Closing Bell - Closing Bell: Can You Trust the Rally? 6/1/23

Episode Date: June 1, 2023

Can you trust and depend on this rally as we begin a new month? Wharton Professor Jeremy Siegel gives his expert take. Plus, Chris Harvey from Wells Fargo breaks down the AI arms race and how it holds up to the dotcom bubble of the 90’s. And, Mike Santoli digs in on AI, the big earnings in Overtime, and the Fed. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 at the New York Stock Exchange. This make or break hour begins with a rally to start the new month. We are at the highs of the day, by the way. We have a big interview coming up in moments. Wharton professor Jeremy Siegel is here in just a sec with what the summer might hold for stocks. In the meantime, let's look at your scorecard with 60 minutes to go in regulation now. Dow, as I said, getting a nice boost today, and it's from United Health and Chevron and Caterpillar and names like American Express. Tech, an interesting story, too. Some of those cloud and AI names recovering a bit from their intraday lows earlier today. Pretty good one for Apple as well ahead of next week's Worldwide Developers Conference. Energy, the worst

sector last month, is leading today, A rare victory for that beaten down space. It leads us to our talk of the tape. Can you trust and depend on this rally as we begin a new month? Let's ask the aforementioned Professor Siegel. He is with us today, as always, from Philadelphia. Professor, welcome back. Happy to be here, Scott. New month. Are we going to have the same story?

Do you believe in this market right now? Well, I think the market loves the actually I even I was surprised this talk about a pause or a skip. You can name it the way you want to. I think that's a major source of the rally today. As you know, I've been warning about the Fed going too far, the delayed effects of monetary policy accumulating for a downturn in the second half. If they can pause now, this lowers the probability that we're going to have a recession. You think they're done? Is it just when you say pause, presumably you're suggesting, OK, they don't go in June, but that doesn't mean that they're fully done. And I think Fed members who've been speaking have been kind of going out of their way to make sure the markets are quite understanding of that.

Absolutely. I mean, they're they're totally data dependent. I mean, if if if inflation flares up again or the labor market gets even tighter than it is, I mean, I thought it was pretty surprising that, you know, Harker Jefferson talked about it before tomorrow's employment report. I thought at least, though, they would want to see what tomorrow's employment report would be before saying, well, it looks like we can pause. I think that that was sort of encouraging. I think that that means that Powell sort of made up his mind with the staff, hey, this is a time for a pause. There may be just some dissents, you know, Bullard and, you know, there are Hawks and Mester. We may get our first dissent in a year and a half at the next meeting. But nonetheless, what the chairman wants,

the chairman gets. Yeah, well, that's for sure, we think. Swoon or surge this summer? What's your gut telling you, Professor? You know, I still worry about, you know, I still think rates are too high to sustain good employment. And I think we're going to see a downturn not this month, not tomorrow, but sometime we're going to see a downturn in payroll growth to a negative number. That could give everyone a little bit of a scare. The year is still going to be up. But, you know, I don't think a surge is in the works.

Of course, AI can go much higher. You know, we've seen this. You know, what was it, last year you added, two years ago you added crypto to your name and you soared. You know, 20 years ago you added.com to your name and you soared. Now you add AI to your name. And, you know, that's the way to get the buyers in there. I mean, you know, markets go through all those phases. I'm not going to say whether NVIDIA is a real company.

It's not one of these dot-com companies, but those sectors can catch fire, and that fire can continue through the summer. So you say, you know, you mentioned the dotcom bubble check, right? That was a bubble. Crypto check. That was a bubble. We know that now, you know, from where you were in Bitcoin, for example, to where it

is today. Are you suggesting that these AI stocks are a bubble? No, they're not there yet. And they got real earnings. I mean, they got real earnings behind them. I'm not saying they're not eventually going to go too high. But I think, you know, I think we threw out a bubble way too easily. I mean, you know, to me, a bubble is a stock that's four or five times above its fundamental values.

And, you know, I don't think we're anywhere near that then. I think we were in the dot-com era. I think we were in the dot-com era. I think we were in the SPAC era. I think we were in some of the crypto areas, but not there yet on AI. Yeah, but we didn't know it, you know, necessarily at the time when we were in it back in 99. If you looked at Qualcomm or Cisco or whatever, companies that are still obviously around and doing well today. You couldn't say back then, well, this you know, we know this is going to be a bubble or not. You never know it or identify it until it's too late. That's the sad part about all of this.

If we could, Scott, we'd all be billionaires. Yeah, we certainly I mean, that's that's that's the game. I mean, you could say stock X is too high. I know really good investors that start shorting it. It's too high. And then it goes so much higher before it collapses that they themselves go bankrupt before the company does. I mean, that's the market. So that's that's been the markets for 200 years.

And let's hope it's for the markets last another 200 years. You have to accept that short-run volatility. If you love the ride, you can play it. If you're a fundamental investor, you've got to watch out. But see, when I read you a stat like the one that Bespoke, for example, put out today, only eight other months in the history, the entire history of the NASDAQ, has it outperformed the Dow by a wider margin than it did in May? It doesn't make you pause and say, what in the world is going on here?

Yeah, it does. And I mean, I think it's, first of all, the excitement of AI and the fear of recession, which hurts the Dow. The Dow is much more of a cyclical index, certainly than the NASDAQ. So those two things come together. And, you know, once you have that story, it can go really far. You know, once you get out of the NASDAQ, you know, take out those 10 stocks, you got a 15 PE. Take small stocks, you got a 12 PE, 13 PE. That's value. I mean, that's long-term value.

Not saying it's a short-term winner. It's long-term value. But you don't think it's problematic? Do you think it's problematic, you know, if this keeps going, where the divergence between what's happening with a reasonably select group of stocks relative to everything else? It's problematic, certainly. I mean, you know, let's face it, downturns, I'm not going to say bear markets. Maybe we could call it corrections. There's usually weakness in the broader indexes first. And there's the few that

just continue on to the top and then finally they capitulate at the end. So, yes, this is a setup that does look like we're aiming towards a correction. Nothing is guaranteed in the market, but we have seen this pattern in the past. Okay. A setup, you know, gearing towards a recession. Interesting. Let's expand our conversation, Professor, if we could. Add Liz Young of SoFi and Joe Terranova of Virtus Investment Partners. Joe's a CNBC contributor. Liz, you first. You want to react to what the professor said? Are we heading towards, are we setting ourselves up for a correction because this gap keeps growing between NASDAQ and everything else? Well, I think the important thing is that when you have these dramatic divergences,

whether it's among a few stocks and the rest of the index, and we're having really big spreads among things like the equal weighted S&P and the market cap weighted S&P, or small cap stocks and large cap stocks. In fact, right now, the ratio of small cap to large cap is at lows that we haven't seen since the bottom of COVID. So these divergences are really big. They don't last forever, but they can last a long time and they can last longer than I think we probably want them to because it doesn't necessarily make a ton of sense in the moment. So the market right now, if you're looking at it just on a headline basis, looks pretty good. And it looks like there's enthusiasm. There are clearly buyers in it.

That tech trade continues to be durable in the face of even rising rates and sort of this back and forth about hike, no hike, which is an impressive thing. It's also something that usually happens late in a cycle. And here we are still sort of with all of these signals that say late cycle. We'll get back to the conversation in just two seconds. I want to go to Seema Modi, though. Dell was one of the companies on the list reporting earnings in OT. Maybe somebody hit the button a little early. Seema, what's the story here? That seems to be the case, Scott. Dell pre-releasing first quarter earnings, and it's a pretty big beat. $1.31 adjusted versus 86 cents.

That was the estimate. And for sales, $20.92 billion versus the estimate of 20.2. So a beat there on its top and bottom line. No outlook here, but you will see that the stock is halted given these numbers are out. And even if on a year-to-date basis, I would point out, Scott, along with the broader tech sector, it's had a very strong start to 2023. Back to you. All right.

Thank you, Seema, for the update there. And we'll certainly keep our eyes on the stock once it gets reopened. We'll show you as well when it does to see what kind of move you see on the back of what appears to be a pretty good earnings report. All right, Joe, I send it to you.

You want to react to what the professor said, this idea, you know, technically speaking, we could close above 4,200 on the S&P for the third time in four sessions, as you were talking about earlier. The significance of that and whether we are setting ourselves up for something, you know, untoward in the market. Well, potentially what that does is it clears a path to 43 and a quarter. And you haven't seen 43 a quarter since the August 16th of 2022 intraday high. The three subsequent days, we were above 4,200. And then you had this period from August 19th to May 19th where you didn't see price above 4,200. So the NASDAQ 7% return in the month of May, the best start for the NASDAQ since 1991.

Equity, mutual funds for equities have been in outflows every single week for the last year. So there is a significant amount of cash that's sitting on the sidelines. I think the macro has been very favorable to investors this week. You have the resolution of the debt ceiling, and it's very clear that there was a message from Vice Chair nominee Philip Jefferson that the Federal Reserve needs to pause because they were concerned about the spike in yields

in the month of May. Sure. Yeah, they need to pause, but nobody is really saying or even suggesting that if they pause in June, Professor, that that that's it. And in fact, you know, you have made the call on this show that stocks could go up another 10 to 15 percent this year if, in your words, the Fed does the right thing. The implication being if they cut rates, if they stop raising and then they cut. And I yeah, I think they will be.

I still believe they're going to be cutting by year end. First of all, you know, when you take a look at the sensitive commodity indexes, we're still in a downtrend. Yeah, we have a little bounce in oil today. But if all of the sensitive indexes are in a downtrend, take a look at the price index we got on the ISM manufacturing today, way below expectations. The stubborn core or super core, whatever Powell wants to call it, I mean, you know, those things take months, if not years, to finally wind down. You know, some of that core is actually higher interest rates, which the Fed itself is causing, boosting the CPI. So, I mean, those, that

resolution is going to take a long time. But I see no re-ignition of, you know, inflationary fears or commodity prices going upward again. I mean, it's a matter of waiting. You know, inflationary fears or commodity prices going upward again. I mean, it's a matter of waiting, you know, the pig and the python, waiting for that big chunk of stimulus finally to get through the last part of the core. And if they have to wait, you know, all the way until they actually see unemployment rising rapidly and negative numbers, I think they've waited too long. That's why I would like to see them pivot before we get that sort of a slowdown. Liz, for those who may agree with the professor that the Fed's going to cut

by the end of this year, what do you think? I do think that they're going to cut before the end of the year. You do also. I do. I do. I was not. I was surprised. I was expecting you to say you disagree. Nope. I was not on board with three cuts. But because of the way that the data is moving, I do think that there's going to be a pullback that becomes more obvious in economic activity. And if if we do see negative payroll numbers, if we start to see a spike in unemployment initial claims, that is going to give them pause. And if we're at the point right now where we're debating whatever we're calling this, a pause,

a hop, skip, and a jump, I don't know what's going to happen in summer, right? But we're already debating whether or not they're done. If they went too far already, it'll start to bake through. And I think I've said this on this show before. We are right in that window where long and variable legs start to show and rear their ugly head in that 12 to 18 months post hiking cycle beginning. It is right now. So we will see probably more effects of that as the year goes on. There's still a long time before December 31st. And I will not be surprised if we see one cut before the end of the year. So you're in the camp.

And, Joe, there are those who are in the camp of feds already done a lot. They've done too much. They are likely going to cause a recession if they don't do anything else anyway. And if they continue to do more, they're definitely going to cause a recession. But the professor thinks they're going to cut. Liz thinks they're going to cut. The market has sort of gotten away from the idea that they're going to cut.

At least the bond market has. What about the Terranova market? I would be surprised if they have to cut. I think the positive revenue and earnings impact from generative AI is going to keep the earnings environment particularly strong. There would have to be an exogenous event that would present itself for there to be a cut. I can't see the reasoning behind it. And I think it's very clear that they're using the communication tool in the last 48 hours because they're concerned about the spike in yields.

And the spike in yields is detrimental to the regional banking crisis. Hey, let me stop you for two seconds. Just because Dell's reopened, I just want to flag it. Remember, SEMA popped on just a few moments ago and told us they had pre-reported their earnings, expected an overtime, good earnings, good stock move once the stock has now reopened up 5%. I'm sorry, continue. Yeah, so I think there's clear concern for regional bank, further regional bank instability. And I think that's why they're using the communication tool. They saw the spike in

yields. They understand as a result of the debt ceiling resolution and the extension that there's going to be pressure on bond prices themselves and yields are going to spike. So I think it's a clear signal that the Federal Reserve sees some concerns out there right now. But I don't know if there's going to be enough that's going to warrant it such a dramatic reversal in really what would be a short period of time. If you think about it, there's only, what, six and a half months left in the year. I'm not sure we get that. So, Professor, you know, one of the other issues that investors have to grapple with, and when you put the calculus together on why you think stocks would go up,

it's presumably because some of the cash on the sidelines or that's been sitting in bonds is going to move into equities. Is there really an impetus to do that? Because there is this concern about the economy rolling over and rates are still so good in money market funds and other instruments where you can just get better returns, at least safer in your own mind, that you think you can get in the stock market. Yeah, well, one also has to remember that earnings are coming in better. Well, we see Dell and everything.

You know, everyone thought, oh, my goodness, earnings were way too high in 2023. Maybe not. And I think that that is really encouraging. And let me mention one more thing about whether they're going to cut or not on Joe's comments. We we are entering more intensely into the presidential political season. And, you know, the last thing the Democrats and Biden can afford is a recession next year. And the Fed does have, in contrast to the European Union, a dual mandate that does look at unemployment as well as inflation. So they have a rationale plus political pressure for if we do see negative numbers in payroll, a rising unemployment for them to go down.

And that's one reason I'm making that projection. The Fed's not political, though, Professor. It's not supposed to be political, Scott. That's why I said that. Professor, thanks so much. I appreciate your time, as always. We'll talk to you again soon. That's Professor Jeremy Siegel. Joe and Liz, thank you as well. Joe, we'll see you a little bit later, too, as we get set for Broadcom a little bit later on in the day here. Let's get to our Twitter question of the day. We're asking how will stocks end June? Higher, lower or flat? You can head to at CBC closing bell on Twitter to vote. Please do. We'll have the results later on in the hour. In the meantime, let's get a check on some top stocks to watch as we head towards the close. Christina Parts of Nevelos is joining

us as always with that. Christina. Well, let's start with Dollar General hitting its lowest level in over three years after missing on earnings, revenue and same store sales. The company says the economic backdrop is having a, quote, significant impact on customer spending levels. That's why this stock is having its worst session ever, down over 18 percent right now. And the day isn't going any better for Okta, which is deeply in negative territory despite beating estimates and lifting its guidance above analysts' expectations. J.P. Morgan cutting the stock to neutral, saying the economic environment is putting pressure on the company's growth, and that's why you're seeing shares down

almost 17% right now, Scott. Okay, Christina, thank you. We'll see you in a bit. We're just getting started, though. Up next, the Wild West of the 90s. Wells Fargo's Chris Harvey, he weighs in on the AI arms race. What has happened to those stocks and if it lives up to that Internet bubble time? You're watching Closing Bell on CNBC. Welcome back. The AI arms race has been one of the biggest market drivers as of late, with many comparing the rise of AI-related stocks to the dot-com bubble of the 90s. My next guest, though, says the commercialization of AI is moving even faster. Let's bring in Chris

Harvey of Wells Fargo. It's good to see you. So I just had a conversation with Professor Siegel, okay, who worked in school. He said, Professor, is this a bubble? He said, no, not yet. What do you think? I agree. It's not a bubble. If you look at valuations today, back in the say, professor, is this a bubble? He said, no, not yet. What do you think? I agree, it's not a bubble. If you look at valuations today, back in the late 90s, they're two different things. The other thing that you're looking at is the commercialization.

Back then it was the wild west. Nobody knew what the commercialization was going to be. We talked about all the benefits, all the potential. Here you're seeing people adapt AI here and now. We put out a note this morning, you have a ketchup company, Heinz, talking about AI and how it's helping the supply chain. This is going to accelerate. I know, but I'm going to stop you just for a second. When a ketchup company is talking about AI, you don't stop and pause and say, give me a break.

No, absolutely not. This is the greatest technology innovation or innovations we've seen in two decades. And when you look at the companies, here's the difference between now and then. Now you know the established players. What AI is, it's a scale and a size business. You need massive computational power. You need a massive amount of data. There's only a few people that can do that. That's your cloud players, some of your semi-players, and to a certain degree, your data centers. There's real opportunity here. This is not a bubble. I know, but aren't we somewhat making leaps of faith here, thinking

that we're pulling numbers out of a hat, it almost feels like, to say, well, the total addressable market is $1 trillion. It's $2 trillion. It's X trillion. Where are these numbers coming from? So, Scott, let's compare it to the late 90s. The late 90s, we were talking about eyeballs and clicks. Here, Heinz and others are talking about real earnings and real cost savings. They're not talking about it in two or three years.

They're talking about it next quarter, this year, the following year. Things are happening very quickly. This is a massive productivity enhancement. We're going to be able to strip out a lot of costs. And this is an incredible optimization process. Things are going to get a lot more efficient, a lot quicker. So when you see a stock like NVIDIA up a ton in a short period of time, or some of these other names too, what do you think about the moves themselves and what it makes you think about the market overall? The moves themselves. So let's just talk about the market.

And I think you bring up a good point. Let's talk about the S&P. Let's talk about the top 50 in the Russell. Let's talk about the NASDAQ. They are telling you that's your AI premium. When you look at small caps, when you look at mid caps, when you look at value, that's telling you that's your economic process. That's telling you recession. Yeah, it is, right? And so the one thing that is similar between 99 and 2000,

99, you had a tightening cycle. It did kill off the old economy stocks. It did slow down the economy. And ultimately, it hurt the new economy stocks. You can see that happening now, but not just yet. Now, I asked the professor also the divergence that we've seen between NASDAQ and the Dow, for example, right? You've only had eight other months in the history of the NASDAQ where the outperformance was as great as it was this past one versus the Dow. He suggested that's just setting us up for a bubble the longer that can, I mean, a correction, the longer that continues. Do you agree or disagree? So we don't look at the Nasdaq so much. We look at the top 50, Russell top 50.

So that's the 50 largest stocks in the R2000. And if you look at the multiple, it's about 21 times. That's not bad. That's, you know, I'll use my scientific term. That's not bubblicious. Right. Right. But you still at some point, don't you need the rest of the market?

You do to come along and do something. And so, Scott, you know, my opinion, where our price target is 4200. We're there. We think we're going to get a pullback. We think that pullback is going to come on some of the macro issues. And ultimately, we need to. It's I think it's a pause or a pullback that refreshes because this is far from over. We're just scratching the surface on this. But you're right. We are worried about the economy and we are worried about things slowing down. And that's what some of these other indices are telling you. Well, have you changed your overall view of the market because the power, the transformational power of AI? Whereas six months ago, for example, before we were talking about this literally every day, it was like, okay, Fed is on it, you know, tightening. And even if they stop, they've done

500 basis points or whatever. And that's going to take a while to filter through. The consumer can't continue to have this burden of keeping the economy afloat forever. Now I feel like it's like, well, market's been more resilient than we thought. Look at what the NASDAQ's done. AI has this whole new thing. It's changed the narrative on the whole market. Right. So the way we're wrong is the AI premium is even bigger than we ever would have expected. And what we're seeing is institutional investors, we've had lots of conversations, we do a lot of positioning work, they are underweight the space. They are behind and people just need to catch up.

So there could be a push, but the way we're wrong is not because we have the economy wrong, because we think we have a pretty good beat on that, it's just people get a little bit too enthusiastic about AI too soon. And you could see that happening. And we're not, again, if you look at valuations today

versus late 90s, it's not even close. If you look at earnings expectations and growth expectations, they're a lot more sensible now than they were back then. All right, we'll make that the last word. Good to catch up with you, as always. That's Chris Harvey joining us here at Post 9. Up next is Summer Slump.

Top technician Jonathan Korinsky is breaking down his forecast as we kick off a fresh trading month. We'll find out where he is seeing stocks moving in the weeks ahead when we come back from closing bell. Welcome back. Stocks staging an intraday reversal to start the month with the Nasdaq now on pace for its longest weekly win streak since January of 2020. Our next guest believes, though, the market remains vulnerable heading into the summer. Joining us now, BTIG's Jonathan Krinsky. It's good to see you.

How vulnerable do you think we are? Because, you know, technically speaking, we may close above 4,200 for the third time in four days, whereas you could easily make the argument that that's a bullish sign, not that we're about to have some big reversal. Yeah, you know, we've continually said, Scott, good to see you, that, you know, breakouts in this market are susceptible to vulnerability because that underlying breath isn't there. And, you know, we saw that back in August. You actually got up to 4,300 last August. And then we had the big sell off in the fall. But I think, you know, the distinction to make here, the issue isn't that a handful of large stocks are outperforming a rising market. It's that they're going up while the broad majority of stocks are actually falling.

And if you look at the median stock since early February, it's down about 10 percent. Small caps down about 12. Micro caps down 15 percent. So even though everyone's widely aware of this breath divergence and, you know, everyone really wants the same thing, right? Bulls want breath to expand on the upside, bears want the mega cap techs to move to the downside. And we just keep getting the opposite where this bifurcation keeps getting wider. So, you know, ultimately that's got to come to a resolution. We still think it's, you know, with tech to the downside. And we think the action last Friday was a bit of that kind of blow-off type of action.

If you look at the volatility and the volume in a lot of the tech stocks, it's kind of emblematic of that sort of blow-off type of move. It doesn't have to resolve itself necessarily in the very near future, though. I mean, at what point do you look at and you say, OK, it's taken us a while to get over the 4200 hurdle. And if we can maintain above that for a period of time, at what point do you suggest that that is, in fact, a bullish move for the market? No matter how we got there, no matter how we got there. No, that's a good point. I mean, time is as important as price and spending a week or two above $4,200 would be convincing. The other thing to think about, we're now over 150 days removed from the October bottom, the October fall bottom. We looked at all

meaningful pullbacks in the market since over the last 30 years. And at that 150-day mark, the average percentage of stocks above the 200-day moving average was about 70%. The minimum we've ever seen at the 150-day mark is 56%. And this time around, we're at 36%. So, you know, it just shows you this. If this is a new bull market, it would be unprecedented as far as, you know, the amount of the lack of breadth this far is a new bull market it would be unprecedented as far as you know the amount of the lack of breath this far into the market into the new bull market so you know i i

think people are harking on it for good reason it's um it's it's certainly something that either is going to be a new bull market we've never seen before or uh you know as we think we think the big caps are at the later innings of the rally and we're ultimately going to move back to the downside here. I mean, it's already been somewhat of an unprecedented bear market in many respects, hasn't it? And the fact that, you know, we never got that real true capitulation moment that some, including yourself, were looking and calling for. And now we've moved away from that and we're looking for other signals. Yeah. I mean, look, you know, you look through the through the charts over the last couple of weeks. I don't know that I'd call it capitulation, but there's some pretty ugly breakdowns in consumer names, retail, industrials, financials. Obviously, we had a mid-banking

crisis. So, you know, so far, it's just been this rolling bear market. You could argue maybe there's some capitulation in tech last year. So it's just been this rolling bear market. And the reason you haven't had, you know, the VIX spike like many thought it would and VIX curve inversion, et cetera, is because you just haven't had that correlation one selling. I think the setup into June, which by the way, over the last 20 years, June's the second worst performing month. So, you know, we've had some volatility in June. I think the setup is there. Again, if this blow off type move in the Nasdaq names resolves itself to the downside. Again, we have to see it.

We haven't seen the downside of that. But I think the volatility and volume on the upside is kind of speaks to us late stages here. OK, Jonathan, thank you. We'll talk to you soon. BTIG's Jonathan Krinsky joining us here on Closing Bell. Up next, the countdown is on Apple's big event of the year just a few days away. We'll look at the key announcements we do expect ahead, what it might mean for the stock, which is not that far away from all time highs either. And as we head out, let's get another

check on shares of Dell. The company supposed to report earnings in overtime. Well, they reported earnings in closing bell time and the shares were initially halted, jumped 5 percent, settling back a bit, still up one and three quarters percent. We're back right after this. Welcome back just a few days away from Apple's highly anticipated Worldwide Developers Conference. Steve Kovac is here at Post 9 with a look at what we can expect. Yeah, let's break this down, Scott. So obviously the headline is going to be expecting this new AR headset from Apple, and it's going to be entering a space of many failed attempts. You have Google Glass, you have Magic Leap, and of course, Facebook's name change to Meta putting the future of the company into this unproven technology.

But now it's Apple's turn to take it on. And now here's how the device is supposed to work, according to several reports. Similar to Meta's last headset, cameras on the outside provide a view of the real world to a screen to you on the inside, and digital images are placed on top of that real world. You can also switch it over to full virtual reality for gaming and other immersive experiences. But more important than what the device is capable of, how Apple makes its pitch. No one has figured out what this category is for yet. And look, here's where things stand now. We have ByteDance's Pico. We have Sony's PlayStation VR 2 for gaming. And two

models from Meta, the Quest 2 and Quest Pro. None of these have turned into Blockbuster products. And later this year, we're going to get a headset from Samsung running new software from Google and Meta's Quest 3, which was just announced today to front run that announcement from Apple, by the way. Also, muted expectations for Apple sales. Analyst Ming-Ching Kuo estimating this spring, Apple's only prepared to ship about 200,000 to 300,000 headsets this year at as much as $4,000 a pop. Now, if that's true, the headset is not going to be a significant sales driver for Apple anytime soon, Scott. What do you think about that price?

What was your first reaction when you saw that? Look what Meta is doing today. They're talking less about the features of this new headset they announced and more about the price. The whole thing is going to come down to a price war. I can already see it happening. Do we feel like, and I've seen your hits already today

on other shows about this budding war of sorts between Apple and Meta head to head. I mean, Apple also needs to sort of make it clear, I think, to investors what its AI sort of future is going to be as the narrative develops around so many other companies in that area. Right. And Apple's not doing these kind of front-facing AI like ChatGPT that we keep hearing about. A lot of the AI that Apple does is happening under the hood, happening behind the scenes on your iPhone. Every time you take a picture, for example, Scott, that's AI in action making the photo look good.

So they don't, maybe Siri can't do what ChatGPT can do, but they love talking about AI. They've been talking about it a long time, but this is all going to be about AR, which is something they are extremely passionate about to talk about for years. So a headline moved shortly before you came on set that said, Apple's retail plans will push company deeper into China and they'll overhaul U.S. stores. What do we know about this? What's your opinion of this? Well, China, first of all, still an important market despite everything we saw. I'm not sure how many stores it is.

Isn't it like 20%? Is it 20%? Something like that. It is. It's something. It depends on the quarter. But yes, it's something. It's very significant. So, of course, they're going to open more stores there. Obviously, we saw what they did in India. The remodeling of the stores, I don't know. It could be to make room for some of these headsets.

If you think about it, you have to try it on in the store before you actually use it. But, you know, they do these refreshes. I remember they opened a new store several years ago. Johnny Ive did his thing. So, around the time of the watch, actually. Okay. Well, Monday will be exciting. Yeah.

And we'll be there. I hear. With you. With you. I think I'm there with you. Is that how it goes? We're there together. That's the bottom line.

Don't miss a closing bell. A special one. Live from Cupertino at Apple's Worldwide Developers Conference. Yes. Steve Kovach will be there, too. It's your last chance to weigh in on our Twitter question. We asked, how will stocks end June? We've just begun it. Higher back next. Coming up, breaking down Broadcom. The company reports in just a few minutes. We'll tell you what to watch for,

and we'll take you inside the market zone coming up, too. Here we go. We're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day, plus a read on semis and the consumer in overtime today. Christina Partsenevalos and Joe Terranova look ahead to Broadcom earnings. Sima Modi watching Lululemon's numbers as well. Mike, I begin with you.

I want your reaction to what Professor Siegel said when I asked him about this AI stock mania. Listen. Something those sectors can catch fire and that fire can continue through the summer. Are you suggesting that these AI stocks are a bubble? No, they're not there yet. They got real earnings behind them. I'm not saying they're not eventually going to go

too high. But I think, you know, I think we threw out a bubble way too easily. I mean, you know, to me, a bubble is a stock that's four or five times above its fundamental values. And, you know, I don't think we're anywhere near that then. Would Professor Santoli agree with Professor Siegel? Yeah, generally so. First of all, it's too soon. We're six months into this thing. A bubble, if it really is worthy of that label, is going to be barreling on for a while.

Long enough for a ton of IPOs to show up, for a lot of companies to take advantage of irrational pricing in the market and just sell a bunch of stock. And I also agree, if a bubble has to have like 70% or 80% downside, has to become really dislocated from fundamentals. And then once it crashes that 70% or 80%, it does nothing. Just look at the chart of ARK for the last five years. That's a mini bubble, obviously NASDAQ in the late 90s. So I think it's too soon. But you can have whole parts of the market that are overheated in the short term, too richly valued to give you a great return in the intermediates. So there's room between these are buys right now and it's already a bubble. All right, Christina Partsenevel has set the scene for us now.

Speaking of AI, for Broadcom and these earnings that are coming in OT. Well, we have to keep in mind Broadcom is known for its custom chips and its profitability. Operating margins just last quarter were 61%. But investors will want to know if AI-related design activity will be exponentially larger than the previous quarter, resulting in higher revenue guidance, similar to what we saw with Marvell when they guided just out of post their earnings. You also have MegaCat customers that are helping drive Broadcom's custom chip business. Broadcom co-designed five generations of chips for Google, also co-designed the first AI chip with Meta,

and signed another multi-billion dollar deal with Apple. So we'll want to hear information on that Apple deal, which will also put the focus on any type of Broadcom chip order backlog. Scott, though, it's not just about these custom chips. Broadcom chips are found in an array of categories, networking, broadband, server storage. So this broad-based exposure makes this particular name, Broadcom, a great bellwether for the rest of the chip industry, especially as we head into the summer months. Yeah, all right.

We'll look for you in OT with all of that. We can't wait. You, Joe, have been really looking forward to this earnings report. Absolutely. This is the next AI test. This is a way to reasonably play the AI story without the extreme valuation. So the forward earnings on NVIDIA is 50 times. The forward earnings on the semiconductor index is 24 times.

The forward earnings on Broadcom, it's only 19 times. And this is a company that will be an AI winner. It's going to participate. Hoctan has told you that in the last several months. And if you have concern about it getting bubblicious in the AI thesis, you trade down in valuation, you own Broadcom, they have a tremendous balance sheet. They have 10 consecutive quarters of double-digit revenue growth. That's going to slow tonight to about 7.5. This is the trade to make to stay in AI for the long term. Yeah. All right.

Well, we're going to see what they deliver, whether it lives up to the hype and what the stocks do as well. So, Seema Modi, speaking of what stocks are doing, really interesting day for retail. And I wonder what that setup means now for Lululemon. If you look at Capri Holdings, what it's done in the last 24 hours, Macy's and Dollar General and Target, et cetera. And I would point out Lululemon is down today and down about 13% so far in the month of May, Scott, underperforming the S&P 500. And UBS analysts say that is due to the softness that we are seeing across the retail landscape here in the U.S. Now,

I would point out last quarter, Lululemon did say for 2023, it expects sales to be up 15 to 16 percent. So can the company maintain that forecast following the cautious commentary we received from Capri Holdings and Macy's, among others? That will be key. Worth noting also that Wall Street is still very bullish on the stock. Tesley Group has a 425 price target outperformed rating. The stock is trading at 327. It's up just about 3% so far this year. Some would contest that Lulu is different. It's in this athleisure niche category with a loyal customer base that has made inroads overseas in markets like China with the men's category as well. So we'll see if those tailwinds continue to exist when the company reports earnings in a couple of minutes from now,

Scott. All right, Seema, thank you. Joe, are you still bullish Lulu or no? I have muted expectations. We own it. We own it at a better level, but there's a spillover effect from Foot Locker and from Nike. There's going to have to be a catalyst tonight. We own it at a better level, but there's a spillover effect from Foot Locker and from Nike. There's going to have to be a catalyst tonight, the international mix, direct-to-consumer. There's got to be something that's going to reignite the bullish momentum because it's been lost. There's also an interesting spot right here, that chart you showed year-to-date. The last earnings report on March 28th, big upside beat, big guidance raise. It gapped huge from 320. And, you know, if you looked

at it, the disconnected of where it closed versus where it opened, 320 was this huge gap. And here we are kind of giving most of it back just into the report. Yeah. 200 day moving averages right there as well. All right. Good point to you, by the way. Don't miss Lululemon CEO Calvin McDonald on Squawk on the Street 10 a.m. tomorrow. He'll give you the words right after their earnings are released in overtime tonight. All right. So two minute warning. We just got it as we wind down to the close here. So interesting trading day that we've had. First trading day of June. What do you make of it? And willing to actually hold these highs at a new year to date high going into the jobs report, which I think says in part that the Fed officials speaking in the last couple of days have drained a little bit of the suspense

out of the jobs report because the message the market took was they're leaning towards skipping a rate hike in the coming meeting, which means implicitly that they're not set to completely undercut the employment market before they're done raising rates for the time being. So it suggests that they can live with a stronger economy, at least one that is looking OK right cut the employment market before they're done raising rates for the time being. So it suggests that they can live with a stronger economy, at least one that is looking OK right now. So, you know, it's still this split market. But what's going on under the surface today is also interesting. The XRT, the retail ETF, trying to bounce off of the October low, which is where it's already gotten back to. The XLE, the energy ETF, trying to bounce off of the March low.

So you had all these parts of the market that have been badly lagging and maybe getting short-term washed out, even though they have very messy charges. As Jonathan Krinsky was saying, a lot of the market looks very sloppy and looks like it is on the verge of breakdowns. But if you get any help from those areas,

here we are able to hold, you know, 4,200 for the moment. Significant to you to hold it and close above it again? Yeah, especially if you get this weekly close. I think a lot of people are going to either feel forced to have a part in it or to stop fighting it as much or feel as if at least you've built yourself a cushion. You know, 40-50 to me where you close the first quarter is significant. And that's now, you know, 4% down pullback from here. So it is building up a little bit of a cushion. All right. Good stuff, Mike. Thank you. So we

are going to hold 4,200. 4,220 is where we are now as we settle out. As you hear the bells ringing, Dow's good for near 150. That's all. I'll see you tomorrow.