Closing Bell - Closing Bell: Fate of the Broadening Trade 1/10/25

Episode Date: January 10, 2025

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.

Kelly thanks so much welcome to Closing Bell I'm Scott Wapner on this Friday from the Post 9 here at the New York Stock Exchange. This make or break hour begins with this market upset a hotter than expected jobs report sending yields surging and stocks sinking. The picture looks like this with 60 to go and regulation as you can see red all over the place and it was like that right from the jump today. It happened as bond yields hit their highest levels in more than a year. And coming up we'll ask the Wharton School's Jeremy Siegel where stocks are likely to head in the weeks ahead. As for what's happening today, the Russell leading the declines. Financials getting hit pretty hard as well.

That is the worst sector, but there's the Russell down more than 2% today. Tech not far behind either. Several mega cap stocks are seeing big losses today. Apple included as a new report throws cold water, more of it on the iPhone upgrade cycle. And that is our talk of the tape for that stock already got hit with a big downgrade this week. Now these fresh concerns. So let's bring in our tech reporter, Steve Kobach, who is here with more.

Because when this particular analyst speaks, you listen. I always listen. And this is Scott. This is a dreary note coming from that analyst Ming-Ching Kuo. He's over at TF International Securities. He is what I consider the best analyst out there covering Apple. He often predicts what Apple's going to do months or even years before Apple does it. So here's what he's saying about iPhone. iPhone shipments, he says, are expected to decline 6 percent for the first half of this year, even with the expected launch of the new entry-level iPhone SE. That's the cheaper iPhone that Apple puts out every few years or so. iPhone shipments, it gets worse, though. In China, down 10% to 12% year over year for the month of

December, that is, even though overall smartphone shipments were flat. That means Apple is losing market share in China. And here's the kicker here. He says, quote, no evidence of Apple intelligence driving hardware upgrades or services revenue. Apple's reporting earnings in just 20 days, Scott, on January 30th. And this is the biggest question everyone's going to have for Tim Cook and his team.

Is Apple intelligence driving sales? Ming-Chi Kuo seems to think it's not paying off right now. At what point, Steve, do we simply say, you know what, we have enough evidence to suggest this is just not going to happen like maybe we thought it would? I think we're going to get a good sign in 20 days here about what that actually looks like, what the quarter looked like. Because keep in mind, this is the first full quarter, that December quarter that Apple is about to report. First full quarter of iPhone 16 sales, not to mention the launch of Apple Intelligence.

There are two main updates to Apple Intelligence. ChatGPT is there now. A lot of what Apple has promised is already on the phone. We're still waiting for that other update. So if you're holding on hope that maybe Apple Intelligence will drive more sales, there's the significant update we're expecting in March that upgrades Siri. It lets third-party apps tap into the system and like

that. Maybe that's the key. But right now, we're just not seeing the evidence behind that bull case. Yeah, stock down 3% this week. Most of that happening today. Steve, thank you. Steve Kovac with a bit of a reality check maybe on what's taking place around this name. There is fallout in other stocks. And for that, we send it to Christina Partsenevelos now for these other names that are being dragged down today. And you've flagged some for us. Yeah, there's quite a few, actually.

And we have to point out Apple's massive $3.5 trillion market cap isn't just what happens in Cupertino. It's really just built on this complex web of suppliers worldwide. And so when Apple gets a negative report, faces headwinds, these suppliers often feel the chill. Let's start with Skyworks, for example. They're the folks behind those crucial analog and mixed signal chips in your iPhones. Apple is their biggest customer by far, which explains why their stock is down about one and a half percent, really dropped after 12 p.m. when that report came out. Then there's Qualcomm. Even though Apple is planning to roll out its own modem chips this spring,

they still rely heavily on Qualcomm's components. And according to Bernstein, Apple makes roughly around 20% of Qualcomm's revenue. Shares also down about 1.2% at the moment. And then you have two other key players that were already trending down this morning with the greater markets, but still worth watching. That would be Broadcom, which just inked a multi-billion dollar deal with Apple to develop 5G radio frequency components. That's in December. And then Corning, which makes the glass for your iPhone, iPad and Apple Watch. You can see both of those trending in the red right now. Scott.

Let me just ask you one more question unrelated to Apple, obviously, but since we've taken stock of this all week, NVIDIA is going to close the week, looks to be about 6% down. They had the big keynote at CES. What's your big takeaway this week for that stock? The transition from Hopper, which was the current GPU iteration, to Blackwell is not as smooth as what a lot of analysts were anticipating.

And I say that because the CEO and CFO both said that they're not going to up the guidance. They said Blackwell is shipping beyond their expectations. But if they're not upping the guidance and one product is doing better than expected, that means the other product is not. And so we have to think that going forward in a lot of every single year, we're going to have this moment of transition from one product to the next, especially as NVIDIA creates this annual cadence. So I think that's something important for investors to keep in mind, that customers are going to hold back and wait for the next iteration of the GPU. That's number one.

And number two is overall, we got a lot about robotics and gaming, but that's not near-term catalysts. So that's probably why you saw more of a negative reaction right now. All right. Stock ran up into the event, too. Let's not forget that. Christina, thanks. We'll see you in a little bit. Christina Partsenevelos, appreciate you on that. Let's bring in Malcolm Etheridge now of Capital Area Planning Group and Shannon Sikosha of Enby Private Wealth, both CNBC contributors. Malcolm, you first, because you do hold Apple. What do you make of these reports? And the

question that I asked Steve Kovach, at what point do you say as an investor, you know what, maybe this is just going to be different than I thought. Yeah, Scott, I've been making the case to you for a while that Apple has to do something to justify this run up that's happened. You know, all the questions about is it overvalued? When will they finally deliver? I think that realistically, this this quarter report that's coming isn't going to do anything to help apple out in that regard i think that we're probably going to see a sell-off in those shares either leading up to or right after that earnings report because nothing meaningful has happened to convince the world that apple intelligence is really going to be the game changer that we're all hoping it's

going to be but i'll also say that it is very important in the first half of this year that apple does actually come out and show us how meaningfully important Apple intelligence is to the ecosystem, simply because we need that as a read on how much demand there is from the consumer side for these AI tools that these companies have invested so heavily in. Because up to this point, all of the developments have been on the enterprise side. Shan, rough week for the Nasdaq, to say the least, made worse today, obviously, by the rise in rates. What do you make of that? Well, I think it's two parts, Scott. I think coming off of, you know, really kind of a run to the run to the finish, if you will, for some of these stocks. And so, you know, I think there

has been some risk mitigation going on. I think there's some pairing of positions. If you think about for taxable investors, you know, there's there obviously have some concentration in these names, even in and in and outside of what they might own through an S&P 500 conduit. The other thing is, is that we're in a scenario where we are, you know, we are getting a little bit fearful about rising rates. And, you know, there's a number it's a multifaceted rationale for why rates are why rates have risen the way they have.

And, you know, it's really on the foundation of economic growth. And so if you're anticipating that there will be continued economic growth, if you're looking at an environment where you're higher for longer and you're looking at the lofty valuations for some of these names, there is some of that vulnerability. And again, it's not just that we're concerned about kind of relative to other stocks in the S&P 500. Earnings are still going to likely be stronger, but there is that deceleration. And so then you start to hit that inflection point where you look at your portfolio.

You want to maybe trim some of those names. And you're a little bit concerned that earnings growth is not going to be quite as robust to justify these valuations with the headwind of higher rates into the middle of the year. I know, Shannon, but why doesn't good news just rule the day? I mean, at the end of the day, I think you hit it on the headwind of higher rates into the middle of the year. I know, Shan, but why doesn't good news just rule the day? I mean, at the end of the day, I think you hit it on the head. I mean, the fact that you, if you have a stronger economy, earnings are likely to be better. There still is, I don't know, the narrative doesn't seem to have changed, really, over the optimism about an incoming administration

that's going to have tax cuts and deregulation and just an overall better feeling about where maybe things can go from here. Sure, it's a momentary upset, it feels like, because of the direction of interest rates and what it might mean for the Fed and what it won't do. Well, you know, equity investors, Scott, they're always looking for everything to be a tailwind, right? They're looking for the tailwind of economic growth and deregulation, M&A activity pickup, and lower rates and lower inflation. So, I mean, I think for us, when we look at the year, we're really constructive on equity still. But we acknowledge that this first quarter in particular might be choppy.

So taking advantage of, you know, perhaps some of this fear of the uncertainty, you know, post inauguration and some of the executive orders that might be put into place, I think, again, you hit the nail on the head. Good news can be good news. But right now, in looking at the valuations and looking at kind of repositioning of portfolios coming off of really two really strong market years, I think that's why you're seeing a bit of this skittishness starting the year. Malcolm, you're not changing your overall view of the market here, are you, as a result of the move in yields? Not changing my overall view of the market, but I am changing my overall view of the market here. Are you as a result of the move in yields? Not changing my overall view of the market, but I am changing my overall view of what will probably be the leading sector by the end of this year. Right. So big tech has done very well by me and

everyone else who's been in the markets the last couple of years, like Shannon said. But I think that realistically, investors that are expecting to simply rinse and repeat the same playbook, just buy the same five to 10 mega cap tech names that have done really well before. I think folks following that same playbook this year are setting themselves up for disappointment. I think realistically, there are a number of headwinds based on are just way too hard to hit at this point. At the same time that tech investors' expectations have already been out of control and they continue to grow out of control while we're seeing valuations reach these questionable points. And so I just don't think that it bodes well for anybody who's looking to simply, you know, put the money back where it came from at any at any sell off. I think that realistically, we have to look for opportunities within tech specifically, but then also look at

which other sectors will do more favorably under the incoming administration. Well, I mean, you're thinking about that and being actionable as a result, right? I mean, at least as it relates to financials. I know you added that recently for your clients. Yes. So we added the XLF to many of our client portfolios. I wholeheartedly expect for the number of tailwinds at the back of financials, specifically the larger GSIBs, right? So if we think about potential tax cuts at the corporate level, if we think about decreasing interest rates throughout 2025, whether it's two cuts or three, if we think about additional deal flow coming in the form of IPOs and other M&A activity, that all spells a heads they win, tails they win kind of scenario for those financial names. And so we've added that as the sector that we anticipate will do

meaningfully well, regardless of what direction the rest of the market decides to go. Shan, you still believe in this broadening story that you've been telling us about, even in the face of higher rates, that seems to be a legitimate problem. It's a legitimate concern. I wouldn't say it's a problem that can't be overcome. And I think that's because, again, in addition to our broadening out theme, Scott, in terms of, you know, this earnings deceleration for the names that have done really well, we're also looking at the potential for above trend economic growth this year, which is part of the foundation of our story. We also expect there to be growth in real disposable income. And we expect small businesses to be able to have an environment in which they can focus on growth.

And so it's not just in the public space. It's in the private space. This broadening out, we think there is a foundation. Higher rates were certainly one of the tailwinds. I mean, lower rates, excuse me, were one of the tailwinds we would have liked to see. And we will see lower rates, maybe not as low as we thought. But we think that they will be offset by this economic momentum that we're talking about. And, again, that is really at

the foundation of our thesis for the broadening out in 25. All right, we'll leave it there, Shan. Thanks, Malcolm. Thank you. Great weekend to you both. We'll see you soon. For more now, let's bring in Wharton School professor and Wisdom Tree senior economist Jeremy Siegel. Professor, welcome back. It's nice to see you in this new year. Good afternoon, Scott. What do you make of the market's reaction today to that better than expected jobs report and the move in rates? Well, the price in stocks is always a battle between the numerator and the denominator. The numerator is earnings,

and it's a strong report, and that's good for earnings. But also, strong report also means higher interest rates. That's the denominator. Today, the denominator beat the numerator. And I think really the market is saying maybe no rate cuts in 2025. 2025, and that the 10-year could very easily break well above 5%. One has to realize, and I've done the historical research, over the last half century, the long rate has been on average between one and one and a half percentage points above the Fed funds rate. We have a Fed funds rate now at 4.3 percent. So, you know, do the math. You're talking about five, five and a

half, five and three quarters potentially on the 10-year. And that's a normal term structure. That's not anything that's unusual and i think more we got so used to this inverted curve you know what the short above the long without the long which they uh... at low but uh... that is not normal through history so now i think what investors have to say is oh my goodness all right at the end

if the ten-year goes into the five is uh... earnings are going to be good but I have to take that into account. I mean, are you thinking that the Fed might not cut anymore? I know you said the market might be thinking that. Does that match with your own view? And do you really think that the 10-year could get substantially over 5 percent? I think it could. I think no one really, you know, anything could happen, you know, when we talk about three,

six, nine, 12 months out. Clearly, if things start slipping, the Fed will lower. But given the growth that we see right now under that, and if you take a look at the futures and adjust them for risk premiums as I do, I really see that virtually every cut has really been wiped out. And looking at history, I was saying that that is actually a formula for higher long term rates. And as you know, you know, before year end, I said that this could be the year of a correction. I don't think it's going to be a big collapse. I mean, look at the VIX. I think it crossed 20 today. It's a little bit lower now. That's a lot of hedging in the market. I mean, there's a lot of people that say, oh my goodness,

you know, this could be a little bit of a dip. But when you get VIX at 20, I don't see a big fall. But I think that, you you know the thought that i have to deal with maybe a five to five and a half percent long bond how do i allocate in that case that in especially for for all types of stocks small stocks are hurt because if the fed doesn't cut their interest costs remain high uh the tech stocks don't borrow at those interest rates, but they have to worry about discounting. And since they're, you know, such high P.E. ratios, a small change in discounting send them lower. So both those have, for different reasons, been depressed by the strong economic growth. By the way, no one mentioned today that the wages came in at or actually below expectation.

So, you know, it wasn't a wage pressure situation over here. It was really, wow, this economy moves ahead at this interest rate. Is that our star or what we call that natural rate? It's really, we're very, very close to that now. Maybe just a tiny bit restrictive, if at all. Well, I mean, you did have you miss inflation expectations rise, which maybe just added a little bit of fuel to all this. Let me ask you this. Let me ask you this. What weighs more on the proverbial scale, if you will, tax cuts and deregulation and

good feeling about the new administration and what it means for the economy or higher rates, thus fewer cuts? I mean, can the market overcome the latter? Well, as we mentioned before, most remember the big tax cuts were done in the last Trump administration. The ones that are talked about now are much smaller. I mean, even if he can get 15, and he's talked about 15% for domestically produced, I mean, compare that from going down from 35 for everyone down to 21. So, I mean, people are saying it's a repeat, but it isn't. It's on a much smaller scale. Also, he got a lot of deregulation done. Now, unfortunately, Biden put some of it back, but a lot of it was done. I don't think, are we going to get the increment again that we got in

his first term? So, in my opinion, those boosts, and they are positive, I don't think can overwhelm what might happen to interest rates to keep this market much flatter than we've seen it for two years. Yeah, you mentioned the possibility of a correction. Would you be a buyer of it? Yeah. I mean, if we get down 10%, I say on the S&P, which would probably mean 15 to 20, and I would put idle cash to work definitely on that. I do not see a bear market, which is over 20%,

although certainly the technical traders can bring it there. But I think you would be rewarded by buying below the 10 percent mark. What would you do with the Russell? I mean, the pullback looking on my screen right right now. I mean, the Russell over a month is down eight percent. It's obviously the first place you look. I know people want to look at growth stocks, et cetera. But when rates rise, the Russell's been in trouble. The Russell is totally a story about wiping out those Fed rate cuts because those small stocks do borrow at the Fed rate, you know, overwhelmingly. And which, of course, large stocks really don't.

So, I mean, all their borrowing costs, which we're being factored in, is going down 20 percent, 30 percent, 40 percent in terms of that. That just might not happen. So that's going to hurt their bottom line. And that's the problem with the Russell 2000. So once it gets used to the fact, hey, maybe we won't have any rate cuts. I mean, you take a look at their valuation and say, hey, I can sit on them at this particular level because valuations at 12, 13, 14, 15 times earnings historically have been rewarding to investors. I mean, I know we're talking about the Russell, and sometimes we use it as a proxy for the so-called broadening trade. But the broadening trade does have a problem if rates remain where they are, if not back up even further, correct? Yeah, absolutely.

Well, don't forget, I mean, you know, there's two things. There's the value growth, and then there's the small stock. Now, most of the small stocks, although we divide them in the value growth, many of them are more of those value stocks. So both of the value story and even among the big stocks, which have dividend yields, which are challenged by the interest rates, and the small stocks, which have interest costs, which are challenged by the lack of interest rates, they both suffer and they have both suffered. And the AI narrative, now, you talked about Apple and what might happen there. The AI narrative is still intact, and there's no real trend break of the growth stocks relative to the value stocks or the mag seven. There's really not yet any sort of major trend break.

So that's one of the longest established trends. And that train is still going at this point. All right, we'll leave it there. Good weekend to you, Professor. We'll see you soon. I'm sure of that. Professor Jeremy Siegel at the Wharton School. We do have some news developing from HPE.

Our Steve Kovach has that for us. What do we know? Yeah, shares are going green here, just defying the restarton School. We do have some news developing from HPE. Our Steve Kovach has that for us. What do we know? Yeah, shares are going green here, just defying the rest of the market. This is off a Bloomberg report saying that HPE last year landed a billion-dollar deal with X, that's Elon Musk's social media company, for AI servers. We reached out to the company for a response here. They didn't comment to us yet or to Bloomberg, but you can see what this is doing to the shares, just like the professor is saying the AI narrative is still there. And by the way, it's a little unclear here, Scott, if this is going for X by itself or if XAI, a separate artificial intelligence company that often shares a lot of resources with X,

if that's going to be playing in here, too, as well. We know Elon Musk's XAI has built that huge supercomputer data center out there outside of Memphis that's also using server racks from Dell and super micro names we talk about all the time. But it sounds like here we have a separate deal with HPE getting a billion dollar deal out of Elon Musk's AI empire here, Scott. Shares are up about a percent and a half. Appreciate that update, Steve. Thank you, Steve Kovac. We, of course, are all over today's market volatility.

Up next, star venture capitalist Rick Heitzman is back. He'll react to today's big drop in big tech. What could be at stake for that sector coming up? Join me right here at Post 9 after the break. rising yields weighing on the tech trade today with the sector having its worst week in some two months let's bring in star venture capitalist rick heitzman of first mark capital here with us as you see on set um how are you thinking about this space right now? Coming into the year, I felt like there was a lot of optimism. And today, has that waned at all or no? Not at all. I think this is a short-term issue. In the long term, people are feeling really good

about the year. They feel the new administration, especially with the FTC, is going to be much looser. We're seeing the M&A market really heat up. We've had a couple companies sold to larger public companies even so far this year, and it's the first week of January. And there's a huge M&A pipeline, either from large companies trying to acquire smaller companies in areas like vertical SaaS or folks trying to play in the AI game. When are we going to actually see?

I ask every venture capitalist who comes on, just because there's been all this pent-up demand, when are we going to see more IPOs? Probably be... We have to wait longer than we thought? I don't think so. I don't think so. We talked about earlier this year, hey, we got to get through the audit season. So this is always a dead time for IPOs because you have to get your audit done, update your numbers, and be ready to go out. Okay. So I think we're still 60 days away from seeing that machine turn on. A lot of companies filed confidentially, even some companies with great financial metrics and even some AI pixie dust like CoreWeave I think is going to be a great company this year.

Some of the companies like Stripe and Databricks might be second half of the year, but you're going to start seeing a pickup as soon as March. Let's talk about valuations because it really is kind of an arc. I mean, you had a tremendous run-up in valuations of private companies over the last handful of years. And then there was a big comeuppance. Obviously, as the Fed changed course, they had to raise rates. Valuations really plummeted. Yes.

Where are we now? We're back to a normal stage. And we started to get normal about last year, this time last year, where people realized that it was a myth. The valuations of 21 and 22 were not real, even the public markets or the private markets. And now we're saying, hey, what are companies really worth? And, you know, you're seeing more venture capitalists and more private market boards willing to take real market valuations. So you're seeing a lot of these M&A deals getting done, maybe at a premium to that, maybe at a discount to their 21 valuations. So people are willing to take a step down because they know it's a real market price. And I think of the IPOs that will go out this year, more than a handful will be done at a discount to the last private round.

Since we're talking about valuation and you had the anthropic raise at $60 billion, how do you think about that? I mean, do you separate if you think that valuations overall are more at a normal level? Are they normal for these AI companies or are they starting to get to the point where you're like, I don't know that this is sustainable? So there's valuations and there's AI valuations. AI valuations detached from reality about two years ago. And then within that AI, there's companies like Anthropic or OpenAI, which are completely separate and that detached from the reality of even AI evaluations. So you can't really look to them as market bellwethers or a comparable company of any

type. You really have to look at what's the financial performance, really looking at operating metrics, really looking at how the company is performing. So when you see the headline of an Anthropic, a Databricks, any of these AI companies, you can't really look at them as a measure of the market. No, but do you look at them and say Bubble or anything of the like, even as they differentiate themselves, as you say, from traditional, even AI companies?

Do you look at it with any sort of pause or no? A lot of pause. Very concerning. Concerning. Concerning because everybody else says if open AI is valued at this level or anthropics valued at this level, so should I. And that's really not relevant to 99.9% of companies. That's only relevant to the two or three really premium AI companies and maybe not even relevant to them. Okay. So, you know, if you go back to that game, we're back to that game. Well, there's always a bubble somewhere. And so, you know, these companies have detached from

reality. They're momentum stocks. And now they're a couple more of the known companies where folks are piling in. Now, the private markets have become more accessible to the retail investor. So you're seeing a little bit of a bump there as you're seeing increasing demand for those shares and very limited supply. So that's artificially increasing the price of those. How are you advising your portfolio company CEOs or even ones that come to you and ask you for advice? Do you need to tell them to take a step back? Like, look, your company is great, but you're not anthropic and you're not XAI and you're not open AI yet.

And probably never. Probably never. So you shouldn't really think about that. If you do, it's like winning the lottery. And you get into this artificial valuation bubble and you probably, even and you get into this artificial valuation bubble and you probably even if you get into that bubble are not going to get out at that same price so you have to take a step back and say what can I do with the game on the field right now what do I have agency over and how can I build a sustainable business without looking over across the across the field at those types of companies I will leave it there you always help us understand this better Rick thank you that's Rick Heitz types of companies. All right, we'll leave it there. You always help us understand this better, Rick.

Thank you. That's Rick Heitzman of First Mark Capital right here. Up next, Vantage Rocks Avery Sheffield is back with us. She'll tell us the two groups she's betting on amid a possible higher for longer interest rate environment. That's just after the break. All right, welcome back. All S&P 500 sectors are lower today.

It's a broad sell-off sparked by those rising yields. Our next guest sees opportunity in two corners of the market, even with higher rates. Joining me now, Avery Sheffield, CIO and Senior Portfolio Manager at Vantage Rock. Welcome back. It's good to see you. Great to be here. So, rising rates aren't going to wreck the whole story. They won't wreck the whole story. No, because there's a reason why rates are rising. Rates are rising, but the economy is fine. Right. We saw with the payrolls number we saw with wage growth still 3.9 percent year over year. We saw the small business optimum is indexed recently. The data points that are coming out are suggesting that the economy can withstand higher rates.

So why are we reacting this way? Well, we're reacting this way because valuations are very high in many areas of the economy. And, of course, higher rates over time, high enough rates, will slow the economy. But the question is, which companies actually can do well in a higher rate environment and have reasonable enough valuations that there's real still asymmetric opportunity to the upside? Okay. So you're not naive to the fact that rates are rising. It's not like you think everything is going to work. There are going to be winners and losers. Absolutely. Where are the winners? Yes. So I think that two of the areas that are most interesting to us are airlines.

We've seen from the results this week. Yeah. Exactly. Yes. Yes. Yes. Yes. And also banks. But I can speak a little bit more about airlines. Yeah. They're so interesting because I think they're controversial. Right. And you look at the stocks like, wow, these look like they're poised for a bruising. If anything goes wrong, higher rates, potentially higher oil prices, like aren't these going to be terrible for them over time? And so, look, first, I'll just say that the number one bear case that I think people should pay attention to is higher oil prices because they're very sensitive with fuel as a meaningful part of their cost structure. What was interesting is on the call this morning, the company said that this is the highest pass-through of higher oil prices into rates that they've ever seen because the industry dynamics in the airlines have changed.

I think for an extended period of time, because the low-cost carriers have gotten to a place where their cost structures, because of high, are such a burden that they've had to shrink capacity and raise prices. And what that means is that the legacy airlines are in a much better place. To be quite frank, everyone's going to be in a much better place because if capacity growth continues to be lower than GDP growth, they'll all get pricing. And with better pricing, they'll get better earnings. And you're talking about companies that are still trading in the single digits. I mean, Ed Bastin this morning was talking about, you know, 2025 being their best year ever. It should be their best year ever. Even in the face of, you know,

Brent hits 80 bucks today and WTIs in the high 70s. Now they have a little more leverage because they have a refiner. Yes, yes. But all of the airlines should benefit if the industry structure remains this strong. But the stocks are already up a lot. Does that matter? United was a double last year. But it was at four times earnings in August. So, like, okay, so you start off at four times earnings and your earnings increase.

You're still in a mid-single-digit multiple. I mean, you know, we've seen what's happened to companies that start off at a reasonable valuation and have an earnings fluctuation. These companies are some of the cheapest companies in the market. So, you know, I'm not allowed to speak about international names, but, like, there was a Softlines retailer that was trading like it was going to go bankrupt a few years ago that's up 10 times, right? So I think if you think that the industry structure is not sustainable,

then you want to be bearish. If you start to see capacity creeping back in a way that is risking being greater than GDP growth, then you run for the hills. But I think the management teams all understand that they need to keep capacity growth constrained. And the most aggressive players historically have been those at the low end of the market that have disrupted the apple cart. And we don't expect that. Worst sector today, financials. You want to talk about the banks. They're going to start reporting next week. Some say higher rates. Why isn't that? Isn't that supposed to be good for the banks? I actually think that this is going to be a false move today. I think that they are going to do better next week.

By the way, the airlines were selling off into the prints this week and are actually doing quite well and recovering. Look, I think that the nice thing about higher rates in this type of environment is we're at higher rates because the economy is strong. Credit still remains benign. The Fed really wants to cut rates, right? But the economy is so strong they can't. If higher rates actually start to create any issues, they're going to be very quick on the trigger to lower them. So you're getting this steepening yield curve, and you're getting a steepening yield curve because the economy can withstand it. That's a very good environment for NIM.

You also have M&A activity really picking up. And then, as I mentioned, the benign credit trends and still reasonable valuations, not dirt cheap valuations, more expensive than the airlines. But I think that this is an environment where the large money center banks can do well and then add to that decreased regulation, potential pullback of Basel III, reduced capital requirements. They could just like chug along this year quite nicely. What about tech? Let's leave it with this sector, which, you know, had been asleep and then it woke up and now it looks wobbly because rates continue to go up. Yes.

Well, I mean, as you know, we're always very valuation sensitive. Technology as a whole is very expensive. Not every tech company is crazy expensive. And you do still have some really nice secular trends throughout a lot of technology. So where we're very cautious is in technology companies that are very expensive with growth estimates that can't really go much higher because they're already so inflated and or lack of innovation leading to market share losses. We are constructive on technology companies that continue to gain market share that are

at maybe low 20s multiples dominating their sector. Okay, so I'm thinking of, you know, you said you can't talk about individual names, so I'll do that. But we're talking about 40-plus forward PEs, 60-plus forward PEs. But you could throw up the stocks, for example, today that we're selling off pretty well, like Applovin, guys, if you throw that up. Palantir, I think, is having its worst year ever.

Not to pin you on those couple of stocks, but you get the point. Yes. Those types of names are the ones that are selling off harder because their valuations are bigger, so they're more sensitive to higher rates. Exactly. Exactly. And I expect that to continue unless they're able to post dramatically outsized earnings growth. And with many of these companies, the earnings, they got to this point because the earnings expectations got to be so high that people were able to try to justify the valuations. Now the earnings growth expectations, independent of the valuations, are so high, it's going to be hard for them to beat those. So we would be very cautious.

I mean, we're always looking for asymmetry. And when you have perfection already priced in, it doesn't seem as asymmetric to the upside as other opportunities in the market. All right, we'll leave it there. It's good to see you, as always. Thank you. That's Avery Sheffield, Advantage Rock, joining us once again here at Post 9. Up next, we are tracking the biggest movers into this Friday close. Christina Partsenevelos is standing by with that. What do you think? From worst to first, why shares of one retailer are surging after a brutal 2023 and trouble brewing for one of America's biggest beer makers, the sobering details. Next. For less than 15 from this Friday bell, let's get back to Christina Partsenevelis now for the stocks that she's watching.

Christina. Hi, Scott. Let's talk about Walgreens because Walgreens investors finally getting some relief today after facing the S&P 500's worst performer last year. Shares jumping 29%, or we can say 28% now, on better-than-expected earnings. While the drugstore chain did post a loss this quarter,

Wall Street really liked hearing about cost-cutting efforts and improved medical reimbursement models. Hold my drink, what many Modelo beer fans and spirit drinkers seem to be saying lately, and it's giving Constellation brands a real hangover. Yes, I said it. The makeover Modelo and Carreno missed earnings estimates and cut its full year outlook with trouble brewing on multiple

fronts, potential U.S. tariffs on Mexican imports like beer, budget-conscious consumers, and changing habits as more people turn to weight loss drugs and cannabis. That's it. You're just leaving that there? Yeah.

Are you waiting for me to react to that? Yeah. Like, obviously, I have a zillion puns. It's Friday. I haven't been doing it very often because the markets usually tank on Fridays. But why not today? Yeah, I had a feeling you were up to something there. I was just going to lay off that.

We'll see you soon. I was smiling. Just seeing the parts of We'll see you soon. I was smiling. Just seeing the parts of that was. All right. More on the financials coming up. That sector is seeing some serious weakness amid the broader decline. We're back on the bell after the break. All right.

We're tracking today's big sell-off as we head towards the bells today. The market zone is coming up 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, energy the only positive sector today. Pippa Stevens on why that is. And Leslie Bicker on the sell-off in the financials today. We mentioned it is. They Leslie Bicker on the sell off in the financials today, we mentioned it is they are

the worst performers today. But Mike, there are many bad performers on this day and we got good news. The great move, obviously unnerving banks, which actually among the cyclical sectors had come into it a little in a little bit of a better position. So it definitely is this sort of low conviction moment in the market where you actually want the economy to hang in there pretty well. But it's hard to have faith that what we actually have is a 250,000 job monthly pace from here on out. Therefore, you know, our yield is going to impinge that much more. I still think we're mostly in the same process we've been in, which is trying to wash out elevated expectations and positioning from late last year. Everybody thought the upside was a lock into 2025. And now we keep

testing and testing and testing the election day range. I'll say it again. I don't know if it means we're softening up the floor, but this 28, 5,800 area for the S&P 500 has been, you know, most days over the past month, we've been in that. Well, we gave up all of the S&P's Election Day gains. The date of Election Day. No, no, that's right. But the day of Election Day, you closed like 5,700 and change. And so that's the buffer right there. I don't think that's the be-all and end-all.

You can obviously continue to chop around. I think that the big fear is that this is a little bit of a head fake in the data or it's overstating the strength and therefore it's going to get revised down and we're setting the scene for another growth scare down the road. And that's why it's been tough for the market to make its peace with it. Certainly small caps, certainly banks. But I don't think it's a kind of a game over for the overall story. I'll come back to you in a moment. Pippa, is this as simple as oil is up today? So thus the sector is going to be green? Yeah, that's right. So Brent earlier topping $80 per barrel for the first time since October, with WTI approaching 77 after the U.S. imposed sweeping sanctions on Russia's oil industry.

Now, this latest round targets individual companies, including Gazprom, as well as more than 180 tankers alongside Russian officials and executives. Since the invasion, there have been multiple rounds of sanctions and price caps, but Russian barrels have still made their way to the market. But now, J.P. Morgan says that the sanctions might finally be starting to work, noting that in recent weeks, Chinese and Indian refiners have sought alternatives to Iranian and Russian crudes. Now, the cold temperature is adding to the momentum with WTI pushing through major resistance from those October highs. Scott. Pippa, thank you. Pippa Stevens. All right, Leslie, tell us more about these financials.

Yeah, the financials taking a hit today. I think the best way to think about the bank story right now, Scott, is to look at the Spider Bank ETF, which is currently trading near the same levels as it did on November 4th, the day before the election. The ETF has really come full circle, as the broader market has in many ways as well in the two months since. For much of the month of November, there was, though, this mindset that President-elect Trump would employ an onslaught of deregulatory measures and rethink the hindrances that have kind of hampered lending that banks say they really face. But the tone has shifted really ever since Thanksgiving, where the prospect of more inflation from some of Trump's policies really took center stage. Now the idea that the economy will remain restrictive with fewer rates expected this year could create some challenges for banks and their loan-making profitability. Now we get a new snapshot.

The big six banks report fourth quarter earnings starting Wednesday and Thursday of next week. Scott. Leslie, thank you. That's Leslie Picker. Mike, I'll turn it back to you as we have about a minute to go here. To Leslie's point, you get earnings next week, Scott. Leslie, thank you. That's Leslie Picker. Mike, I'll turn it back to you as we have about a minute to go here. To Leslie's point, you get earnings next week. I mean, the rubber meets the road next week. Earnings plus inflation data. Yeah, the CPI now is again more important. You could have looked within the jobs report and said that there

actually were some dovish elements in there, meaning wage growth wasn't running away. It doesn't seem as if the job market, even at 4.1 percent unemployment, is a real driver of upside inflation. That's a good thing. And then earnings, if we're anywhere in the zone of the expected double digit growth pace year over year, even though it's not going to be equally distributed among all companies, it's tough to see the market really falling apart if you have that confirmation that the estimates are somewhere in the ballpark. So I think that's what people are trying to anchor to right now. Again, I think it's much more about yields, not just as competition for stocks, but yields as pressure on parts of the economy, goods producing, home building, that are susceptible to a little bit of more downside

surprise, as opposed to just services and AI infrastructure, which seems like nothing stops it. You have reintroduced more competition for stock, so, yeah, for bonds and cash. And that's why we are red, decidedly so. Have a great weekend, everybody. I'll see you on the other side. We'll be right back.