Closing Bell - Closing Bell: Downside for Stocks? 4/19/24

Episode Date: April 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.

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with tech on the ropes while the rest of the market works to get up off the mat. A day of violent rotation to finish out a pretty punishing week as the S&P 500 struggles to avoid a rare six-day losing streak. Here's a scorecard with 60 minutes to go in regulation. Mentioned the S&P 500 is down, has been down as much as about 1%, now down 6 tenths, 49.80, below that 5,000 mark. The Dow actually hanging in there. The equal weighted S&P, as a matter of fact, is up on the day. So you do see a lot of tech down and everything else managing to try to take up the slack. Take a look at the NASDAQ as well, kind of the center of all

of the selling pressure, semis in particular, but down 2.2%. And as that composite, it actually backed down below its old November 2021 highs again, so breaking down a little bit technically. And then we'll take a look at treasuries here. Big bid in treasuries overnight on those Israel-Iran headlines that are mostly unwound, around 4.6%, 62% on the 10-year yield. Really flattish on a week-to-date basis, a little bit off of those multi-month high. Semiconductors, really the drag on the NASDAQ today.

Supermicro getting taken apart. You also have NVIDIA down 9% and cracking well below its 50-day average. AMD also on the downside. Netflix, after reporting a pretty strong quarter, but deciding to maybe not give as much information out about subs, stock down 9%. Maybe it's giving some investors some hesitation about response to big tech earnings next week.

That does take us to our talk of the tape. Has the market's 5% pullback over three weeks been enough to price in a more patient Fed, higher bond yields, and to reset expectations into the thick of earnings season. Let's bring in Laurie Calvacina of RBC Capital Markets, Victoria Fernandez of Crossmark Global Investments and Kevin Dreyer of Gabelli Funds. All join me here at Post 9. Great to see you guys. Laurie, market. So, look, we can go through March and many of us did and you did and said it's not going to be this easy forever.

We had no 2% pullbacks. So we were kind of due for some kind of a setback. But what specifically do you think the market's contending with? Obviously, we've got the geopolitical headlines, the hire for longer story, and then, you know, maybe just a question about whether this economy can handle what yields are giving it. Yeah, I think it's a really strange time in the market right now. We've been overdue for this pullback. Sentiment has been stretched. I mean, I've been worried since January. We strange time in the market right now. We've been overdue for this pullback. Sentiment has been stretched.

I mean, I've been worried since January. We're finally getting the pullback now. I think you've got a combination of de-risking to some extent. I think you've also got the begrudging acceptance of a hot economy continuing to build. And that's what I'm really seeing in the rotation today. We're seeing secular growth themes getting sold pretty hard. You don't need secular growth as much when cyclical growth is picking up. And, you know, I think I saw today the consensus GDP forecast is up to 2.4%.

That's pretty darn close to average. For the full year? For the full year. And in a hot economy, you typically see value and small cap and cyclicals outperform. It's the cool economy that growth and secular growth themes tend to dominate. We're on the cusp of exiting that. We do have things like banks up today, energy up today. So part of that cyclical value trade, perhaps.

I guess the question is, if earnings are going to hang in there in general, do we need any further setback than we've had already? So to me, a garden variety pullback is 5% to 10%. That drawdown that we had last fall when interest rates were spiking was about 10% on the nose. So there could be a little bit more to go. We've got to watch the sentiment indicators pretty closely, and they've been pretty frothy. So I think it's going to take a little bit of work to really get them down. I don't think you have to turn to an uber bear here as long as we've got the economic tailwinds at our back.

The reality is if you see a pullback more than 10% in kind of the 15% to 20 percent range, that's typically associated with a growth scare. And I don't think we're talking about that right now. So even if it gets a little bit worse, I wouldn't really expect it to go too far below, say, 4700 or so. Victoria, your take on, you know, whether in fact the market is telling you either to be more defensive or if it says, look, you know, let's get used to an economy that's just running at a higher metabolism? Yeah, I think there's a little bit of both built in there. As Lori mentioned, pulling back kind of that 47, 4800 level gives us that 10 percent correction. It's that 200 day moving average for the S&P. So it makes sense that would kind of be the place to

go in and start adding. But you look at some of the things we're seeing, you've only got less than 30 percent of the S&P trading above its 50 day moving average, right? Put call ratio moving higher. You look at the flows of all these flows into short S&P ETFs. That's increasing. So I feel there is very much a defensive mood around the markets. And so put some defensive into your portfolio. Some of those areas are doing better. Utilities, which typically don't do well in a rising rate environment, but we're seeing it now. Names like telecom, low beta, good cash flow companies, I think, is where you need to park some money right now. Because we do think, as you know, we've been talking all year, we do think we're going to see probably another 4% to 5% pullback here. Those things that you do mention, though, money flowing into short funds and people hedging more and essentially showing some concern are also the makings of a bounce, right? They are.

I mean, that's what you have to watch for. They are, and you typically have kind of three different elements, right? When you have a complete turnaround here, you have the initial pullback. Then you have a bounce, and then the third leg of that stool is you go back lower. So maybe we're getting a little bit of a bounce here. You have the initial pullback. Then you have a bounce. And then the third leg of that stool is you go back lower. So maybe we're getting a little bit of a bounce here. I think you watch discretionary versus staples. Watch that ratio. See how that's going to do. It's consolidating right now. If we see that start to pick up, then maybe that tells you you're in that second phase of the bounce. Kevin, as you look at companies and how they're valued right now and their prospects,

do you feel like you're getting more opportunities? Do you feel like the companies are telling you that the outlook is getting better? Or how are you navigating it as, you know, S&P is down 5 percent, the majority of stocks down a lot more? Right. I think it depends a lot company by company, which is how we operate. We're very bottom up. But to some of the questions from earlier, you know, the market's been grappling with this. What are rates going to do, which relates to what's inflation going to do? And what was it a few months ago? I think in consensus, what was we'd have seven rate cuts this year and we're down. I don't know if it's two now or if we're at zero already, but two maybe. But, you know, I think, you know, I'm

not sure we're expecting much in the way of rate cuts this year. So probably a higher for longer kind of environment, which makes things like pricing power really, really important. We tend to gravitate towards those more stable cash flow generating companies, whether they're consumer branded names, a waste collection name. We've got some, you know, names you might call defensive in there, but also a lot of cyclical type names in the industrial area that are benefiting from a lot of the underlying trends that are going on. On the on the whole Fed equation and how that storyline has gotten scrambled up, I did want to pick up on something Rick Reeder of BlackRock told us about, you know,

the Fed's approach right now and how we might have to contend with it. I still think the Fed would like to get one or two cuts done this year, but we need the data to help us. So I think in the interim, you got to let the market do what it's going to do. Got to get the data to help us. So that would obviously mean inflation has to ease back a little bit. Market's going to do what it has been doing, which is kind of struggle to figure out exactly what the path is. Laurie, how instrumental is it in terms of whether we get the cuts? And I guess because if we don't get it, it probably means inflation is running higher than they want. Yeah. And I think it's also why is inflation running higher? I think there's a recognition that the geopolitics are somewhat out of control

at this point in time. Right. I do think that if the economic backdrop is pretty strong, what I've been hearing from most investors I've talked to over the last week or so, if the Fed stays pat, doesn't do anything, the economy's fine, labor market's not breaking down, there's nothing really wrong with that if we're trying to keep the inflation genie in the bottle. So I feel like the market has to reprice in that scenario, but not necessarily tank. Our modeling is suggesting that $4,900 is kind of a fair value when we do all our modeling with interest rates, inflation assumptions, and PEs. And so we're not too far off from that right now.

That's without cuts, in other words? That's without cuts. No further move from the Fed. We really damage the market in our modeling if we bake in additional hikes, which we take inflation above to about 3.5%. We take Fed funds up to 6. We take 10-year yields up to 5.5. When we do that math, we can come up with a 4,500 number on the S&P. Yeah. And Victoria, I guess, you know, one of the reasons the market gets nervous, because, yeah, that's an area where the economy's fine, inflation is OK, but not getting better, and just sits around, is OK,

but it inherently creates this sense out there that risks are rising of a hard landing. That's something the longer we wait can go wrong. And so I guess, is there a yield level you're watching? Is there some other indicator that you would say, are we at risk of something in that scenario? Well, I know you look back and that 5 percent on the 10-year Treasury really triggered a lot of emotion when we saw that not too long ago. A lot of that, though, was due to the increased issuance scare that everyone had and that the refunding announcement and what we were going to see. I don't think we'll get that same information May 1st. When we get the next refunding announcement, the Treasury general account

is bigger than it was then. So there'll be a little more liquidity there to deal with. But I think you have to watch that the longer that the rates stay higher. We know we have those lagged effects that come through and it just continues to build and inflation becomes more embedded. So you have to watch how that's going to then affect corporate margins, wages, all of that, because then I don't think you get earnings giving the economy what it needs in order to keep the valuations where they are. And I mean, what's happening with the bond market is is real yields are rising. Right. So real yields are going up that sometimes acts as a restraint either on maybe valuation, maybe on the economy. But does it also make it attractive as a buyer of bonds at these levels?

Well, and you're talking to a bond manager, right, that likes these yields that we're seeing, especially when you look kind of in a barbell situation and lock in some on the long end, take advantage on the short end. But when those real yields get close to 2%, we're at a what, a 194 right now. That's when you start feeling a lot of squeezing going on in the equity markets. And we're getting really close to that level. Last time we saw them in 23, like in November and in March. And then you had to go all the way back to 07 to see that prior to. So definitely watch real yields. That's where I think the pressure is really coming in. Kevin, as you look at the way companies are able to navigate this environment, you see, you know, when yields have gone up, all of a sudden the market can't broaden out anymore

and smaller stocks get hit a little bit more and it becomes a kind of a safety trade or has been at least into big growth defensives and things like that. The kinds of companies you look at, I mean, are you kind of aware of the sensitivity to it and how are they getting through it? Yeah, I mean, there's always sensitivity. I still think when I look at the market, small to mid caps is probably where I'm overall seeing the most value. I mean, not exclusively, but companies can navigate it a lot of different ways. One is just their own business performance, and those companies, again, with pricing power, tend to be able to navigate this kind of situation better,

but also companies who engage in financial engineering. We've seen a lot of that over the last few years. I mean, one example, Kellogg spun off its cereal business. They call it WK Kellogg last year. It's a tiny stock. Nobody wanted it. Cereal's not growing. It's a tiny stock. Nobody wanted it. Cereal's not growing. It's up over 60% this year now. So that's just one example where value can be surfaced.

So we'd hunt around and say, who else could do that? You've got a Campbell's Soup who bought Sovos just last month. They own Rayo's pasta sauce. You probably go to the restaurant. I can't get it to you. But that been once. Yeah. But, you know, that's a new growth engine for them. They've got a snack business and then a meals business. Right. Maybe they'll do a similar thing that Kellogg did with Kelanova and WKK. I mean, we've seen what GE's done.

I mean, obviously carving itself up. GE Century was just IPO'd out of Southwest Gas. Right. I mean, we've seen a lot of this. And, you know, it's not not every time but that can be very value surfacing and often one or both of the pieces might be attractive to acquirers too so lori in terms of net net in terms of beyond the index level um modeling of what fair value is what still makes sense at this point i mean are you kind of okay this is the mid-cycle playbook kind of thing in terms of sectors and whatnot i think we're still in the middle of a strange recovery trade. So, you know, we've cooled off on small caps a little bit. I

mean, I thought that discussion was really interesting on the individual names because I hear about that a lot from my small cap PM clients. Small caps have really not benefited from the recovery, I think, that we had off recession-like conditions in 2022. Really, the problem has been we need more certainty over Fed rate cuts. But there is still a tremendous amount of value there. I think sectors like energy and financials, which benefit from the rotation, they're still very cheap. We've got to watch the valuations there.

Earnings revision trends are starting to improve. I think you just stay focused on things like earnings momentum, valuations, and stop worrying so much about exactly where we are in the cycle, because I think this is a strange one. Yeah, there's no doubt about it. It hasn't followed a lot of the easy rules. And I guess something like banks, Victoria, I mean, you know, you could talk about where we are cyclically. You had a lot of, you know, okay numbers coming through, but it seems like an abandoned group. So the action today seems to be whatever's crowded, which is mega cap and expensive growth, is getting sold in favor of stuff that was under-owned. Yeah, I mean, people are looking for that opportunity to go into something that has pulled back pretty significantly, but where you have some opportunity to see the growth.

And look, low momentum is outperforming high momentum right now. Over what period, like since March or so? Yeah, just recently. But you look and momentum has actually been tied very closely with quality. And it's the names like you're talking about, right? You look at those names that have good earnings growth, good cash flow. So you have to kind of separate those out a little bit now. Find some areas that haven't had that high momentum that you can go in where valuations have come down and then make sure that the balance sheet makes sense to go along with it. And that can be across sectors, right? You can do it in finance. You can do it in health care. You can do it in energy, telecoms we talked about earlier and utilities. I think you can find some places in the market.

Yeah. If you're not sector neutral about it, then if you go momentum, quality, growth, everything comes up tech or, you know, communication services. Right. So it's a little bit tough to know what you're getting. You know, Kevin, the other piece of it, when you talk about financial engineering, the M&A story hasn't really been that active, I guess, with smaller mid caps either. I mean, you'd expect you had the makings of, you know, private equity doing more and things like that. Yeah, it was M&A was actually up in the first quarter for the first time in a while. I mean, it's been kind of steadily decreasing the last couple of years. So I think we're seeing some bright spots there on the M&A front.

Before, it was a lot of mega deals. We've seen a lot of biotech deals recently. But I think we are seeing more dealmaking in the industrial area. We've got Command, which was a long time holding of ours, which is in the process of being bought out. That whole vendors to the aerospace and defense industry, you know, is one that private equity and strategics have looked at quite a bit. Yeah. And and Laurie, I mean, the one thing that isn't flagging right now is is credit conditions. So you can talk about, you know, yields are going up, stocks down, dollar up, volatility up. Those are all tightening financial conditions on one level or another.

But the credit piece of it is sort of hanging in there. No, it is. It's really remarkable. And I think that's a testament to all the repair that's been done since the last crisis. I think one of the things that's very, very different about this post-COVID era and also, you know, causing some confusion, frankly, about how to navigate this environment. Yeah, no doubt about it. Great discussion. Thanks very much. Appreciate it. Have a good day. All right. We are keeping an eye on Netflix, tumbling after a week of the expected revenue guidance and announcing plans to stop reporting subscriber numbers. CNBC.com's Alex Sherman joins us now with what all this means and how the

street's taking it, Alex. Look, I think from a narrative standpoint, Netflix's decision to stop reporting quarterly subscriber numbers in the first quarter of 2025 is the most interesting because it really marks the end of an era, right? It marks the end of the streaming wars as we know it. I mean, shorthand, the first metric that investors and consumers alike would talk about in terms of comparing streaming services was, well, how many subscribers do they have? And Netflix has always been by far the dominant player in this world with, you know, 270 million plus subscribers. The fact that they're not going to announce this anymore, at least from a quarter to quarter basis, is a suggestion that, A, maybe subscriber growth is going to start slowing in 2025. But B, they want the street to start valuing the company on other metrics like revenue and

profit and free cash flow. You know, these aren't maybe as handy as number of subscribers, but they are what other businesses are, in fact, judged by. And they do provide a more specific, accurate assessment of the business. For sure. I always feel like, you know, sometimes when companies do this, I mean, of course, Netflix and Disney at some point stopped giving guidance on sub growth, I guess, not that long ago. I can think of other industries where they basically said not just we want investors to focus on something else, but internally within the company, they want to make sure that, you know, everyone is playing toward theating or maybe the benefits of the password sharing crackdown. Maybe they've seen, you know, the extent of it. I guess I'm trying to find other explanations for this stock getting knocked down 9 percent, except for the fact that it's a tough tech market.

Yeah, look, you alluded to the fact that there was a weaker revenue guidance, particularly in the second half. A little bit of revenue growth deceleration coming that maybe analysts weren't expecting and that's one reason i think the stock is down but yeah look i think to your point uh we've seen a nice uh rebound of netflix since 2022 when really the floor fell out in the stock and that's when subscriber growth plateaued after soaring during COVID. So this idea now that they're not going to report subscriber ads every quarter is at least a suggestion that this sort of unexpected rebound, which was really driven by the password sharing crackdown globally, you know, may finally be coming to an end. And it's been a great story for Netflix. And it has, in fact, coincided, led, whatever the word you want to use, to a nice rebound.

So look, the evidence there is that investors are, in fact, trading off subscriber ads. It is an important metric still. So that, I do think, is a reasonable reason why the stock may take a dip now. Now, look, if Netflix keeps pouring out great revenue and free cash flow and profit numbers in 2025 and beyond, investors will probably move to that metric and be fine with it. If the business is healthy, the business is healthy no matter what metric you use. Now, there's no doubt about that, although it's interesting. As the stock has rebounded so strongly and gotten not too far from its former all-time highs,

and, of course, the valuation gets a little bit elevated, a lot of the sell side in trying to defend the bull case would say well what you really care about here is what percentage of global broadband subscribers netflix penetrates right it's like it's like 40 percent now globally it's like 75 percent in the u.s i think if you include you know multiple users in the household or something like that in other words they everybody was sort of fixated on this one goal of getting that number up. And so I guess it just means you don't quite have the ability to track it in a fine-tuned way. Look, this company has gone through a series of waves of, you know, what is the right goal to reach here? There was a time where analysts were throwing out a potential TAM, total addressable market, of 800 million

global subscribers for Netflix. I mean, those days are way over now. I mean, no one even talks about 500 million as a realistic goal anymore. But on the other side, Netflix has 75 million U.S. and Canada household subscribers. The whole traditional cable bundle only has about 70 million. So that's a real win for Netflix. That's a success story. For sure. Well, I remember a time when postage rates were a huge mover of Netflix stock because they were throwing they were throwing DVDs in the mail all the time. So this is a company we should remember that has managed to to navigate multiple different kind of cycles and innovation uh you know waves yeah exactly the dvd days are over the streaming days are here and there will probably be a next wave and netflix will likely have to iterate one more time we're seeing it already with live sports

maybe is the next thing that netflix gets in the nba rights are up fairly soon we'll see if netflix plays there they inked a deal for wwe so it is quite possible that in the next two, three years or so, Netflix gets into live sports, which is something that they really have not done in their history. Yeah, they've not done that in their history. It's interesting because they've kind of broken a couple of rules along the way in terms of things they said they might not do. Of course, advertising being one of them. But we'll see how it goes from here. Alex, appreciate it. Talk to you soon. Thanks, Mike.

A quick note to viewers, by the way. You may have noticed that the ticker on the bottom of your screen is not updating properly. We are having data issues with the Dow, S&P and Nasdaq. We are working to resolve them as soon as possible. Now, as you can see, the Dow is up by 166, about four tenths of almost half of 1%. The Nasdaq really pulling in the other direction, down a full 2% at this point, and I think more than 5% on a week-to-date basis. We're just getting started. Up next, going all in on cash with the S&P and Nasdaq on pace for their worst losing streaks in more than a year. 314 Research's Warren Pies is back with how far this pullback could go

and why he says it's time to ditch the buy-the-dip playbook. We're live from New York Stock Exchange. You're watching Closing Bell on CNBC. The S&P and Nasdaq under pressure, both poised for their sixth straight down day. That would be their longest losing streaks in more than a year. My next guest expects even more downside for stocks ahead, downgrading equities to an underweight. Let's bring in Warren Pies of 314 Research. Warren, great to see you. Great to catch up with you on this call. So for a while, when you had been bullish from the latter part of last year into very recently,

I think you were essentially saying, you know, the soft landing looks probable. The Fed's going to do what it can to make sure it hacks its midwife to a soft landing. And obviously, that equation has changed here. So walk us through it. Yeah, thank you for having me. We came into the year basically expecting, as you said, a soft landing. And we had thrown out a target, which we thought was a little bit crazy and sounded a little crazy at the time, of 5,200 by the first Fed cut in May. And that's basically our base case. In order to get that, you need rapid, immaculate disinflation.

And really, the center of that is shelter disinflation. And so we were able to look through a lot of the stale stuff that was in the CPI for the first few months. But we're starting to get important data sets that are coming in showing that the rental market is, in fact, reaccelerating. And that's going to, I don't think the Fed's going to have the leeway, ultimately, due to the shelter reacceleration to cut rates anytime this summer. So I just think there's a feedback loop. Rates are going to stay a little higher. That's going to pressure equities. This is going to be a choppy quarter. You know, we've come through two great quarters of 10 percent gains.

Q4, Q1, very few times, only two other in history. We've seen that. So I expect some chop here in Q2. Yeah, we do actually have that chart that you put together showing how the S&P has traded when yields have been rising. It's been basically one of the drivers of pretty much each correction over the last couple of years. Although what I do find interesting about it is obviously the yields have not really gone back and retraced to their prior levels or below that. And so, you know, it's not as if you have to have the entire yield move unwound. But while the rate pressure remains increasing, it seems like stocks have trouble absorbing it fully. Yeah. And I think it changes the calculus for buying these dips. So we downgraded stocks

yesterday at the open. It was like almost 4% down from all-time highs when we downgraded stocks. The traditional playbook from post-GFC period 2009 through 2021 says buy 5% dips. 66% of all 5% dips, you had new highs on the index within a few months. That hasn't worked since 2022. So 2022 forward, buying 5% dips has been a losing strategy. I actually usually go down to a 7%, 8%, 10% correction before the move is over. And that's really, like you said, down to interest rates. Because you saw back in the post GFC era, rates would fall as stocks got that first bit of pressure and people went into the bond market. There's no inflation to worry about. Now what you see is yields rise into these pullbacks, and they rise after stocks have pulled back 5%. What that tells you is just like the chart you

showed us, that yields are actually transforming into a causative agent of these pullbacks. And so it makes them less, there's less of a cushion there, less of a Fed put and a bond market put underneath the stock market in these pullbacks. And so it makes them less. There's less of a cushion there, less of a Fed put in a bond market put underneath the stock market in these pullbacks. I guess what about the notion that, you know, the narratives kind of overshoot in, you know, in the short term. Right. So we obviously had this intense recession watch that went nowhere. We had a stagflation scare along the way. And then it became, oh, we're going to decelerate into this year. It's going to be a soft, nice, gentle landing. And now it feels like people are caught up in the potential overheat mode.

The economy is just humming and nothing can restrain it. And I wonder if there is something that we at least have to be aware of out there that says, you know, maybe yields will start to bite. Maybe the consumer is a little more fatigued than we thought. And all of a sudden we'll be talking about, you know, why we're decelerating a little bit. There's a real risk of that. And I've had some conversations with clients around that. We don't see the data to make a call on the economy weakening at this point in time. But I do think that what we've seen is real responsiveness out of the economy from especially long end rates. So we saw the 10-year go from 5% last October down to 3.8% by the end of the year coming into 2024. And that's really what caused this reacceleration

in the inflation data and the shelter inflation data we're talking about. So on the other hand, now we're back up at 4.6 on the 10-year mortgage rates are getting up to 7.5%. It does start to slow things down. And the thing you have to worry about, and I don't think it's here right at this moment, but there is a momentum to the economy. And if you break that momentum, that's when you get into some real trouble in the labor market, for instance. I think that's why you hear Fed economists like Claudia Assam and mainly people on the left, really, who are saying we need to cut rates preemptively and worry less about inflation.

But it just highlights the real trap the Fed has found itself in here. They're really up against a rock in a hard place. Yeah, it is tricky, especially when you try to figure out, well, what would not repeating the last mistake mean? Would it mean be super tough on inflation because they weren't tough enough? Or would it mean try to be anticipatory about the turn and start easing proactively?

So, you know, obviously not an easy call. We just don't know how that's going to drop. Yeah, I don't think I look. They were already. So a lot of people I've heard this conversation today on television is like, look, we're at two point eight on the core PCE. The Fed's SEP says we're at 2.6 at the end of the year. Why aren't we just cutting now? I think the Fed was already at the limits of how loose they could be by saying we're going to cut three times and expect a 2.6% core PCE. And if you run the numbers with shelter, disinflation, not really giving you a tailwind, I don't see how the Fed makes that last mile that we're all talking about, 2.8 to 2.6. And so I think we're shutting the door without another round of rates backing up, going back into the economy.

I think we're shutting the door to rate cuts right now, which is really why we downgraded stocks. Yeah. All right. Warren, appreciate it. We'll see what PCE inflation gives us in a week, See if that changes the story at all. Have a good weekend. Coming up, breaking the bank. Regional banks rallying today, but still underperforming this month as higher rates put pressure on quarterly profits. We'll have a top analyst standing by to size up the sector,

including the names he says are still a buy right now. We'll be right back. Bank stocks rallying today on better than expected quarters from regional names Fifth Third, Bancorp and Huntington. The group managing to shake off broad weakness and head for a winning week. Here to break down those moves and look ahead to more earnings next week. Baird's top bank analyst, David George, joins me now. David, good to have you. You know, we're through the bulk of bank earnings season here. Thematically, what would you draw out of what we've heard and what are investors reacting to today in finding some value in them? Well, good afternoon, Mike, and a couple of things. In terms of the results themselves,

I would characterize them as stable, which, given the sentiment towards the group going into earnings, we think is a good thing. If you just kind of take a step back and think about the drivers and fundamentals, deposits have been stable. Net interest margins are starting to show some stabilization as well and should show a bottom or an inflection over the next quarter or two. Probably the most important thing, Mike, in kind of the initial bank earnings takeaways is that credit quality, for all the concerns about commercial real estate office and the consumer, credit quality continues to be very good, and capital continues to show improvement as well.

So given the poor sentiment and positioning going in, we think market participants are very underweight, particularly regional banks, but we think that there's a lot of positives from our standpoint, at least looking through the earnings so far. You mentioned credit looked fine, I suppose. Now, a lot of, I guess, credit card loss rates have been migrating higher, not necessarily to alarming levels, but that's been a trend. On the commercial real estate side, when it comes to a lot of the regionals, have they worked their way past it? In other words, they've been kind of able to obviously build book value and earn some money along the way and then take losses as necessary.

Or are we still waiting for, you know, for the real hit to occur? Yeah. So on the commercial real estate, on the commercial real estate side, I think this is going to be a very long tail. If you're if you're waiting for a clearing event, it's going to take a very long time to do that. And fortunately, that's actually a good thing for banks. And we're of the view that the CRE office cycle is going to be problematic. However, it is going to extend over probably a three or four year period of time as lessors renegotiate their rents and you start to get some semblance of price discovery in the CRE market. The good news is, Mike, that banks have the benefit of pre-provision earnings to pay for those losses over time. And as a reminder,

several banks have already taken very significant losses and reserves in commercial real estate portfolios. Wells Fargo is over 10 percent. PNC is over 10 percent. Citizens, M&T are both in the double digits as well. So banks are very well prepared in our view to deal with, obviously, the well-publicized issues and concerns that the market has around CRE. And what are some of your preferred names at this point now that we've heard from most? Yeah, our favorites right here have and we've really been focused on the regional banks more broadly relative to the money centers. And our favorites are Comerica, Truist, Key, Huntington and PNC. We think all of those names traded fairly good valuations in the risk reward tradeoffs.

And again, a fairly expensive equity market. Rather, we think that these stocks provide a pretty good margin of safety and reasonable upside over the next 12 to 18 months. And what can you say about the sensitivity? I know it varies by bank, but to the fact that maybe short rates are going to stay here for a while longer than we thought. Yeah, obviously, market expectations around rates, Mike, have really moved a lot over the last 90 to 180 days. And fortunately, on the deposit side, that's really the key. We have not seen the migration or movement of deposits that we were all worried about a year or so ago. So that's a good thing. Banks are by nature asset sensitive. So the higher for longer is not a huge problem.

It probably will have some knock on effects as it relates to credit quality. But again, from our standpoint, again, given where the valuations are, the rate backdrop from where we sit, at least, is pretty manageable today. Yeah, obviously, expectations have been chopped down pretty low. We got Truist coming on Monday. David, thanks very much. Appreciate the time today. Thanks, Mike. All right, up next, we're tracking the biggest movers as we head into the close. Christina Parts Neville is standing by with those. Hi, Christina.

Hi. Well, Ulta Beauty facing fierce competition from Sephora, and Sony Pictures is reportedly looking to buy Paramount. Those stories next. 16 minutes till the closing bell. S&P still down 1.1%. Let's get back to Christina for a look at the key stocks to watch. Well, let's start with Paramount leading the S&P 500 after a New York Times report that says

Sony's movie studio division and Apollo Global Management are in discussions for a joint bid to acquire a Paramount. Neither company has actually submitted an official bid as Paramount is still in exclusive conversations with independent studio Skydance, and that's why Paramount's up 13%. Ever since April 2nd, when Ulta Beauty CEO said at a JP Morgan conference that demand was down across all categories, shares have dropped over 20%. And today, Jefferies analysts are downgrading Ulta to hold, citing constraints in its high-end business due to a lack of newness and increasing pressure from Sephora. Shares down 2.5%. Mike? All right, Christina, thank you. Still ahead, semis slipping further in today's session as one of the hottest trades of the past few months shows more signs of cooling. So what's driving that move lower and the names hardest hit when closing bell returns?

Welcome back. The latest CPI report showing a sharp spike in the cost of insurance is hitting consumers. CNBC Pro has a new piece out with a look at some of the names that could be set to benefit from that recent surge. For details and that entire story, head to cnbcpro.com slash pro pick or scan the QR code on your screen. Up next, more on this volatile stretch for stocks with Carson Group's Ryan Dietrich, why he thinks this recent weakness may be nearing its end and the S&P closes in on its worst week of the year. That and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. Carson Group Chief Market Strategist Ryan Dietrich joins me to break down these final moments of the trading week. Plus Christina Partsenevelos on the sell off in semis with Nvidia now down 10 percent on the day and Kate Rudy on the big earnings beat for American Express. Ryan let's start with you. You've been you've been bullish staunchly so since late 2022. As we see this choppy period in the market, we have a 5% pullback. Obvious questions about whether, in fact, it's the start of something more.

How are you playing it? Yeah, Mike, thank you for having me back. And TGIF, everybody. So, listen, after a five-month rally, right, after a 27% rally to 100 days off that late October low, we've been saying for about a month now, be open to the idea of some type of indigestion. Well, we're getting it, right? We're getting these late-day sell-offs. It's the first 5% correction, Mike, we've had all year.

Just remember, most years on average have multiple 5% corrections. But here's just something for the listeners to think about. For sure. Look at the number of stocks making a 20-day low. We had a big spike in that recently, Mike. Also, if you look at the last five days, we've actually had some internal improvement. I know you wouldn't look at just the indices, but just today, like you said, I guess talk about the banks, right? There are actually more stocks kind of participating,

even though you don't see it the last five days. So we think we're trying to flush out a significant low. We don't see a 10% correction. I think it'll be less than that. But that's kind of how we see things, Mike. We're getting close, we think. So close in terms of time, maybe in price. Although I did think that some of the factors you were leaning on in terms of, you know, seasonal patterns in election year, seasonal patterns after a really strong first quarter, suggest that things could stay a little bit dicey for a couple of months. You're right. I mean, dicey is the right word, but I think just consolidate. I mean, look at your average election year, Mike. You tend to have some weakness, a little bit of weakness, choppiness into Memorial Day. Then you have a surprise summer rally most election years.

We think that could play out. Put-to-call ratios are finally starting to spike. The VIX is up around 20. VIX is in backwardation in the futures market. A little geeky there, but last time we saw that was March of last year. We are, let's see, the NAAIM finally starting to see some worry. We can go on. But this doesn't mean the low is here. I want to be very clear. But it means we're in the neighborhood, right?

And those are the things you want to see. Everybody was a bull this time a month ago. I think this is perfectly normal and a refresh. It's really healthy, we think. Yeah, that's true. A lot of the things a pullback is supposed to do have therefore been kind of accomplished. How are you thinking about the moves in the bond market at this point? Obviously, it's a pressure point on stocks. Do you think that the yields

have kind of made whatever increase they're going to for a little while? We do. You know, we've been underweight duration for a while. When everyone was saying six or seven cuts, we were always saying probably two or three because we thought the economy was a lot stronger. Now we think that pendulum, Mike, has shifted a little too far in the portfolios and models we run for our Carson advisors and our Carson partners. We actually added treasuries recently for the first time, at least since I've been there, in two years. So I'm not saying we're huge bond bulls, but we do think there's still probably a cut or two coming in this talk of no cuts or hikes. We think it's extreme the other way. And then yields probably

will start to work the way lower, and it's going to take some good inflation data. We get it, but we're still optimistic. We're going to see that here. And then real quick, Ryan, if you think the economy is stronger, I mean, we're seeing a lot of the big growth names really unwind here to the downside. I mean, do you think that makes sense? Is that the kind of rotation you would expect or are we going to be back to the old leadership soon? No, we're not too surprised by that. We've been neutral technology for a while. Like a lot of people, this rotation, this idea of all these leaders moving to some other areas, we think it makes a lot of sense.

And honestly, I know small caps and mid caps have struggled. We fully get that. But again, we think if you start from right now to the end of the year, Mike, we think those are going to be some of the opportunities along with industrials and financials and cyclical areas. We think rotation out of tech into those areas, that's how we're positioning our models. All right, Ryan, good perspective. Appreciate the time today. Thank you. Thank you. Christina, rotation seems like a mild word for what's going on in some of the big semis today.

What seems to be behind that? Yeah, to your point, the SMH is on pace for what? Its fourth weekly decline. We're also seeing it's the worst week since October 2022 because of several factors. And what we specifically the decline in tandem, to your point, your question, what are the reasons? You have the rise in the 10 year. You just talked about that. So the cost of capital, clearly a concern across all technology stocks, not just chips. But more recently, the disappointing outlooks from ASML and Taiwan Semi have some investors pretty spooked. For example, TSMC warned that auto would be down. PC and smartphone sales are recovering slowly. We'll fix that screen in a second. That was just showing Amex. And then

lastly, the sector as a whole is considered overbought, specifically with chips. So you're seeing a lot of that de-risking, momentum traders getting out. That's why even big names like Nvidia down about 10 percent. Second weakest S&P performer today, followed by AMD and Micron, also down over 4 percent. And then I got to mention Supermicro because that stock is down, we'll bring that up in a second, down over 22 percent right now. The worst performer right now on the S&P 500. The Silicon Valley-based server Assembler did announce its earnings release date for April 30th today, which is great, but didn't pre-announce better than expected earnings. And in the last seven out of eight times when Supermicro gave an earnings

date, they said earnings are going to be good. So this time around, they said nothing. And that has investors worried, Mike. Amazing. That's such a great tell on just how tightly wound the positioning was, I guess, and what it was based on in a name like Supermicro for the stock to be down 20 plus percent on that. A lot of folks looking ahead about a month to Nvidia's earnings report. I don't suppose much has happened in the way of their earnings estimates or anything like that, even after Taiwan Semi came out with its cautious tone. No, that's just because they've already said that there's a backlog for their Blackwell. That's the next iteration of their graphic processing units. So they're already saying demand is there for their next generation. The big question will

be pricing and what that means for margins. But NVIDIA is still considered the true AI play. And then all of the others are exposed to non AI segments PC sales smartphone sales Analog auto, you know still facing a bottom so that is weighing on chips for sure Christina Thank you very much Kate American Express to stand out today Hey Mike. Yeah, so Amex the biggest winner on the Dow today It's up 6% or so going into the close on the heels that earnings beat this morning. American Express seeing higher quarterly profit. That was better than expectations. Same with revenue, up about 11% of the quarter.

It was all driven by strong consumer spending, especially for younger cardholders. Gen Z and millennials accounting for 60% of new Amex customers. I caught up with American Express' CFO this morning. He highlighted that demographic. He said people under 35 were spending 70 percent more at restaurants in particular compared to their older counterparts. Travel was also a green shoot. He told me business class travel, especially strong. He said the bounce back was coming from consulting firms and tech firms that were traveling more in the past. So potential green shoot there. Delinquencies did tick up

marginally, but still low. They're around 1.3 percent, which is under the pre-pandemic levels. And then small business was a bit of a soft spot, Mike. Yeah, very much back to the old normal in those comments, Kate. Thank you very much. We have 30 seconds into the close. It does appear the S&P 500 will be down for a sixth straight day, but doing it in a very unusual way. The equal weighted S&P is about flat. More stocks up than down. You have bank stocks and energy stocks up at least 1%. And the weakness is almost entirely concentrated in semiconductors and the broader tech space. As we do go out with a significant loss to lead, the semiconductor is down 9% on the week.

The S&P 500 is going to lose 3% for the full week. That does it for Closing Vow. Let's take a look at overtime with Morgan and John.