Closing Bell - Closing Bell: Debating the Fate of the Rally 12/19/24

Episode Date: December 19, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Now don't blame that on me. No way, I don't own that. Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break out begins with the fate of this rally and whether enough has changed now over the past 24 hours to change the trajectory of this market. We'll ask our experts over this final stretch, including that man right there, BlackRock's Rick Reeder. He joins me momentarily. In the meantime, let's show you the scorecard here with 60 minutes to go in regulation. We are trying to bounce off the worst Fed day sell off ever. And at least for the majors, we have been green throughout, not the strongest bounce. Russell is red, by the way. Most of the mega caps today, they are higher with the exception of Tesla, which did get pounded yesterday. It is down yet again today by one and a half percent.

And then there is Bitcoin. Well, it was below ninety nine000 and it is now below 98. And that is following its biggest one-day drop since August. We'll follow all of that. It does take us to our talk of the tape. Is this record-setting rally intact or are the risks of a bigger pullback now mounting? Let's ask Rick Reeder. He is BlackRock's CIO of Global Fixed Income, head of the Global Allocation team.

Welcome back. It's good to see you. You too. Thanks for having me. How would you answer that question? Is this thing intact or do we have new risks now based on what happened yesterday? And more importantly, the tone that the Fed chair had. Yeah, I think you're right. I mean, listen, for the next.

So we were trying to think about over the next few weeks, you have a cloud over the market that we didn't have before. You had, and I think the markets had anticipated it would be a hawkish cut. That being said, when they moved the number of cuts down from three to two, and I think when they actually moved up the inflation target, or not the target, or their prediction, their forecast for next year. That was pretty significant. And then the fact that a number of participants had built in policy as part of their reaction function. I thought that was pretty significant. So for the next three or four weeks, I think you've got a cloud that the data is going to become increasingly important. CPI is going to become important. Payroll is going to be important. So you've increased the volatility around the data to see if this is Fed can really get more cuts done. Listen, I think, you know, I think you've gotten the funds rate to a level that you can now sit back for a while. And I'm just not sure you can mark down any real cuts from here, given that you've got a solid economy and you've got inflation

that probably at the margin is going to tick up a bit from here. What I hear you saying is that this was even more of a hawkish cut than maybe you had expected it would be. It was. I mean, those two factors. And then you actually when you do a little bit of dissection, you know, I find the dots a bit of a mercurial thing when you look at it, particularly the long term dots, because things change, they move them around. But I do think when you actually break it down, you say, gosh, there clearly is a disagreement on the committee on whether you really need to cut at all. You know, you've got, you know, as you get into January, pretty unlikely, obviously markets are priced January, almost

impossible in terms of getting a cut. So now you've got a couple, you've got almost three months now where you're probably not going to see any real positive tone or positive instigant from the Fed. So that's a cloud. That being said, and by the way, the other one, I know we talk about on the show all the time, equity volatility has come up significantly. And I use a lot of, think about in the last couple of days, equity volatility was so cheap. And now all of a sudden it's doubled in terms of your cost to hedge a portfolio. So all those things mean you've got to manage your risk a little bit more aggressively. And it means the markets probably doesn't have that explosive tailwind that it's been experiencing.

Isn't this a bit of what would be the worst case scenario in which you figure, certainly for risk assets, where you figure that you've beaten down inflation so much that you continuously suggest you're confident that it's heading back to target. But now the Fed chair yesterday suggested, well, we still think it's heading back to target, but it's a little stubborn. He used a little stubborn when he when he talked about it. Right. You can't have the goalposts moving again here where they have to worry about. And even, you know, Torsten Slocke over to Apollo today said there was a 40 percent chance that they could hike. We're talking about the H word again. So, listen, I think, you know, when you I think inflation is is done coming down, at least for the near term, and you're probably going to trend up. And now you build in, gosh, what does policy, what does tariff mean, what does deglobalization mean, what is, by the way, if there is significant deportation, labor, what's created benefits to wage pressure coming down, is you've actually brought in a lot of people. So all those

things would suggest a bit higher inflation. So I think what the chair said, and it's probably right, you know, your target has, you know, to get to two, you're running against a bigger set of hurdles than you've had before. And so they're probably, my guess is you're going to sit on your hands for a bit before you do anything. Listen, I think, I also think the hurdle to hiking rates is pretty high. You're still, and the chair did say this, you're still, I think he used the term, very restrictive. So there's still the natural inclination is to move the rate down. But the hurdles to do it are pretty high today. So I think they sit on their hands.

Listen, I think equities can still have a pretty good go. I just think, you know, we got, I mean, the last couple of weeks, it felt a little bubblish in terms of some of these sectors. And I mean, you look at, you know, all of them, including crypto, that it felt a little bit frothy. And I think it's pretty healthy that you get a recalibration and then you get back to looking at, and by the way, some names under some pressure including today uh with micron that you know you know we spent a lot of time looking at these names that come under pressure it's kind of it's it's pretty healthy that you get some recalibration and get to look at some stuff at better valuations again well that's what i was going to say what what's getting recalibrated is the multiple which maybe that's

the way you need to think about it. You were already uncomfortable about where stocks were selling, the price that they were selling for. And now in your own mind, you have to adjust your outlook yourself for where you think rates are going to be. Higher rates just pressure the multiple even further. They do. And, you know, I was I was a couple of things around that. Listen, the multiple was a little bit frothy. And, you know, even it got to, you know, you see the numbers and look at your forward P.E. You know, that's already building in a 13, a 15 percent growth. And we got to see that. Listen, I think the economy, if you say, what are we going to look like next year? You know, if you say, let's let's use a two and a half percent inflation, you say, gosh, we can run 2, 2.5% growth.

That gets you back to 5 nominal GDP. If that's right, it's not, you know, you still can get that 13% to 15% earnings growth, but we still have to see it. And so, listen, I like the multiples coming down a bit. The one thing, and then we talked about on the show, we've actually run a longer position in equities. It's because equity volatility was so low. It allowed you to actually have a long position but then have some downside protection all of a sudden when that goes away or the volatility picks up your hedging tool becomes becomes obviously less robust you got

to run a bit lower risk i think going into next year i think that'll be the case you just got to run a bit lower risk if that mean that makes me think of credit i mean uh you know i guess in some respects not that there aren't risky parts of credit, but is credit more attractive to you today than it was at one o'clock yesterday? Yields. So I would say a couple of things. First of all, not entirely because the front end of the yield curve is actually held in pretty well, including today rallying somewhat today. I still like being in the front end of the yield curve has actually held in pretty well, including today, rallying somewhat today. I still like being in the front end of the yield curve and just clipping as much yield as I can in the front end of the yield curve, you know, out to the three or four year part of the market. If we can keep getting six, six and a half yield, that's great.

I still find the long end of the yield curve, I said it on a show the other day, like I don't want to be involved with the thrill seekers trying to figure out, you know, should I own the back end? I don't even know why, you know, you own the back end of the yield curve. It's not a hedge to your equity portfolio. So, and, you know, we haven't really backed up that much in terms of short-term interest rates. So I just, I'm still running that same equation. Keep, you know, keep a bunch of income. I do like credit. I do like the securitized markets.

I do like Europe in terms of getting some yield and just doing clip coupon and then if next year i still think you're going to get 10 to 15 percent return in equities you know that's a pretty good portfolio if you can if you can achieve your goal in in that income producing asset and then get a decent return on equities it could be a pretty good year. But I mean, you had spent, you know, many conversations that we've had saying that your favorite part of the yield curve was the belly, the so-called belly. But now you're suggesting you like the front end more. Is that, am I reading you right? That is, that is, that is right. So you think about what happened, the front of the yield curve pre the last two days, the front end backed up a tremendous amount that all of a sudden the front end got you as much yield as you need. So I still like the belly, but we've definitely pulled it in on the curve, you know, because, A, we're in a rate hiking, you know, not in a rate hiking cycle. A, I don't think that rates are going to move much lower.

And B, you get plenty of yield in the front end. So we have brought it in more to the front end of the curve, for sure. I mean, if the Fed admittedly has no idea what the new administration's policies are going to mean for the inflation picture, do you feel like you do in terms of what they're going to mean for the investment picture? I mean, we may have a shutdown coming up before the administration even takes office. You have policy being made in such an unorthodox way, given Musk's role and others who are put into positions of unelected power.

I think it's fair to characterize all of that and what it's going to mean for that and what it's going to mean for policy and what it's going to mean for markets. And there's just a lot of unknown. Listen, I think the range of outcomes going forward, I don't think anybody can put the algorithm together. Deglobalization, strategic decoupling, potential tariffs, government shutdown, all of these become very difficult to figure out the algorithm, what spits out on the other side. There are some things you could do, though. I believe in this concept, build income, stay stable where you are in the yield curve. And then I still think so, you know, think about what

interest rates you and I, you know, I heard a bunch of commentary today. Well, what's the interest rate, you know, that would really affect the equity market? Is it this level? Is that level? I actually don't think it's that scientific today. Most of the big companies, you talk about the big, the mega cap or the mag seven, they're net short debt. They're net long cash. The interest rate doesn't really impact it that much. I like compounding growth.

I like these companies in tech that keep compounding growth. The free cash flow generation these companies are throwing off is incredible. So I like the idea, compound growth where it makes sense, compound where your free cash flow generation is terrific, keep your income, and then we'll try and understand the calculus of how all these developments play out over the next few weeks and months. You do think as much about equities, I think, as you do credit and bonds, because you have to in your role, right? You're head of the global allocation team. Are you rethinking the within the equity market question? Like, OK, well, I thought the broadening was going to happen and we're getting all bulled up about the new administration's policies spurring even more growth and being so stimulative to growth that, well, the broadening had to happen.

It was going to happen. Right. Small caps pile in. Are you rethinking that kind of strategy, too? No, not really. You know, I think I said on your show, you asked me, what do you think of small caps? I said, I know what you're going to say here. You know, I still think we live in a world where big data and the ability to utilize data is extraordinary. And I think those companies that are building the mode and have created a large mode will continue to perform. And we go through a bunch of names around that. I think the spend on AI, I think, is tremendous. And that affects, you know, whether it's utilities that participate there, whether it's cooling in the places that participate there. I think there's been some change around software. I think we can, you know, without going into individual names, I think some of the semis have changed and

the upside downside across some of the semis I think is quite interesting. You think about what's happened recently with Broadcom, et cetera. So I think that evolution changed. I still like technology, but I think that you can shift a little bit within it. And then Lisa, I think the one thing that is also playing out is the consumer's in pretty good shape. And so I'm still willing to ride alongside a consumer and in some places that leisure, hospitality, that I actually think is also a pretty good place coming into next year. Let me lastly ask you before I let you go. You did reference Bitcoin in your commentary around perceived froth in the market. BlackRock obviously has ETF business around Bitcoin.

So you guys have leaned in. What do you make, generally speaking, of this asset class, which appears to have a new fundamental backdrop, perhaps? I don't know whether it's a store of value. I don't know whether there's a real use case. But I do know that there is an embracing of it like we've never seen before from policymakers in Washington and those who are going to be taking

office on January 20th. So there's a lot to unpack there. The first thing I will say is, yes, the administration dynamic is significant. Second thing I would say, you know, I've talked to, we've talked about it on the show together. The debt in the US is, it's too big. We've got, and you think about, so what do you do with that? Like, I still think the biggest risk is how much debt we gotta continue to roll over. The disposition within your portfolio

of what you own in hard assets, in real assets, or things that run counter to currency and debt, I think should be part of the portfolio and I think deserve a seat at the table going forward. We could talk about gold, we could talk about crypto. And by the way, the reason why I said, well, I do believe in froth is not necessarily, you know, we can debate what the valuation of Bitcoin is or others. It's the speed of which they've appreciated so quickly that gives you a little bit of pause. It's a speed of which some of the tech, some of the automation names have moved. That's the part that gave me a little bit of pause recently. But listen, I think they're in a really different

dynamic because of the debt in the country. And I think hard assets, scarce assets actually deserve a seat at the table going forward. So I do think that's right. And I think when you build a broad portfolio, you know, historically, you think about 60,40, gosh, I owned a bunch of long bonds. I owned a bunch of long interest rate exposure because that was the ballast in my portfolio. That gave me some protection. I'm not particularly if inflation's higher, that doesn't work. How do I create more balance? Think about your beta. Think about, you know, we talk about volatility. Think about hard assets and then how much risk do you run and then build a lot of income. And if you compound income, it becomes very attractive. Different portfolio construction than historically, for sure. Well, you always have a

seat at our table. We're happy to have you anytime. Thanks for spending some time with us trying to make sense of all this. That's BlackRock's Rick Reader, of course. We'll see you soon. Let's bring in Joe Terranova now, Avertus Investment Partners, Christina Hooper of Invesco. Joe is a CNBC contributor. So, Joe, what do you make of what Mr. Reeder had to say? As usual, very smart, very thoughtful. I agree with what he said. First of all, let's be clear, I think we're in a bull market. I think there's different types of bull markets, though. And I think where we were before the Fed meeting was a bull market that had optimism stepping into euphoria. I think where we are today after the Fed meeting is we have optimism that will border on skepticism.

And the reason that I say that is because I believe sentiment and positioning, like Rick used the word recalibration, borrowing that from the Federal Reserve, I think the market recalibrated yesterday in terms of its positioning. I had suggested in the last several days that fund flows indicated that positioning still believed the, quote, unquote, broadening out trade was alive and well. I think after yesterday, we can feel pretty confident that in the coming days we'll see fund flows that will tell us that we've kind of neutralized that broadening out. So you step into 2025 with a clean sheet of paper. I think the next eight to 12 weeks, I agree with Rick on this, I think the next eight to 12 weeks are critically important. In addition to the eco data, earnings, now you have to elevate

earnings because you are going to need to meet some really optimistic earnings targets in 2025. So I look towards that. We've got a clean sheet of paper. You move into the new year. Positioning is kind of neutralized and we see where we go from here. Christina, you've made the case repeatedly. You're a big believer in the broadening story, small caps and otherwise. And you've defended your position every single time that you've been here. Have you changed your mind relative to what happened yesterday? Absolutely not. I think we've just put too much stock in a dot plot. I mean, let me take us back to December of 21. That dot plot suggested that the Fed was going to hike less than 100 basis

points in 2022. Ultimately, they hiked more than 400 basis points. So we have to take that dot plot with a grain of salt. It doesn't change anything for me. I still think we're likely to see three to four cuts next year. And I still believe we're going to see a reacceleration in the economy. And that is what is going to cause that broadening of the market with small and mid-cap stocks performing better, with cyclical stocks performing better. Why don't you take the Fed and not necessarily, do I want to say at its word, because the summary of economic projections and the dot plot is not their word, it's their assumption, their projection. Why do you think we'll still get three to four cuts if they admittedly are

to some degree, I don't want to say worried, but they're concerned that inflation is a little more stickier than they expected it to be just a few months ago? So first of all, because the Fed has a dual mandate and the Fed is also concerned about labor. We heard Jay Powell say yesterday multiple times that the labor market is looser today than it was in 2019. And that was the rationale for the cut yesterday. So we could very well see cuts based on that. But also the rationale for expectations of higher inflation next year than had been projected back in September was that it's been sticky in recent months. Well, we've gone through periods where that's happened. Disinflation is a very imperfect process where we get lumpy, bumpy. There's some progress and then there isn't

progress over a quarter. So that could easily change on a dime. And that certainly has changed the Fed's mind in the past. And also, we heard from him yesterday that some FOMC members have started to take a step towards anticipating Trump administration policy effects. Even after at the November press conference, he said the Fed will not guess, it won't speculate, and it won't assume. So I think that it is setting itself up for a higher inflation environment than we're likely to see. I mean, it might be setting on pause for a long time, dare I say even mentions the hike word, we're going to have a problem. We're going to have a problem.

The Fed's going to have a problem. We're not going to have a problem. The Fed's going to have a problem. Well, and it's unnecessary because we're not there yet. The Bank of Mexico showed restraint. Some were expecting them to cut more than 25 basis points today. They came out and said, we're keeping on our path. We might accelerate easing. them to cut more than 25 basis points today. They came out and said, we're keeping on our path.

We might accelerate easing. But if we see tariffs come, if we see that policy come, and that's the more appropriate course of action, as opposed to preemptively deciding what policies are going to come, the scope and the timing and the impact on the economy? I think that before yesterday, we all felt really smart about having a handle on the economy and the direction of the economy. I feel like now there's just so much that's unknown about the economy. And that's why I have this attitude where we're going into the year

and I think it's wait and see. I think a lot of what you're suggesting for the broadening out, it's plausible. It could happen. But I have to know what's going to happen when we turn the broadening out, it's plausible. It could happen. But I have to know what's going to happen when we turn the page into 2025 as it relates to. We want to know about probabilities and what's the likelihood that it's going to happen. And now I feel like what was a moment to Joe's point of alleged clarity now is opaque. Now we don't really know. We don't know where inflation is truly going. I mean, we know that it's going

towards target, but it may make a couple of stops along the way and stay a little overstay its welcome a bit. And that's going to force the Fed's hand potentially, even if it does nothing, to sit on its hands. I disagree. I don't think much has changed this week. Why would we go down a000 points yesterday on the Dow? Because of that darn dot plot. I think that we put so much stock in it. But again, it is just a guesstimate by FOMC members, a snapshot in time. What we know is that the Fed ultimately is data dependent, and the data will drive its decisions. And I'm optimistic that the disinflation data dependent and the data will drive its decisions. And I'm optimistic

that the disinflationary process will continue. I'm optimistic that the economy will reaccelerate. And so I believe that the Fed ultimately will be giving us three to four rate cuts next year. Candidly, I'm happy that we had this sell off on this side of 2025 because I think it was coming on the other side of 2025. Because of tax purposes. Yeah. And I also think, you know, you have to acknowledge there was speculative froth in the market. We're sitting here right now. You have Bitcoin below $97,000. You have Ethereum down 10%. So I think that's actually a good thing. I think when you look at positioning in 2025, you have to kind of be open to everything. The one area I disagree with you on is the small caps.

And I think when you look at small caps, you say to yourself, why do I need to go there when I could stay high up in the equity size class with mid caps and large caps? They give me all the exposure I need to the common themes that we know are strong in the market right now, like artificial intelligence and cybersecurity. And then even looking at small caps, just the composition of them, you're reliant on health care. And health care right now is literally, as a sector, it's poison. It's a sector that really no one wants to step towards, even biotech itself. So that's the one area when I think about positioning, I'm not so sure small caps.

I feel like small caps had their chance, and they swung and they missed, and that's it. They're not getting up to bat again. Joe likes to use hockey analogies from time to time, and it feels like really today, and certainly yesterday when the Russell got annihilated, that these things are in the penalty box again. When you thought they were getting out and they may be going to score some goals.

Now here we are, back in the box. You just don't believe that. Well, I understand they're in the penalty box, but I just don't believe that we'll see this story play out. They're pricing in expectations for next year that I just don't think we're going to see. I think Joe makes some great points. You make the case for active management in the small cap space. I've also argued mid caps are an area of opportunity. So if you're uncomfortable with small caps, go with mid caps

because they have a lot of the same characteristics and are likely to benefit from a reacceleration in the economy next year. So to me, this is more about absolutely a waiting game. But I think what we're ultimately going to see is a waiting game that plays out a lot more like September's dot plot than December's dot plot. We will leave it there. Christina, thank you. Joe, thanks to you as well. We'll see both of you soon. To Pippa Stevens now for a look at the biggest names moving into this close. Hi, Pippa. Hey, Scott. Chairs of Micron dropping 16 percent and pacing for the worst day in more than four years after Q2 guidance came up short of expectations.

The company is saying it's seeing slower growth in parts of consumer devices and is experiencing, quote, inventory adjustments and further delays in the PC refresh cycle. Q1 EPS did, however, come in ahead of estimates. And Lennar is sinking to a new 52-week low after Q4 results missed on the top and bottom line, the company attributing it to high mortgage rates, saying that, quote, while demand remains strong and the chronic supply shortage continued to drive the market, results were driven by affordability limitations from higher interest rates, those shares down 5%. Scott? Pippa, thank you. That's Pippa Stevens. We're just getting started. Up next, we're drilling down on the big business of college sports. CNBC Sports' Mike Ozanian is going to join us with the top 75 college sports programs and what they're actually worth ahead of a big weekend for college football.

He'll join me at Post 9 after the break. We're live at the New York Stock Exchange. You're watching Closing Bell on the bell. It may become one of the hottest investments for Wall Street in 2025. College sports. Listen to recent comments from Mark Lazzari, Avenue Capital Group CEO and the former co-owner of the NBA's Milwaukee Bucks. I think it's a phenomenal opportunity.

And I think what you're going to see is you're going to see a number of schools selling their teams. And the reason for that... To whom? To folks like us. Like, we're bidding on a couple teams, I can't tell you. But in essence, what we would do is buy 51% of the team. Well, that's interesting.

So what could these programs actually be worth? With the college football playoffs kicking off tomorrow, CNBC Sport, in partnership with Athletic Director Yu, is out with its inaugural list of the 75 most valuable college athletic programs. Here with more is CNBC's valuations guru, Mike Bozanian. Good to see you. Good to be here, Scott. This is so interesting. How do we even determine the value of a college athletic department? Well, sports bankers and

people involved in looking at buying pieces of these athletic departments are saying they're looking at four times revenue. You and I have talked about pro sports teams, about eight to ten times revenue. More risk here, more uncertainty about how to grow revenue, so a lower multiple. The most valuable one now is who? Ohio State, and if you look at the top five, like Texas 2, then Texas A&M, Michigan, these are the schools with the most revenue. And then also we adjusted these multiples for factors like how big is their alumni? How big is their football fan base? Football is key, about 75% of revenue and NIL money. You know, we just saw that star high school quarterback choose Michigan over LSU.

Why? They're guaranteeing them at least $10 million in NIL money. Big Ten, SEC, obviously other than Notre Dame, dominant on this list. The ratings in college football are really second to only the NFL. And the two conferences that get the most money are the SEC and the Big Ten. And the gap between the SEC and the Big Ten over the next 10 years over the ACC and the Big 12, is going to really widen. Most interesting to me is when you think about, I was going to ask you, well, OK, this is a great list, but what do they do with that value? It's not a, you know, independently owned franchise that you then capitalize on this valuation and sell.

Then Mark Lazzari says, well, what do you do? And he says they're selling their teams. And you have investors who are lining up to buy access in these teams? Well, probably what's going to happen, and there are three or four different proposals out there, some for a super league of the best conferences, most dominant football programs. There are individual teams looking to sell, but there are some hurdles to clear. What's most likely to happen is you're going to take your revenue-producing assets, TV,

merchandising, licensing, retail, put them in a separate entity that is technically apart from the school, apart from the athletic program, and sell a piece of that. And the private equity investors then will earn a return on the growth of the revenue in that entity. Are they doing this because they need to monetize the value that they have so they can afford the NIL payments that are now dominating college football? You said the quarterback who was going to go to, I think it was LSU, and then switch to Michigan is going to get a big fat check for doing so.

That's a huge part of it. Another big part of it is we're seeing litigation being settled now. We're on the verge of being settled. These schools also are going to earn huge payments. Going back to 2016, for money, the court is saying that the athletes should have got. And going forward, it looks like there's going to be some kind of a revenue sharing system where each school is going to start out paying their students $20 million and then going over the next 10 years increasing to over $30 million. So it's both monetizing these assets and coming up with some money to pay past liabilities. Really interesting story. You can go to our website, obviously.

CNBC Sport, right there. Okay, and you can see the list, Mike's list, of who the most valuable college sports teams and athletic departments are. Thank you. Thanks, Scott. It's really fascinating. That's Mike Ozanian, as I said. Up next, 314 Research's Warren Pies is back.

He's going to tell us why he thinks investors should brace for a deeper correction in the new year. We'll be back on the bell after this. I want to show you an updated picture of the stock market here as we edge towards the close. We are still in positive territory, but the Dow's gain today is slowly evaporating. We're still good for about 100 points or so. NASDAQ was just negative, but it's bounced back positive, albeit slightly, as you see. S&P also barely hanging on to gains here. You do have Tesla, which is down again today. Micron, of course, the big loser, down

some 16 percent. Broadcom is down by 2 percent. So we'll watch all of that as we welcome in our next guest, Warren Pies of 314 Research. It's good to see you. Welcome back. Yeah, thank you for having me. It's good to be here. Not a great bounce, right? After what happened yesterday, what does it portend for what lies ahead? Yeah, I mean, I think in the very near term, I'm still pretty constructive on the markets. This isn't really the type of balance you want to see if you're bullish, but we are in the most bullish seasonal period of the year, second half of December, so-called Santa Claus rally. I think that still has to be base case, something like 80% of all Decembers where we've had strong beginnings of the year are up.

And if you go back and look at the rare times where we have big down days like yesterday, in the December at this period of the year. You end up with strong forward returns. But so so that's the very near term. But when I look out towards the beginning of next year, I do think there's too much complacency on the economy. Warren, you got to forgive me for a second. I need to break away. I'll come back to you in a moment. But I want to get to Emily Wilkins in Washington with breaking news. Hi, Emily. Hey, Scott. Well, as you know, we've been tracking government shutdown news, and now we just had two lawmakers exit Speaker Mike Johnson's office saying that there is an agreement now. We do not have any additional details, but both said that

the agreement has been reached, that they're expecting details soon, and that they are expecting a vote in the House tonight. This was, of course, Tom Cole, who heads the Appropriations Committee, and Stephanie Bice. And when I asked Congresswoman Bice, you know, are you concerned that we might see Donald Trump and Elon Musk scuttle this again? She said no. And they both seem very confident that what they're going to put forward has a chance to pass. Now, of course, we don't know the details. We don't know what it is. Most members have not had the chance yet to look at this bill.

So still a lot of hurdles. No guarantee that a shutdown is avoided. But it seems at least we have something of a plan B. Scott? Let me ask you this. I mean, do we have any idea whether either Musk or the president-elect have any idea what's in the new proposed legislation and whether they've, with quotes, obviously signed off on it? Well, from our understanding, Trump has been made aware of the discussions that have been going on today. He's been looped in. Certainly all the lawmakers on the Hill have gotten the

message that if Trump isn't looped in and doesn't have buy-in, he can kill things pretty quickly. Of course, I think the big question is exactly what does this bill look like? What does it contain? I think it's one of those things that we're not going to quite know what the response is until it's there. But certainly there have been a number of lawmakers from all different corners of the Republican conference going into Johnson's office today, having those discussions. J.D. Vance was a part of it as well. Of course, then again, there's the other question. How much do Democrats agree with what is going to be about to happen? Because remember, even though it's the Republican game in the House, the Senate has to pass this. And that is all Chuck Schumer and the Democrats over there. And do we have any idea when all of this could make its way to the Senate?

That is a great question. I mean, at this point, we don't have bill text. Remember, at the start of this week, we were expecting to see bill text on Sunday. It didn't come out until Tuesday afternoon. Clearly, they can't do that this time because we'd already be in a shutdown. But we are not quite sure. This could be a couple more hours before we see something. It could be a much shorter time period. And I think a lot of the lawmakers, it seems like they're willing to go late tonight. This might be something where the House votes late, the Senate votes early tomorrow.

If they are all in agreement, they could technically get this done and avoid a shutdown. But again, you're going to need a lot of agreement. And as we've seen this week, that is difficult to accomplish when you have margins as narrow as the ones that the House and the Senate have now. All right. I mean, we also have the president-elect sort of stunning people. That's how it's being characterized in some press reports. Their words, not mine, of the idea of repealing the debt ceiling. So that's kind of an overhang on all of this, too. It's a huge question, and that was certainly something that I was asking lawmakers who were leaving the room. Is this addressing the debt limit?

I mean, the interesting thing here is that there is bipartisan support for addressing it. There's bipartisan support for eliminating it, as Trump mentioned that he would do earlier today. The difficulty is that for a lot of the hardline conservatives in the Republican Party, they wanted an actual debate on the debt limit. They wanted to use it as a chip to actually lower some spending and perhaps reduce the government debt and the government deficit. And they're worried that just by going ahead and raising it now, yeah, they might have to deal with it in a messy battle during the Trump administration, but they could at least

get a win when it comes to reducing the debt and the deficit. And so a number of them are concerned. Chip Roy's been outspoken on it. And then, of course, you've seen this now back and forth, where Trump has come out on Truth Social, has criticized Chip Roy, and now Chip Roy has come back and said he's going to continue to fight for it. So many, many debates ahead. Yeah, no doubt about that.

Emily, thank you. Emily Wilkins, right in the heart of it, down the Capitol for us today. You see stocks. Let's just show you here a bit of it. Let's do an S&P intraday, if you guys wouldn't mind, because we are seeing a little bit more strength in stocks from where we see a little pickup at the end there as we head towards four o'clock on this news that Emily was talking about, at least House Republicans, lawmakers in the House reaching agreement on a stopgap funding bill to avert that shutdown on Friday morning. We'll see where it all goes from here and we'll follow it, of course, into the close. Warren, I come back to you and I know where we were going before,

but let me just put all of this news into context with how we're thinking about the market into 25. You have this to figure out. You're going to have more fights, obviously, on the Hill. You've got policy unknowns. Does any of that factor into why you think we'll have a correction early in the year? Not really. I think that stuff's almost unpredictable, and so we kind of exclude it. We're looking more macro. And from a macro perspective, it's really the economy and inflation.

And then you see what's going on with the Fed yesterday. I think that's the bigger risk. I think there's too much complacency around the economy. Obviously, there's uncertainty, and you saw that kind of crop up in the dot plot yesterday. We saw more Fed officials say that the risks are skewed to the upside on their elevated PCE projections, their inflation projections. So it does introduce some forecast risk, which could interfere with monetary policy. But my real concern is how higher rates, which we've seen over the last few trading sessions, really in particular, feed into the cyclical parts of the economy and could ultimately, if the Fed doesn't react fast enough and change course, could really start to raise recession fears. Interesting. But you still

think next year is going to be pretty decent, though? Yeah. My ultimate view is that we're going to have this growth scare. You know, we had the SEP come out yesterday. Fed basically told us that they're going to they took cuts out of the market next year. So 50 basis points of cuts. But they wrote they raised their their estimate of inflation and they marked down their their estimate of unemployment. And so when I look at that, I think the money is made by trading against those projections. And so to me, I think that I think they're a little too optimistic on the economy. I think they're too optimistic on the labor market. And so I think we're going to start seeing some degradation there. And ultimately, though, it does feed into the Fed cutting.

My views are going to cut like 100 basis points versus the 50 estimated yesterday. And that will keep soft landing intact. All right. The old Fed put. Warren, thank you. We'll talk to you soon. Warren Pies up next. Track the biggest movers into the close. Pippa Stevens standing by once again for us with that. Hi, Pippa. Hey, Scott. Well, two food stocks are forking. One is getting fried with another serving up its best day in years.

The names to watch coming up next. We're about 10 out from the closing bell. Back to Pippa now for the stocks that she's watching. Hi, Pippa. Hey, Scott. Lamb Weston is plunging after the frozen potato maker posted disappointing results and cut its 2025 profit expectations. The company also announcing a new CEO amid pressure from activist investor Jonna Partners, which has also been pushing Lamb Weston to sell itself.

And Darden Restaurants tracking for its best day in four years after Q2 results met expectations, with the company showing better than expected same-store sales growth at Olive Garden and Longhorn Steakhouse. The company saying the consumer is starting to feel a little bit better than they were in prior quarters, though shares up 15 percent. Scott. All right, Pip. Thank you. Pippa Stevens up next. We'll run you through what to watch for when Nike and FedEx report top of the hour inside the market zone next. We're now in the closing bell market zone CBC senior markets commentator Mike

Santoli here to break down these crucial moments of the trading day. Plus two major earnings reports in O.T. Frank Holland on FedEx Courtney Reagan on Nike Michael I'll begin with you- we are negative everywhere today but the Dow.

As we watch D.C. thinking about the Fed. We're watching the bond market. We got a lot on our plate again. Very inconclusive, indecisive. Now, there wasn't some kind of huge wave of new selling pressure, but essentially a real hesitation to step in. A lot of the indicators are starting to line up, as often happens when you've had the average stock down for weeks in a row, to look like we should be almost flushed out. I mean, it's enough anyway to justify some kind of bounce.

What's standing in the way? The dollar keeps rallying, especially starting in the middle of the day. The dollar next making a new, you know, two plus year high. That shows you we're thinking about a tighter Fed alongside some easing in Europe. And there's a little bit of cross currents there. Still think that the big picture story hasn't changed. But you have to keep in mind the two year bull market has been based on inflation coming down faster than the economy weakened. It's been the entire deal. And now I think you just have to, you know, ask whether we're in a good spot in that inter relationship still. Watching some of these mega cap names names which had been green for much of the day Microsoft's now read

Alphabet's not read Excuse me alphabet is now red Tesla's right again after yesterday a micron is a big disaster and brought down quite a bit to me It's Tesla and Broadcom have been just these massive overbought overheated vertical winners You're finally cashing in some of that. MicroStrategy has just really taken it on the chin. So some of it is just, OK, we're cooling off the froth. Some of it is the average stock in the cyclical part of the market is just not able to really muster much. We might just be waiting for PCE inflation tomorrow morning and for the bond market to calm down. The bonds are also oversold and for, you know,

maybe to have some kind of a funding deal in Washington. All right. So we're watching rates and we're going to do so continuously now. Now we have to pay even more attention to the data, as Mike was just saying. And we have earnings. Frank Holland has FedEx in OT. What do we need to look out for? Well, he's got FedEx traded lower since his last earnings underperforming the Dow Transports after missing on earnings and lowering EPS guidance. Revenues expect to be flat year-over-year. Profit is forecast to fall by 2%. But the big question for investors, will the company spin off FedEx Freight?

That's the nation's largest less-than-truckload carrier. The goal here would be to unlock shareholder value with FedEx as a whole, trading at a big discount to pure play less-than- than truckload carriers like Old Domain and XBO. But you can see FedEx Freight actually moves more freight by dollar than either one of them. Investors will also listen for commentary on demand, with FedEx planning a 6% rate increase in January. Also, any commentary about the potential impact of tariffs on international shipping and how a potential strike at the East and Gulf ports can impact business for both trucking and parcel delivery. Scott, back over to you.

Frank, thank you. That's Frank Holland. We'll see what FDX does. We'll also see what Nike does. Court down 29% year to date. All sorts of problems. Tell us what to watch out for. Yeah, I think you kind of set it up there, Scott.

Expectations pretty low for the quarter for Nike. Jeffrey says the key really, though, is going to be to watch for the new CEO to outline any key priorities, reset expectations, anything about his strategy going forward. The street estimates revenue is going to fall more than 9% year over year as pressure from competitors continues

and the wholesale business has been scaled back. Margins also expected to be pressured, in part, from elevated promotions that analysts fear actually didn't do enough to entice shoppers to buy. Now, Nike pulled its guidance at the beginning of October, remember, and postponed its investor day ahead of incoming CEO Elliot Hill officially taking that top job on October 14th. Nike also warned of a tough holiday season back in the fall.

Obviously, still some time to go there. Now, recently, Nike wholesale partner Foot Locker, they missed estimates. They gave weak guidance. Not a great message here ahead of Nike. Jeffries also noting that Nike's, quote, brand heat remains low. And a separate analysis by Alt Index says Nike has lost about a million Instagram followers in the last 90 days, four million total since April, though it still has about 303 million. Shares of Nike have fallen after each of the last four reports. And you mentioned, Scott, it's down sharply a year today, well underperforming the broader retail indexes. Backer view. Thank you. All right. Thank you very much. Let's see what

happens in those numbers drop. You have a thought on just it's unbelievable watching this Nike story play out. I mean, not so much, except that it was it built up so much and much more, I think, the most it would have anticipated through the pandemic, as if it had every single box checked and problem solved in terms of direct to consumer and to figuring out China in terms of how these great American brands, that you couldn't pay too much for them in the stock market. And that's obviously been totally upended. And so now, obviously, with not a lot of faith in the management, you know, as they're just coming in there, it's a show me story once again. Yeah. So I'm looking also today at Apple. We should note it is higher, 250 bucks. That's been a great story within this market. You have NVIDIA, which is 130 bucks. You know, it's been really hanging around some key support levels,

did some technical damage to itself. And I know that people are watching key levels there to see where this thing's going next. First got to these prices, you know, say six months ago. So it has been really just churning for a while here. Interesting how Broadcom coming down, it sometimes trades against NVIDIA. Look, Apple is how this market sometimes just takes shelter and plays defense. We do still have a market where the top three biggest stocks, Apple, Microsoft, and Nvidia, are amazing companies that all trade at collectively 35 times earnings. So if you're at all becoming sensitive about valuation, you can't look to them necessarily to really be the locomotives for further upside.

So we wait and see. We get PCE tomorrow. I think the equity exposures were really high coming into December, and we're now looking at the 14th straight session of negative breath. More stocks down than up. At some point, people have pared back enough, and you feel as if maybe looking toward January, you're going to want to stay involved

unless you have some big change in the macro story. We'll be watching tomorrow morning, obviously, for PCE, because that's the Fed's favorite inflation measure. It matters a lot. So the Dow looks like it's going to eke out a gain. Not so much for the S&P nor the NAS, nor the Russell either. I'll see you tomorrow.