worry about disinflation happening too quickly, whereas last year was all about inflation is out of control. And I agree. Earnings estimates have actually kind of rolled back over in terms of the revision ratio. So there's no no easy way out of a lot of this stuff, I suppose. But what would you say you would do practically and tactically right now? You do look across the world. You look across asset classes.

So what seems a better relative bet? In the U.S., if earnings are important right now, take a look at sectors, because a lot of the negative earnings revisions that we're seeing are coming from areas like energy and materials, whereas actually we're seeing some pretty good outcomes in certain areas of industrials, of consumer discretionary, consumer communication services. So look underneath the surface to experience and understand really which areas have already gone through the toughest times and are starting to come out of it versus which ones have a few tough quarters ahead. So that's how I'd think about the U.S., but valuations are important. And if valuations are important across the board, we're still looking in areas internationally because you

see valuations at over a 30 percent discount relative to the U.S. Now, I do think the easy money has been made internationally when we think about Europe avoiding a recession for now, coming out of the energy crisis, China reopening. But again, when you think about the areas where earnings are actually positive from a revisions perspective, look at Japan, look at Europe, look at Latin America on a tactical basis, one of the best performing markets year to date. I think there's some cyclical and structural things to like in areas like Mexico. And then outside of that, the very cheapest area when we look at yields is the bond market. The higher quality bond market still looks pretty favorable

and that's an easy area to deploy money, not even because you think the economy is going to go into recession, but even a little bit of a slowdown in growth and inflation should help yields come down, bond prices start to reset. You started by saying maybe we're not going to have the benefit of inflation coming down relatively quickly and economic growth staying relatively strong. If we do get to a point where inflation looks like it's not giving that much more on the downside, do bonds still hold up OK? I think that there's still some room to go. From an inflation standpoint, we're not at 2 percent, but I think we could be in the twos in many measures of inflation in 2024.

It'll take a little bit more going into the rest of the year because the easy base effects from a headline inflation standpoint are behind us. But the easy base effects from a core perspective are actually ahead of us. And I think we could see some more traction in areas like owner's equivalent rent, in different areas of services, particularly transportation services. But it's going to take several months. We're not going to go 5, four, three to two. We're going to kind of hover probably around three percent for the rest of the year until making more meaningful progress next year. Is one of the lessons or inferences of how the markets behave this year, though, not that even if two percent is the Fed's target, two percent holds no magic for the equity market. In other words, the stock market isn't going to say, oh, we're not going to relax until we're at 2%.

3% for periods of time can be okay. Absolutely. I mean, we lived in a 3% inflation, even higher than that rate environment for many years before the financial crisis. We just have to flex those muscles a little bit again and remember what that's like. It means as an investor, you need to be a bit more discerning. We're not going to have cheap, easy beta where the market just goes up for 10, 15 years. But in fact, we're going to have to be more astute investors as to really paying attention to what companies are doing underneath the surface.

And in general, I guess if you go back to the 80s, valuations were certainly a bit lower with inflation higher as well. Let's bring in Alicia Levine of BNY Mellon Wealth Management and Emily Rowland of John Hancock Investment Management to broaden out the conversation. Welcome to you both. Alicia, you heard us talking here. Have you grown more comfortable with the footing that the market has shown and how does it play from here to you? Look, the fundamentals have definitely gotten better in the last six weeks. And if you just look at energy prices since the middle of June, last six weeks, energy prices are up 20 percent, which is telling you that the economy is on a firmer footing and the fundamentals are better. And I think that's why your multiples are moving higher. Your multiples are moving higher because ultimately the earnings will be moving higher as

well. And when you get those cyclical upswings, first you get a blowout on multiples that seems unsustainable, and then quietly earnings move higher as well. That looks like this is happening. Look at the small caps outperforming the S&P since the beginning of June. All of this really suggests a change in tone and a broadening out of the market. That makes us more comfortable. And so we're really sticking with the thought that, of course, you could see a sell-off, but it's really foolish to wait for it. Because this is a year that has not let you in almost at all since March 10th. Right. And so to wait for the sell-off because you think that stocks are expensive

or maybe one day there'll be a recession is probably not the best way to build your portfolio right now. But does that not mean, Alicia, that even if the market is not going to let you in in an easy way, that forward returns, maybe we've pulled them a bit forward themselves and buying at the S&P at 19 times earnings is not going to be that generous to us in the coming years? So to Mira's point, other sectors have different forward 12-month multiples, and we're just really getting moving on some of those as well, really broadening out. I think if you want to return to the 4,800, which is where the peak was in January,

tech has to perform and has to perform well in order to get there. But your portfolio can do quite well from here with the other sectors moving higher, with mid-cap and small-cap getting going, with energy going. The one risk here, of course, is that the economy is strong enough and good enough that we no longer, that the Fed stays involved. Yeah. Okay. And so that's where we go with this.

And, you know, CPI could be incrementally higher year over year because of base effects. It's it should be known, may not be well known. So, you know, you may not see three percent CPI again as energy moves higher. And as you get those basis effects moving forward, Emily, just pick up right there in terms of whether, in fact, we've declared an all clear on the inflation and growth front before we know, in fact, whether the path is clear. Yeah, it's all clear for now. We've got this great combination of Goldilocks data, which suggests that disinflation is in the pipeline. You look at Friday's data, Tor PCE printing at four point one percent. That's the lowest print since twenty twenty one. You look at Friday's data, Tor PCE printing at 4.1 percent.

That's the lowest print since 2021. At the same time, you saw consumer confidence starting to rise. And we're seeing respondents indicate they're feeling better about the labor market. Initial claims reaching the lowest level since February of this year. So the data is telling you that while disinflation is here, we've still got growth. And that's great. I think everything's fundamentally looks good right now but remember expectations were

incredibly depressed whether it was for the economic data for Q two earnings it is mere mentioned earlier better than here I'm having all of us made a bumper sticker and it says better than here because I think. That's the tagline so

far this year we've got to remember that eventually. Higher rates are going to start to anchor economic growth they're going to start impacting margins that you're. About I think revenue growth slows. Remember the cost of capital

has gone way. Over the last twelve months. That's going to cause companies to need to defend their margins. Once that happens we're going to see more cracks in the labor market I don't think we're there yet I still want to think you want to

be invested in stocks. But you want to do it carefully. Yeah I I mean, Mira, we did see the Fed senior loan officer survey just a little over an hour ago suggest, you know, continued tightening of lending conditions, maybe some fall off in demand of consumer industrial stocks of loans. But it's almost as if that's made to order because we get we go through these periods where nominal GDP seems too hot for the Fed. And that's going to be one of the things that cools us off. Do you think that the Federal Reserve is is more than one additional hike away from its destination?

More than one seems like a bit of a stretch because I do think that we're getting to the place where maybe they have one more left in them. And to Alicia's point, like maybe we just start to see inflation accelerate just slightly, but I wouldn't call that a legitimate acceleration. I'd call that a result of base effects. But I think that when you look at the past and you look at how the Fed has reacted to inflation, when they typically start stop raising rates is when headline inflation and core inflation is around three percent Now, we're there with headline inflation. We're not quite there with core, but we still have two months until we meet them again

to see if we start to make more progress in the subsequent inflation reports on core. And remember, the base effects there will look a little bit more favorable. So I don't worry as much about we need to get to the 2% target to actually see us stopping raising rates. In fact, we probably won't even be at the 2% target to actually see us stopping raising rates. In fact, we probably

won't even be at the 2% target when the Fed starts cutting rates. And they have essentially acknowledged that in their dot plot and their forward economic projections for many months in a row when they've shown that they don't get all the way down to 2% until 2025, and yet they start cutting in 2024. So I do think from an economic perspective, we have to watch the Fed a little bit carefully because certainly growth is better for longer, but it's not going to be better forever. And I do think the Fed has an understanding that they can't hike forever without consequences. Sure. And Emily, I wanted to get back to you on this side, just this idea that the credit markets

are sounding no alarms at this point, even though everyone recognizes that growth might falter a little bit. It seems as if a lot of companies locked in lower yields. Households have locked in lower yields on the mortgage side. The housing market's already starting to rebound. So even though the obvious kind of headwinds might be developing out there, oil prices have perked up. You're starting to see a little bit of stickiness in some parts of the inflation picture. It doesn't seem as if, you know, the market's early warning systems are really firing just yet. Yeah, I think the challenge is that the lagging economic indicators are sort of telling you that everything's OK. But the leading data that we that we watch is flashing recession at us. You know, the leading if you told me that the leading economic indicators were at negative 8 percent and

that high yield bond spreads would be at 380 basis points. I don't know if I would believe you. You know, there's very, very little risk being priced in the market. And I think that is the biggest risk. You look at the VIX at 13. You know, you look at the forward P. For PE ratio in the S. and P. five hundred. At twenty times I think the challenge here is that this is classic late cycle environment behavior and by the way. You want to be invested in late cycle environments that you can

see these big pops and risk assets you can see these big. Tips and sentiment from fear to greed from Barrett the bullish. It's just about. Owning and emphasizing higher quality companies. Once with better balance sheets good return on equity lots of cash on their From bearish to bullish, it's just about owning and emphasizing higher quality companies, ones with better balance sheets, good return on equity, lots of cash on their balance sheet,

and also looking at bonds as having the ability to do more heavy lifting in portfolios. The yield on investment-grade corporate bonds at 5.5, we're taking that all day long. Yeah, I mean, you mentioned a late-cycle environment. I mean, Alicia, Mike Wilson at Morgan Stanley is kind of capitulated to the to the bullish view. But he says it's kind of like a 2019 market. And Mary, you mentioned sometimes late cycle. You get these types of dynamics in the market as well. Twenty nineteen. Just to remind people, we had had a 20 percent just about decline in 2018. People thought the Fed had overtightened. People thought we might have a recession. But we were still in this mode People thought the Fed had overtightened. People thought we might have a recession.

But we were still in this mode of thinking the recession was pretty much right around the corner. Nobody foresaw COVID, I don't think. So we don't know how long that would have persisted. But does that sound about right to you in terms of where we are? Because I have to say, a lot of other things are acting almost early cycle. Well, definitely are acting early cycle, which is really confusing. I mean, the leading economic indicators have been flashing a warning for months now because for the last 75 years, every time the LEI got to this point, there was a recession within six months.

So it hasn't happened. So with energy working, with financials finally getting off the mat, it does suggest growth ahead of us. So I'll just remind you, as you know, Mike, you know, 2019 was a 30% year in the S&P. Now, I am not calling for that, definitely not calling for that. But when these things get moving, they can go very quickly. And I think, you know, your point that this was not a year where you had large sell-offs that really changed the tone of the market is something to keep in mind. It's not that you can't have a sell-offs that really changed the tone of the market is something to keep in mind. It's not that you can't have a sell-off here, but if the recession's not around the corner, risk assets will work. And high-yield spreads are it. Yeah. And you mentioned 2019 at

30% year. That was because also the low was right at the turn of the year. The S&P is up 31% off the low. So we've kind of had that. It just didn't line up with the calendar, I guess, perfectly. Well, really great conversation. Thanks to you all, Mira, Alicia and Emily. Appreciate it. Let's get to our question of the day. We want to know which of this month's worst performing sectors is due for an August bounce.

Health care, real estate or consumer staples? Head to at CNBC closing bell to vote. We'll share the results later in the hour. Let's now get a check on some top stocks to watch as we head into the close. Christina Partsenevelis is here with that. Hey, Christina. Thanks, Mike. Well, another earnings beat and raised outlook for silicon carbide producer OnSemi. The bullish outlook is due to their industrial and auto business really gaining momentum, of course, with the transition to electric vehicles and alternative energy. So

on Semi is able to benefit. The stock is up about 2.6 percent right now, but it's trading at an all time high of 72, almost 73 percent year to date. Speaking of stock highs, Adobe seeing its shares hit a one year high on the back of the company's artificial intelligence-enabled products. That's why Morgan Stanley Analysts upgraded the stock with a price target increase to $660 from $510 a share. Adobe, according to them, may have been late to the party for AI, but the roadmap for its Adobe Creative Cloud could be a major earnings driver going forward. And that is why the stock is up 3.5 percent and up 60, almost 63 percent year-to-date. Mike. Christina, thanks so much. Thanks. We are just getting started here. Up next,

the fate of the tech rally. Amazon and Apple both reporting results this week. We'll break down what to expect right after this break. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. The S&P 500 tech sector is looking to notch its longest monthly win streak in nearly nine years. But our next guest believes the rally could be set to slow in the near term before a year end resurgence. Baker Avenue Wealth Chief Strategist King Lip joins us now to talk about all that. King, good to see you again. Just tell me where you think the general field position is. I guess no surprise, NASDAQ 100 up more than 40 percent year to date. We've built in a lot of heady expectations about long-term trends, but where do you see the market trading in the near term? Hi, Mike. Yeah, it's been a wonderful tech rally. But we do see two reasons why it's changing.

Number one, the tech rally appears to be broadening. So if you look at positions like ARK, has more sort of mid-cap, smallish capcap tech exposure. That outperformed the Qs by about 10% during the month of July. The equal weight Qs are also outperforming the market cap weighted Qs. So it does appear that that tech rally is broadening, which I think is healthy. However, we are getting into more seasonal headwinds. If you look at the last 10 years, 100% of Julys have been positive for the QQQ, average gain of about 5%. But if you look at the following months, August tends to be a little bit more tepid. September actually tends to be negative, with an average return of negative

2.5% return. So even if you took that back 20 years, you see the same sort of historical pattern. That being said, we still think tech earnings are going to be good for the remainder of the year and we remain bullish. You know, when it comes to earnings, it's so tough to figure out whether the market has been really paying close attention to the trend in profits on names like Apple or if it's just something else, just the general attributes of mega cap tech. We don't own enough. It's seven percent of the S&P 500. It's a great company balance sheet. All the rest of it. I was noticing fiscal 24 estimates for Apple haven't moved in like six months and yet the stock is up,

you know, by a third. So how does that leave Apple going into its own report? Yeah, it's a good question. You know, shares of Apple look a little rich here. As you said, the earnings estimates for this year are actually going to be down about 2 percent for the year as a whole. I think the flip side of that is that we may be seeing the final bottom in terms of the earnings decline for this quarter. Having said that, we think it's going to be what we call a ho-hum quarter for Apple, flat earnings growth for this quarter. But I do think there could be potential, some good news in light of that. The services business continues to grow. It's a high margin business. There could be a potential for an upside on Apple's PC business. Intel's news was good and showed that PC demand continues to be healthy. We're going to be looking for iPhone signals as well from the Indian markets

and the Chinese markets, because that's really what's driving a lot of the growth in iPhone these days. And when it comes to Amazon, very different setup, really. I mean, the stock is still a 40 percent gain from its old high. So it really had underperformed for a long stretch of time. Seems like a little bit of Wall Street impatience about, you know, management either having a sense of urgency or being on top of the AI story in AWS. What's your quick take on Amazon going into the report? We're expecting a good quarter, actually, from Amazon. 92% earnings growth this quarter. Valuation actually looks quite cheap relative to other large cap tech.

So of the two, we think there's probably going to be upside on the earnings report coming this week. By what measure would you say Amazon looks cheap? Is it like based on its own history, free cash flow, things like that or something else? On multiple metrics. If you look at it from a price to sales, price to book, price to earnings, looking at the last 10 years, all of those metrics show that Amazon shares are about, call it one to two standard deviations below average. So all we have to do is get back to your average and you're going to see higher multiples for Amazon shares. You mentioned earlier that there had been some broadening in terms of strength

across technology, the ARK type stocks, maybe the earlier stage hyper growth or pre-profit, so to speak, names. Would you say that that's an opportunity to gain exposure to that area? Or is it a little bit of something you would watch with suspicion? I think it's an opportunity to gain exposure to those areas because a lot of those names haven't seen the big returns. And you call it the magnificent seven, you know, double digit, triple digit returns in some of those names haven't seen the big returns and call it the magnificent seven, you know, double digit, triple digit returns in some of these names. So I do think that investors are looking beyond just a large cap tech and say, where are the opportunities in tech and in ARK or in others, call it more mid cap-ish, smallercap funds. You're going to see names in there. So I think it's an opportunity more so than a potential threat.

All right. King, we'll see. Appreciate the thoughts today. Thank you. Thank you. All right. Up next, betting on a breakout. Top technician Chris Verone is highlighting two key parts of the market he's watching into year end.

He'll make his case after this break. And later, SoFi shares soaring will break down that move and what it could mean for the rest of the fintech space. Closing bell. Be right back. Welcome back to Closing Bell. Stocks taking a breather to begin the week, but our next guest sees major breakouts occurring beneath the surface of the market that make him bullish on two groups into year end. Let's get to Chris Verone, head of technical analysis at Strategas Research Partners. Chris, good to see you. Great being here. So we were just chatting here that, you know, obviously we're looking at the NASDAQ.

It's been the story of the year. But elsewhere, there's been a little bit of a maybe nuanced change of character in some asset classes. So what has your eye? Well, I think what began as a subtle hint of a leadership change maybe a couple of weeks ago is frankly becoming more overt here. And there's almost a paradox to the fact that when we printed a 3% CPI on July 12th, if you look at the best sector since then, it's been energy, it's been resources, it's been copper and China related stuff. So I think there's this what was a very subtle change becoming more overt here. You see it with crude above the 200 for the first time in a year. You see it with particularly the energy service names breaking out.

And I think most importantly, over the last several days, all these copper stocks everywhere in the world are making new highs. So there's a message here that I think perhaps commodities might be reflating. We'll see what that means for the Fed. but it's an important little paradoxical shift. I guess the question is, you know, taking them one by one, if you look at something like crude, does it seem like it's sustainable? We're still, you know, kind of at the top end of the range recently. I think the character of that chart has changed. They had five chances at $65 to hammer it lower, and the bears couldn't. Back above the $200 now for the first time really since last June last July and when you

look at I think importantly since July 12 tech and discretionary have given back all their gains versus energy so since this very kind of Goldilocks CPI print it's actually been the resources the metals the materials the energies that have actually outperformed I think it's a very important message you could be excused for missing it outperformed. I think it's a very important message. You could be excused for missing it in late July, but I think it's a very important tone change into the back half of the year. You mentioned China. That has also, I think, demanded a little bit of notice

in terms of the way that the equities there have acted. So we put up this list of all these commodity inflections that we're seeing and the premises. You know, a lot of these kind of began coincident with Janet Yellen going to China earlier in the month. We called it the Beijing Accord. Right. So maybe there's something happening here on the China front. And I think where you actually see it is with K-Web. China tech has really turned for triple Q's. If you look at the pair, you made about a two month high last week. So K-Web outperforming Q's.

When that goes, it tends to go viciously. There's been two episodes of K-Web outperforming triple Q's over the last 18 months. They've been very, very sharp periods of outperformance for Chinese stocks. It tends to be fleeting. If you get it early, I think you can make some money there. And then in terms of bond yields, I mean, we did see them perk up again, maybe have cooled off slightly, but where's the path there? I think candidly, I think bond yields have been probably the most challenging call all year. They've effectively been in this noisy range since last October. But if I had to point to something, if you look at the 10-year

yield chart and the 30-year yield chart, you have the 20- 20 day, 50 day, 6,500, 150, 200 moving averages all converged at about 370, 375. And those levels have held. So I think as long as you're above that, particularly given what happened in Japan in the last day or two, you have to give the benefit of the doubt to higher yields here, not lower, particularly with copper breaking out as well. So even with the kind of leadership transition that may be underway at this point, where does it leave the broad equity market in the U.S.? I mean, in terms of five straight up months, we obviously are, you know, it's kind of acting like a bull market. Does it continue?

Yeah, you know, it certainly acts that way. Our trend work is still very strong here. I do find it a little bit curious. This is the first kind of month end I can remember really all year where there hasn't been a ramp into month end, maybe a little subtle shift there. That big reversal day, I think it was Thursday. All the price action ever since has actually been within that bar. So let's see kind of how this resolves one way or another. But I think the bigger story, Mike, is these subtle leadership changes that are becoming more and more overt

with each day. And so if that's the case, I mean, presumably if we do really get a rotation, it would be at the expense of the mega caps that have been supporting the index or we don't know? I mean, thus far it hasn't with the exception of perhaps Microsoft, which has quietly slipped back below the 50-day. It's actually on the three-month relative low list today as well. So you've seen some subtle change from Microsoft. That's not extended to the other names here. Obviously, we have some big earnings still in front of us with Amazon and Apple, but so far, it's not at the expense. It's to the inclusion of. Okay. See if that continues. Chris,

great to see you. Thank you. Good seeing you. All right. Up next, we're tracking the biggest movers as we hit another close. Christina, standing by with all that. Hi again. Well, we got two names with a lot of potential upside, according to analysts, one in healthcare and the other in energy that still has a lot of room to play catch up with the rest of the sector. I'll reveal after the break. Thanks. 20 minutes until the closing bell. Here's where we stand with the indexes as we head into the close. The S&P 500 sitting on very modest losses. The Dow also just about below the flat line, although the Russell 2000 small cap continues to outperform, up 0.8% to 1%. Let's get back to Christina for a look at the key stocks to watch in the homestretch. Christina. Well, let's talk about positive names. Good

Rx is having its best day ever as count upgrades it to outperform, raising its price target from $6.50 to $12 a share. Analysts say that its pharmacy benefit management deals with Express Scripts and CVS solidify the company's place in the healthcare system, and that's why shares are up, get this, 36.3% right now. And Chevron is higher as analysts at Goldman Sachs upgraded to buy from neutral. They cite the oil giant's capital returns and recent underperformance. Chevron is pretty much flat on the year or so, while the overall energy sector is up about 11%. So definitely a lot of catch up to play there. Shares, though, are up 3% on this bullish note. Mike?

All right, Christina, thank you. Last chance to weigh in on our question of the day. We asked which of this month's worst performing sectors is due for an August bounce. Healthcare, real estate or consumer staples? Head to at CNBC Closing Bell on X, formerly known as Twitter. We'll bring you the results after this break. Let's get the results of our Twitter question of the day or X question as we now say. We ask which of this month's worst performing sectors is due for an August bounce. Healthcare, real estate or consumer staples and healthcare, the clear winner there. More than 50 percent saying that's the rebound candidate outpacing consumer staples and real estate.

Up next, raising the bar, city's Scott Cronert hiking his 2023 year end target and sees further upside for stocks for four. He'll break down that bull case after the break. That and much more when we take you inside the market zone. We are now in the closing bell market zone. Cities U.S. equity strategist Scott Cronert is here to break down these crucial moments of the trading day and share why he's getting more bullish into year end. Plus, Kate Rooney on the surge in SoFi shares and Deirdre Bosa with what to expect out of Uber earnings tomorrow. Welcome to you all, Scott. So you lifted your 2023 S&P 500 target as well as next year. Is that just kind of a marking things to market or have things changed about

the economic outlook and assumptions that are behind that? Well, I think going into the second half and for the better part of the first half, for that matter, we've been looking at a second half recession risk is getting in the way of this valuation driven move in the Nasdaq. And as we look forward to here, we're increasing the soft landing probability in our scenario analysis. Our city economists are looking for a first half 24 recession risk. And even there, they're starting to dial up their soft landing playbook. So all told, what we're looking at here is a more resilient earnings backdrop into the second half of this year. More telling, though, is that we're increasingly bullish on the earnings

growth prospects for 2024. And we think that gets priced in as we move through this year and then even more so in the first half of 24. Yeah, I know your 2024 targeted up to 5000 for the S&P. And you have been on this theme for some time about your expected earnings resilience for corporate America. Why is that something that's playing out this cycle or just maybe it's a long term shift? Well, we think there's a couple of elements to it. The long term shift is we think corporate America is just operating more efficiently. And we attribute this to their ability to utilize technology in less obvious manners. And so that's an ongoing part

of what we're looking at. Further, the more you expect recession conditions, the more you plan for it, we think that plays into the efficiency opportunity. But essentially, as we look at this year, there are some sector nuances at work, particularly in energy, to a certain degree in health care, as well as financials, we think those sectors in aggregate can mean revert higher in 2024. That combined with what we think will be improving tech and growth-related earnings all conspire to get us more constructive on the 24 earnings outlook from here. Now, what's your answer to those who say yes and exactly a soft landing seems more likely earnings are probably bottomed but the market has largely built in those ex you know expectations already into valuations well it's it's pretty straightforward

we're 4 600 in our year-end target we're not too far from there right now so the the messaging here is yet we still have to be prepared for pullback risk. But the setup here is to be more aggressive into said pullbacks on this structurally improving earnings growth prospects that we think are out there. So essentially, don't disagree. Soft landing increasingly is getting priced in. We still think there's room for many different segments of the investor base to come into these markets, particularly on pullbacks. Of course, you know, we're looking at another rate hike possibility out of the Fed, but we're getting closer and closer to that peaking slash pivot opportunity. So all told, we think the arguments in favor of U.S. equities

are beginning to conspire to the positive from here. What about just the state of investor sentiment and positioning right now? What are your conversations like with clients? Have people decided that they're going to just be in chase mode here? Or do you think that there are still many minds to be changed toward the bullish end? Well, so there's a couple of elements on this. I think first in terms of the cyclical performance that we've seen kick in over the past couple of months, there's been a lot of lack of conviction in that trade on the premise that why would I want to do

that before we get to said recession? So I think in that component, you are seeing a sentiment shift to the positive. Now, bigger picture, Mike, we do have to be aware that in aggregate sentiment is moving higher. And what we've suggested is that there'll be a point in here where we're probably making a more tactically cautious call should our sentiment indicators reach what we consider euphoria combined with a fair value range for the S&P that looks a little bit expensive on our work. So yeah, we're setting up for the risk of a that looks a little bit expensive on our work. So, yeah, we're setting up for the risk of a pullback during the second half at some point. Hard to dial in what specifically will be the trigger from that at this point. But again, off of that sentiment setup, we do want to

be of the view that there's going to be room for new money to move in to support what we think will be a stronger earnings growth play for 24. Yeah, something usually comes along when the market's ready to have a pullback. I guess the question is what you want to do with it once it happens. Scott, I appreciate the time today. Thanks so much. You bet. Scott Cronert. Now to Kate Rooney on SoFi. Stock having a very good day, Kate. Hey, yeah. Hey, Mike. No, it's been up double digits so far. It was up 20% or so earlier. And the beat in the second quarter earlier this morning, the company reported earnings was driven by strong loan growth. Executives also sounding pretty optimistic

by the back half of the year with updated revenue and earnings guidance shares. I mentioned up double digits, up 19% or so. Ahead of the close, loan originations grew 37%. Personal loan originations hit 51 percent in terms of growth. That was a company record. Strong net interest income as well, thanks to higher rates. And deposits were up 26 percent. I spoke to CEO Anthony Noto about the quarter. He says they're on track for profitability by the fourth quarter. That was a goal set earlier in the year. As he put it, we, quote, feel super comfortable, but we'll get there. He also highlighted strong margins, more revenue per user, and diversifying that revenue. 50% of that growth

came from non-lending products. Noto saying they're cautiously optimistic despite the raised guidance. He said the new guide still factors in a mild recession and unemployment topping 5% heading into next year. Mike, back to you. Yeah, so trying to build in some kind of a cushion. What specifically are the non-lending revenues, the businesses that SoFi likes to talk about that make them something not just like an online bank, but something more like a fintech? Yeah, so one of the segments that was really strong in the second quarter was something that is basically their technology platform.

It's this company Galileo that they acquired a couple of years ago. So sort of this software embedded finance company that you don't really think about as a lending product. They've also got SoFi Invest that he said was pretty strong and then more of the typical banking business. Strong growth in lending, but they also have debit cards and some of the things that fintechs have tried to get into. And one of the areas of strength and reasons that people have been flocking to some of these higher rates, the APYs, it's the checking account. Essentially, 90 percent of the deposits, Anthony Noto was saying, use this bank and use this checking account as their primary banking relationship. So direct deposit, and that's a way that they can cross-sell into things like home loans and personal loans. So you're seeing this sort of flywheel effect there.

Yeah, those customers are certainly more valuable. Kate, appreciate it. Thanks so much. Thanks, Mike. Let's get to do Jabosa as a setup for Uber, another stock that's been on a bit of a roll, Dee. Yeah, so Uber's life as a public company has largely been about profitability. And Better Unit Economics has got Uber shares to almost or as a company an almost 100 billion dollar market company and that is likely the thing that is going to keep the party going or not. Shares have doubled this year finally putting

Uber above its IPO price of 45 dollars a share. The metrics of profitability to watch are free cash flow and how quickly they can turn adjusted EBITDA into genuine gap profitability. Investors are also going to watch mobile gross bookings, whether it can keep growing or at least sustaining the gap that it has put between it and Lyft in terms of market share. There was also a report not long ago that CFO Nelson Chai is planning to leave the company. He has really been seen as a key architect of this better profitability at Uber, along with Dara Khosrowshahi, the CEO. So investors are going to want to know if that's true and who could possibly come in to take his place. Finally, Mike, regulation. This is one that you don't hear a lot about in analyst notes from Wall Street, but whenever it does pop up, like the New York City

minimum wage law, it tends to make shares very volatile. So it's one that sometimes is overlooked, but one that we're certainly always looking for. It is interesting, and it gets into this equation, Dee, about Uber is almost treated as this indispensable utility, right? A mobility utility. They're going to figure out a way to earn for shareholders off of this base of business and this tremendous kind of customer exposure they have. On the other hand, it's unclear whether they can, you know, gotta create enough margin for the company as they're trying to mediate between the drivers to earn a living and not pricing customers out.

Exactly, the business model only really works if their drivers are treated as independent contractors. We know what happened a few years ago right here in California. There was talk over whether that would change and they would have to make all of their drivers here employees. And both Uber and Lyft said the business model doesn't work. They were just going to leave this market. And those battles, they quiet down and they kind of flail up every once in a while. But when they do rear that head, then that's when investors get nervous because, like you said, these are utilities. It

doesn't work if they don't have this business model and their drivers as independent contractors. For sure. We'll absolutely be combing through those numbers. It's very fascinating to see. It's back at $100 billion valuation. The stock was in the mid-40s four years ago, and here we are back at it. It took a long time to get there. Yeah, no doubt. Kind of a very twisted road on the way. Thank you, Dee.

As we head into the close, we are looking at very modest gains, a little bit of firming up in the indexes toward the close, mostly the S&P 500 hanging on to its gains for the week, as well as, of course, for the month. It's looking at its fifth straight monthly gain. That has happened a handful of times in the last few years. And the history says the subsequent gains in subsequent months tends to follow. The volatility index, kind of interesting.

It's been firm in the 13 area even as the stock market has levitated in the last few weeks. We'll see if people are bracing perhaps for some of that volatility that sometimes comes along with late summer, August and September, sometimes our choppier months for the broader S&P 500. That's going to do it with the Dow managing a 100-point gain at the close.