Closing Bell - Closing Bell: Forecasting the Second Half 6/30/23

Episode Date: June 30, 2023

Where does your money go from here? Wharton School Professor Jeremy Siegel and NewEdge’s Cameron Dawson give their expert market takes. Plus, Deepwater’s Gene Munster sees a clear path to $4 trillion for Apple. He explains. And, Truist’s Keith Lerner breaks down the pockets of opportunity he is seeing right now. 

Welcome to Closing Bell. I'm Scott Walker. This make or break hour begins with a first half to remember for stocks and whether this market melt up can keep going in the second half of the year. We'll ask the Wharton School's Jeremy Siegel in just a moment. In the meantime, here's your scorecard with 60 minutes to go in regulation. A strong day across the board after the Fed's favorite inflation read comes in a little lighter than expected. Stocks reacting almost immediately and it's a broad based move for the S&P 500. The index pacing now for its best first half since 2019. A strong week, too, for energy, industrials, and financials.

And some of those more cyclical areas of the market. Nice day, too, for tech. What else is new, right? NASDAQ on the way to its best first six months since 1983. An incredible 31% gain. Apple, big part of that, hitting three trillion in market cap again today, going, though, for its first close above that key level. We'll track it, of course, as we head towards the end of this session and see if it can hit that milestone. Brings us to our talk of the tape, the broadening rally and what it says

about where your money will go from here. Let's ask Jeremy Siegel. He is the Wharton School professor, and as usual, he's live for us today down in Philadelphia. Professor, welcome. It's nice to see you. Good to see you, Scott. All right, we're putting a good first half in the books. Does it carry over to the second half? What do you think? Wow. I mean, in my forecast, the beginning of the year was 15%, and we just kind of today just crossed over that for the whole year.

And really, the economic data, the economic activity, real growth has certainly exceeded the Fed's expectations, everyone's expectations. And I think what's going on with tech tech kind of tech investors it's a it's a win-win for them they say listen it's a long-ass asset if we have a recession you know tech is mostly immune and um if we have a recession the fed will stop raising interest rate maybe lower interest rate that's really good for our long-lived assets that we have. So everyone piling into tech because they say that it's a win-win no matter what happens to the economy. Of course, what's happening is the non-tech are selling at 14 and 15 times earnings, and tech is selling at, you know, 25, 30, 35 times. So that gap has certainly grown a lot recently

and takes into account that scenario. But, hey, the beat goes on. And I think the whole market is saying, who's afraid of the big bad Fed? Is the beat going to go on for the second half? I mean, how long can this continue? Well, it can continue a lot longer. Now, you know, that gets a problem for long-term investors

because it's so hard to tell the turn. But really, the momentum is still there. I think if you're a short-term trader, I think it's going to take a real weak economic report or some earnings that really, you know, it's the opposite of what we saw with NVIDIA. Really a disappointment to shake it. And by the way, usually it's not one thing. It shakes and then comes back. And then it's usually a second one that says, oh, the tide is turning. And at this particular point, we don't have number one or number two.

So one of the oldest sayings in Wall Street, Scott, make the trend your friend. Yeah. And it's a new trend. I mean, the trend is the trend has changed. Right. As you know, the trend has been up. Do you foresee a catch up trade? You said tech has been the winner and you pointed to some of these other areas of the market, which you think are much cheaper from a valuation standpoint. Is there going to be a catch up trade where some of these laggards, the financials, the energy stocks and things like that are going to have a catch up? Well, I think there are. I think what's going to happen, you know, if the Fed overtimes, then you know I've been warning about the Fed overtiming. You know, Scott, what really confuses me is since the meeting two and a half weeks ago,

every single inflation indicator, including wages, has come in at or below expectations. And yet the rhetoric of the Fed has gotten even more aggressive. It's like a war on growth. Oh, we can't have this much growth. And you know, I think that's a very dangerous way to look at the economy. We want growth in the economy. We want noninflationary growth. So, you know, I am still saying in the second half, there are more risks on the downside than on the upside.

But then again, that that that whole saying about trends can continue a lot longer for your you know, I don't see the short run trend breaking at any point soon. But but, Professor, look, I have the greatest amount of respect for the Fed. And I don't mean this negatively towards towards them when I say who cares what they say at this point. Right. Let's watch what they do. They have to protect their own credibility. That's why they continue to talk tough. But we both know if inflation continues to come down at the speed in which you suggest that it is, that maybe they're not going to do what they suggest, but they have no choice to talk the way they are now. The market just has an ability to look past it because it doesn't think that they're going to do what they say. Well, actually, you know, if you take a look now at Fed funds and you make a risk adjustment, it's really toward the end of the year caught up to two or three more hikes in the Fed.

I mean, it's not that much of a deviation. Now, I agree with you completely. Something I've said, all I think the Fed, you know, has to see is a weak jobs. Well, let's see. I think we're expecting something like 200,000 next Friday. You know, suppose we come in at 50,000 or what happens if we come in negative? That makes headlines. That turns things around. And we have seen some softening in the labor market. Yes, jobless claims were down yesterday, but the trend is up. We know that, you know, unemployment rate jumped three tenths last time.

Again, still very, very low. We get much less talk about shortages of labor than we certainly did a year ago. So we see that that trend. You know, my feeling is, you know, we know that there are some headwinds in the second half of the year. We've talked about student loan repayments. There's UPS strike possibilities, by the way, which would really slow things down. There are those headwinds. I just don't want to see the Fed, you know, saying, oh, we have to see a big jump in unemployment before we turn the ship around.

The other idea that, you know, you've been thinking that there might be cuts at some point this year. Are you off of that thought? Because I'll tell you what the market is, because if you look at the market, if you well, for the first time, for the first time, arguably this year, if you look at Fed Fed funds futures, Professor, we have basically no chance of pricing in of cuts. There's like one percent for December. So the Fed funds futures market has gotten off of that idea in a big way. Have you? I'm not ruling it out. I'm not. And don't forget, I mean, the Fed funds futures market, we all know what it looked like at the end of data turns out to be. And my my statement is, listen, we know about this coming into a political year.

Seems we're already like in a political year. If we get some soft data, if we get some rise in unemployment, if we get a negative jobs report, we're going to have, you're going to have political pressure. And you could say rightfully so, dual mandate. People are going to say, look, if you really look at true inflation, we've talked about that. If you put real shelter, real rental prices in, the data that I've been processing on that has already gotten down to that 2% year over year. Now, the lag data, the Fed has, is still 4, 4.5, et cetera. But they also know that that lower data is going to come in the second half of the year. So I'm not going to rule it out.

Yeah, you're right. The market thinks a very low probability, but I've seen that a lot before the surprises in the market. Well, we'll see. Let's broaden the conversation, Professor. Bring in Cameron Dawson of New Edge Wealth. She's here with us at Post 9 as well. It's nice to see you again. Welcome back.

You've heard the professor. What are your thoughts? Do you agree or disagree? Something probably tells me you disagree because you haven't been really bullish on the market at all. Well, I think the first step is I think we would disagree of the probability of cuts this year, meaning that we see no probability of a recession or very low probability of recession given the pace of data that we've seen through the first half of this year. It's remained resoundingly strong. There are pockets of weakness, but really not enough to give the Fed any wiggle room

to actually go in and ease policy. And the thing that has continued to surprise us the most is this ability for valuations to diverge from yields. And that is where we're seeing why we were more cautious going into the year, saying if the Fed stays higher and tighter for longer, that kind of keeps a lid on valuations. That has not played out at all. You've seen the Nasdaq valuation go from 20 times to 32 times this year, which really is just a reflection that the Fed is not the only

game in town and not the thing that is driving its valuation readjustment. So at what point then do you follow what is the perceived message then of this market and change your view and get more positive on where we might go? I mean, the market's telling you something by that. What do you take from it? Well, the way that we've been expressing this caution in this balance is to be able to say we need to remain fully invested. We are long term investors, but we do it through quality instead of chasing the lowest quality, highest beta parts of the market, speculative areas. Those have been the areas that have led, but that's where we... Speculative? Like mega cap is speculative? That's led. Well, there have been pockets that have been very high quality names that we have exposure to. We're

equal weight a lot of the big mega cap names. What we're saying is that a lot of the areas where you've seen the most aggressive re-rating is not where we're going to chase. So we did our CNBC delivering alpha investor survey with some interesting results, and I want your opinion of it. 61% say we've entered a new bull market. 61. 39 say it's a bear market rally. What do you make of that? You'd vote for the 39, or would you be with the 61? I think that it looks somewhere in between. And the reason I say that is I don't think that we have the escape velocity for a trending market that looks like a market like we had in 2019 or market like we had in 2017, where we've seen this market re-rate. We think that there are upside adjustments that need to happen to earnings. We think earnings estimates are too low for the second quarter and likely too low for the full year. So there's good things happening on earnings front.

But can we really push into a new valuation paradigm is where we see that limit to the upside. OK, so, Professor, I mean, you've got a good student here who says, you know what? In the current environment where rates are, valuations make no sense. And the professor at the front of the class says, but wait, what? What's your retort? Well, you could say some of the tech valuations may not sense, but when you see the cyclical value, mid and small cap selling at 15, 16 times earnings, and if you are saying there is going to be no recession in the second half of this year, boy, I think those are going to be buys, because I think those are priced for a recession.

I think the big tech stocks are priced with a recession doesn't matter. And, you know, it's a win-win on what's happening on the economy, what's happening in AI. And if the Fed does, in fact, lower interest rates, you know, that's just icing on the cake. And this is where the momentum is. Momentum is a very powerful factor, short run in the market. But valuation is the most powerful creator of wealth in the long run in the market. And, again, outside of tech is where the values are icy today. Response?

100% would agree with that. If you look at the Equal Weight Index, it's trading just at about 15.5 times. And so when we've been putting new capital to work in recent months, we've been focusing on equal weight. Value is even cheaper. The Russell 1000 Value Index, the problem with that is that you're getting a lot of financials and a lot of energy. And financials are very cheap. The banks are trading below book value right now, but it is still a little bit of a falling knife.

We'd like to see a little bit of improvement in the trends in those areas. So we are finding ways to get access to this market through the Equal Weight Index where we're not chasing the most expensive parts. Do you think there's going to be a catch-up from some of the laggards in the second half? As long as the story about the economy remains reasonably positive? Yes, I think that is the opportunity is that the cyclicals can continue to get a bid because you will see those names are the most sensitive to underlying economic growth. So revisions go higher for the cyclicals and you see the rally have to broaden out to get the next like higher. Professor, you know, the other question we asked among many in this survey that we did of investors, the best returns for the remainder of 2023.

I thought the results here were really, really interesting. Twenty six percent short term treasuries. Twenty six percent also said the S&P 500. Now, I focus on this because, you know, for the first time in what feels like forever, there was competition for stocks. And that was in the fixed income market, Treasuries and the like. And then in the money markets, for example. But now, at least according to these respondents, you have a view that, yes, 26% say short-term Treasuries, but also 26% say the S&P 500.

So has the risk-reward gotten better for stocks, do you think, versus elsewhere? Well, I think it harkens back to your question on how many people think it's going to be a bull market and bear market. I mean, if we're going to be a bear market or just if stocks are flat, you're going to be better off in treasury. Just even a flat stock, a flat stocks. If they go down, of course, you're going to be better off in treasury. So I see that matching that after.

But my research right now, I see stock returns long term, three to five years being 7% per year, 8% per year. And treasuries now are five and a quarter. I think they're going to be going down, not up. And so I still think that there's the advantage to stocks for the long term investment. What do you want to say to that? I mean, do you feel like it's going to get tougher at some point to make the case for treasuries over stocks? Yes, of course, because as we're starting to see, if you start ending the Fed's hiking cycle, eventually you'll have to roll over those treasuries. And so the reality is for long-term investors, you need to remain invested in stocks. But what's interesting to the professor's point is that he's thinking 7% to 8% returns.

That's about half of what we've had over the last 10 years. And that speaks to where valuation isn't a great tool in the very short term, but it's a very helpful tool when you're predicting out 5, 10 years plus. So it may not tell you that the rally is going to end today. It just tells you you need to lower your expectations when you look out over the longer term. How would you respond to that, Professor? Have you, in fact, lowered your own expectations by virtue of those numbers that you suspect that equities can do over the next handful of years? I think equities can give a 5 percent real return if we get back to 2 percent inflation, which I think we are on the way very soon, you add that 2% inflation to the 5% real,

you get a 7% nominal return on equities going forward. So that's how I get my 7% rate of return. Now, I don't think that's half as much. I mean, my long term, you know, book stock for the long run, we've had about 6.5% through history, so I'm down by about 1.5% real from what we had before, but still a margin that is, to me, comfortable over fixed income, at least for the long run. Cameron, you get the last word. Yeah, I think that that is the key here, is that strategic allocations are really important, and that we have times where we get overbought.

And tactically, you might make some changes, but remaining invested and keeping that balance where you're focusing on your goals remains key to be able to meet your long term plan. All right. We look forward to many more conversations with you over the second half of the year. Cameron, good fourth to you. Professor, have a great fourth. We'll see you soon. Thank you. All right. That's Jeremy Siegel down at the Wharton School. Let's get to our Twitter question of the day. We want to know how would you have voted in our CNBC survey. Is this a bull market or just a bear market rally? You can head to at CNBC Closing Bell on Twitter to vote.

The result's coming up a little later on in the hour. And don't forget to register, by the way, for CNBC's Delivering Alpha itself, September 28th. You can scan the QR code, get your early bird ticket now as well. We're just getting started, though. Up next, Apple's market cap topping three trillion today. But can it close above that level for the first time ever? We will track the action as we head towards the bells. Plus, we'll hear from Deep Water's Gene Munster and market expectations. Well, Mike Santoli is going to give his take, too. And what might be in store for tech in the second half.

We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. All right, let's get a check on some top stocks to watch as we head towards the close. This is Seema Modi covering that for us today. Hi, Seema. Scott, solar stocks are getting a boost today as B. Reilly upgrades several names, and that includes Enphase, which is upgraded to buy from neutral with a $214 price target. The analysts there are citing more favorable valuation following a 50% drop in the stock since December.

Analysts also reiterating a buy on SolarEdge, though they lower their price target to $3.56 from $3.68. Take a look at NVIDIA, also higher as Daiwa Capital Markets upgrades the stock to outperform from neutral. Analysts saying the company's commanding position in AI will be difficult for rivals to replicate in the near term. We're seeing shares up over 3% at this hour, Scott. All right, Seema, thank you. Apple hitting that key. $3 trillion market cap once again now on track to close above that milestone for the very first time ever. Gene Munster of Deepwater Asset Management sees a clear path to $4 trillion. Joins me now along

with CNBC Senior Markets Commentator Mike Santoli. Gene's on the phone for us. All right, so Gene, we're going to close, it looks like, above three. How are we going to get to four? Count our chickens already, aren't we? Well, we're looking at what the path ahead is. And I think there are two things going on. The Apple investment case changes about every decade. And in the last decade, it was about services. We're shifting to an active installed base narrative. And that's the reason why they've had two disappointing quarters in a row. And the stock is up 50 plus percent this year. The active base grew at 8 percent in the December quarter and now 2 billion plus. That's the key metric that investors are looking at. That's the sleep well at night metric. For that number to decline, this is to answer

your question, why is it going to keep going up? Investors are going to be hyper-focused on that every quarter. For that number to decline, their product revenue needs to be down like 25%. In other words, that number is going to keep inching higher. And I think that's going to translate to a higher multiple. Right now, Microsoft trades at 35 times this year. You put a 35 multiple on Apple in 2025, that gets you to over $4 trillion. I think it's $4.3 to be exact. And so, yes, they don't want to play into momentum. Deepwater, we're optimistic about the future, but we're measured in terms of valuation. But in this case, actually, I think Apple is much less expensive and has opportunity for multiple expansion. Let me just put two other quick caveats.

Vision Pro is going to surprise investors, not in the next one or two years, but in the next three to five years. And don't forget about the car. I mean, this stock has it all. So you use the word measured. You said deep water. We're measured about valuation. Some would suggest you're anything but because they already can't get their arms around the 31 times that it's trading at

and you want to give it a 35 multiple. How would you respond? At the end of the day, higher multiple stocks are about sleeping well at night. If you look at Coke and Clorox and Procter & Gamble, those all trade at 25 times next year's numbers. And they don't grow. They grow at 1%, 2%.

But in the case of Apple, this could ultimately be a 10% plus grower for the next five years. And I think when you put it in the context, you have to look at growth when it comes to valuation. And so I understand that the multiple is not as low as, for example, Meta. But it is, if you look at, I think, the growth opportunities and most importantly, the reliability. Investors pay up for that when they can sleep well at night. And that active install base is the definition of sleeping well at night. Okay. So I got Mike Santoli, as I said, here with us as well. So two things here. Gene's valuing it. Give it a staple.

Make it a staple. And if 31 times doesn't, you know, get your attention, maybe 35 times does. Yeah, I mean, making it, even at that number, one of the more expensive consumer staple stocks as well. And I think at some point, I've never been one to say, it's already too big, it can't grow from here. But, you know, you've got $100 billion, give or take, in net income projected for the next year for Apple. So you start saying 10 percent annualized on top of that. That's a non-trivial amount of gross dollars you have to add to the

bottom line to sustain the multiples, to sustain that growth trajectory. So it's within the realm. Look, I have this chart right here on the forward P. It has been higher. It was higher in late 2020 when you had that real huge momentum move into everything tech and pandemic beneficiary. So, you know, it's a matter of betting on the premium continuing to go higher from here and no hiccups in the fundamental story, which is it's plausible. But I don't know if that's what you want to bet on. It's a great point, Gene, that Mike makes, right? A lot has to go right to reach those even loftier expectations, correct? I don't think 10 percent is a lot. 10 percent growth is a lot.

That is it is measurable. But when I look at NVIDIA, NVIDIA is a company that's doing phenomenal. We don't own NVIDIA. In that case, I think a lot has to go. I mean, that's an order of magnitude difference. And so I would say I think that there are reasonable growth expectations. This is not 100% growth, sequential growth like we've seen in NVIDIA's AI business. So I don't see this as outside of the ordinary. And the other piece, too, is when it comes to doing it right, quarter in, quarter out, Apple is the gold standard. We all

know that. And as far as hiccup, I don't know what the hiccup would be. Let's say they miss an iPhone number in a quarter. They're probably going to get those people back. We've proven year on year that if they don't upgrade in a quarter, they'll upgrade two quarters later. And so it's hard for me to envision what is the scenario where things really fall apart. They're the only company that does the hardware, software services seamlessly. No one other company does that. And our reliance on these devices is only going to increase.

And so I think that it's not price to perfection. Gene, not to say that something falls apart, but, you know, we're in a down fiscal year for earnings for them right now. And, you know, from fiscal 21 to fiscal 23, we're talking about a total of 7% earnings growth. So it's not like you could just plug in 10% a year because Apple's always always done in the past true you can't but would you have to look at this ultimately their product

lines misc it back to you a deeper conversation about where the growth can come from you look at india without phone opportunity uh... still worked up to i think it's uh... less than three percent of total iphone sales come from india that could be a big is China's business, which is about 12% of sales. You look at what's still within services. It has been stagnant, the growth, but ultimately that is a segment that should be growing 10% plus.

And then you put on these other pieces. And I think we can go back to other products. With Vision Pro, I will reiterate, I think that investors are missing the opportunity with spatial computing. Don't want to be confused with saying that in the next one or two years, it's going to take off. It's going to take years for this to get going. But these are devices that we're going to spend one, two, three hours a day using, ultimately. Apple's got the pole position with that. Then I mentioned the car too.

And so when you put all these together, there's actual reasons. When you're a $400 billion company, it's really hard to grow. But when you have a pole position within something like spatial computing or within automotive and what potentially could come in healthcare, there's optionality value that I think is beyond optionality. I think it's substance. And I think that's how you keep this machine continuing to grow. But you were shocked yourself, though, because we were together when it was revealed out at WWDC, the actual price for the Vision Pro was way over your own expectation. How have you come to grips with that? Well, I totally blew what I think the product was going to come out of. I think I added that $2,000 or $2,500, and that $3,500, I was off. I think it didn't change. Whether it was $2,000

or $2,500 or $3,500, it didn't change how I felt about the next two years of this product. This is for developers. It is essentially to feed and seed what is a new computing platform. And so if the real question for me, to answer your question, well, how did I feel about it? My confidence that they're going to have a $1,000 headset by the end of this decade is unchanged. And I think when you look at these paradigm shifts, you have to think in terms of multi-years. And so ultimately the opportunity is just as great.

And I would say the one piece that did change from when we talked before it was announced is the demo is incredible. And I would put it to it's almost an out-of-body experience. And I don't want to overhype something, but it's hard really to capture what it is like using this device. And I think as more investors use this and understand the power of spatial computing, I think that people's, investors' optimism about the units three, four, five years down the road is going to only increase. Yeah. Gene, appreciate it. We'll talk to you soon. Thank you.

All right. That's Gene Munster joining us right here. Mike's, of course, going to be back with us in the market zone as well. Up next, trading the inflation situation. Today's positive data sending stocks higher. Our next guest highlighting the pockets of opportunity he's seeing. Closing bell. Right back. Dow's good. 326. Back right after this. Well, a strong day. Stocks are green across the board today. Tech leading the charge once again

after the latest inflation read shows signs of cooling again. My next guest sees more near term upside in that sector as we move into the second half of the year. Let's bring in Keith Lerner of Truist. Well, welcome back. It's good to see you. So this tech parade is just going to continue. It's good to be with you. Listen, I think on a short term basis, tech is getting a bit extended. But I think as we look at the second half, I still think it's leadership at this point. You know, to be fair, you know, the tech's performance in the first half surprises the magnitude. We upgraded tech in March. We thought it would be a relative outperformer. We didn't think it was going to be this strong. But one of the reasons why you buy tech and why tech tends to outperform

is when earnings are stronger than the overall market. And that's what we've seen really starting in March. We started to see the relative earning trend stronger than the overall market. What's also notable, Scott, is a lot of talk last year about how tech was following interest rates. Well, interest rates have gone up a lot and tech is still outperforming because it's all about earnings and earnings are going to likely still be stronger than the overall market. Yeah. So much for their relationship between, you know, rates and so-called long duration assets. We just interviewed Professor Jeremy Siegel at the Wharton School who said it's going to be really hard to derail tech. Listen, and I want your reaction on the other side.

Tech investors, it's a win win for them. They say, listen, it's a long-lived asset. If we have a recession, you know, tech is mostly immune. And if we have a recession, the Fed will stop raising interest rates, maybe lower interest rates. That's really good for our long-lived assets that we have. So everyone, I'm piling into tech because they say that it's a win-win no matter what happens to the economy. Keith, can we go as far as to say that tech is recession-proof? I don't know that I would say it's recession-proof. But, you know, one of the things as far as even with the valuations and the overall market where our opinion evolved is that, you know,

when we had this AI moment with NVIDIA's earnings or, you know, when we had this AI moment with Nvidia's earnings or, like, you know, the early this year, our point of view is that even if the economy slows down, which we still expect, that companies are going to have to continue to spend on tech, otherwise fear of being lost, being fear of left behind. So I do think that on a relative basis, if you still have somewhat of a slowing economy in the back half that tech does well in that environment and if the environment if the if the economy does well I think it still does fine I mean I think shorter term we're more interested which was we did early in in June when the market was relatively flat or the average stock was relatively flat

we upgraded the S&P equal weight index that's up about 5% this month I think there's better relative opportunities on a short term basis there and also industrials, which are having a big month this week as well. But you were admittedly too defensive coming into the year now that we've put together a game that, you know, many folks didn't see coming. Does does it feel to you as the bull market is something that can really be built on, when will you make the definitive call that, you know what, this is not a bear market rally, it is, in fact, a new bull market, and it has substantial legs?

Yeah, so to your point, I mean, we started getting more defensive early in 2022. We overstayed our welcome this year. And what surprised us, Scott, is that, you know, you raised rates three times this year already with the Fed. They may do another point or two, but the S&P valuation expanded. prizes, Scott, is that, you know, you raised rates three times this year already with the Fed. They may do another point or two, but the S&P valuation expanded. And also, you know, look at home builders. Home builders are making all time high as well. So who had that in their in their playbook

this year? So our point of view is you've got to respect the trend. And I think there's still more upside. But we don't think this is a raging bull market by any means insofar as, you know, we're already at a pretty high valuation and you're not going to have that fiscal and monetary liquidity support that typically drives these big bull markets. So we do think the trend is still positive. You want to stay there, but we're not raging bulls by any means. And I will say at some point, especially depending on how far this market goes, I would say we're more likely to move back to defense as opposed to offense. But right now, we neutralize that position early in the month, and we think that's the right place to be

for right now. I do find it interesting, too, that you don't think there's going to be any kind of catch up with financials or energy, two of the sectors that lag the most. Yeah, listen, I think financials are still challenged. I think that as far as, you know, I think credit is going to likely get worse, not better. And listen, I think the lag effect of monetary policy has more of a lag than we would have thought coming into the year. But I still think we're going to see somewhat tighter credit conditions. Longer term on energy, we still like it. We were overweight energy all through 2021. We downgraded it earlier this year. And I think it's one of the things in the global economy will likely still be

somewhat weaker. So we think it's maybe continues the things in the global economy will likely still be somewhat weaker. So we think it's maybe continues to be somewhat of an underperforming near term. But somebody's looking at three, four or five years. I think energy is still in a good spot because the company fundamentals

are still really positive and they're relatively cheap. We just think that near term, they're not leadership. All right. We'll see you soon. Have a good fourth. Thanks, Todd.

All right. Truist Wealth joining us there. On Closing Bell, up next, we're tracking the biggest movers as we head into the close. And later, Carnival is cruising higher today. The stock is jumping yet again. Look at that, near 10%. And that's after gaining nearly 20% this week alone. Tell you what's behind the move ahead.

Closing Bell is right back. We got about 15 minutes before the close. Let's get back to Seema Modi for a look at the stocks she's watching. Seema. Hey, Scott, take a look at Old Dominion Freight Lines. It's pulling back today after several days of gains. The stock has been boosted by a price target hike at Citi and an upgrade to buy at Bank of America. But despite today's pullback, Old Dominionion still on track for its best week since November.

And then there's Meta among the tech outperformers as the UK clears its sale of Jiffy to Shutterstock. Meta's flat on the week, but its recent outperformance still has it trading near its highest level since early last year. Scott? Seema, thank you. Seema Modi, last chance to weigh in on our Twitter question. We asked, how would you have voted in our CNBC survey? Is this a bull market or

a bear market rally? Head to at CNBC Closing Bell on Twitter. The results are right after this break. The results of the Twitter question. We asked, how would you have voted in our CNBC survey? Is this a bull market or a bear market rally? The majority of you said it is a bull market, 63 percent. In fact, up next, we count you down to some breaking news out of the big banks. Those companies about to lay out their capital plans after this week's stress tests. What to watch for, what it could mean for your money and those stocks when we take you inside the market zone we're in the closing bell market zone cnbc senior markets commentator mike santoli is here to break down the crucial moments of the trading day plus sima modi on

carnival heading for its best month ever leslie picker looking ahead to the bank's capital plans the announcements coming after the bell turn to you first mike we've got less than eight minutes heading for its best month ever. Leslie Picker looking ahead to the bank's capital plans. The announcement's coming after the bell. Turn to you first, Mike. We've got less than eight minutes to go here before we put the first half into the books. What's one of the things that's been most impressive to you? The persistence of the rally and the incredibly modest little cooling off period

we had in the last month. It was just this little two week, 3% decline. It's a sign of a pretty sturdy market that people feel almost compelled to participate in. It's feeling a little bit melt up in the Nasdaq. I mean, you wouldn't say it's really a full on momentum chase, but it gets uncomfortable when you when you've had this kind of market cap extension after you've been kind of overbought. Now, watching a few things, if you say, OK, what should make me alarmed, if anything, about where we've gotten to in the first half of the year? Credit market is not really sending up any warnings at this point. So you go down the list. The leadership of the market, aside from tech, is solid in terms of consumer cyclicals and

industrials and transport. So that's OK. The bigger question to me is, have we gotten to a phase where people went from disbelief to outright belief in the rally, in the economy in a short period of time? I still think there's room before we get to outright FOMO, but it becomes less comfortable to play the market at these levels without a further pullback if you've been along for the ride up to here. Apple looks like it's going to go out close to the highs of the day, pushing 194. I'm looking at it right now. It's a better than $4 move, about two and a third percent. It's going to get that first close ever above $3 trillion in market cap. We'll get that out of the way. I think that's probably a positive.

I am also focused, though, on the way it's itself diverging from some of its peers. Microsoft hovering below the highs. It hasn't really had this extra leg here. This is all just kind of arguing around the edges right. Two thirds of people say it's a bull market. I think if we stop right here and the market fails it's probably in retrospect would have been a brief bull market no matter what the eco weight S&P is within a sliver of its own 20 percent gain off the intraday low. So all the quibbles saying, oh, it's just been a few stocks, that goes away if we get there.

Yeah, great point you make with that. Seema Modi, what's behind Carnival's big breakout? Well, can we just talk about this breakout, Scott? I mean, I was just diving into the numbers. This is the best week, month, and quarter on record for Carnival. And the stock now, in addition to NVIDIA, topping the S&P 500's biggest gainers. You ask what's behind this big move? Well, it started on Monday when the company reported earnings, which prompted investors actually to take profits on concerns around its guidance. But one day later, CEO Josh Weinstein clarified some comments about the company's financial goals, plans to deleverage. And that added some clarity.

Just today, we saw Jefferies upgrade the stock, writing that despite the strong year-to-date performance, they believe the journey from a good trade to a longer-term investment case remains ahead. And even if we take a step back and look at all the sell-side analysts that cover the stock, more than 50% now have a buy rating on the stock, a very different picture than a year ago, Scott, when this industry was trying to make ends meet. And it is now trading above the average Wall Street target of 14. All right. Good stuff. Seema Modi, thank you very much for that.

Leslie Picker, we turn to you. The banks, they passed the test and now they tell us what they're going to do with that excess capital. Yeah, that's exactly right, Scott. So big banks were the big winners in Wednesday's stress tests. They showed they were well capitalized, were able to withstand a hypothetical, severe, adverse scenario, a recession essentially. And that cushion actually allows them to return some capital to shareholders in the form of buybacks and dividends. Now, the central bank requires that they wait at least 48 hours to release those plans, which means we could see some announcements as

soon as 4.30 p.m. Eastern time today. However, don't get too excited. As Goldman Sachs wrote in a recent note, quote, given the heightened uncertainty around future capital requirement changes from here, we don't expect significant increases to near-term capital returns or material dividend increases year over year. Keep an eye out though for something called the stress capital buffer. The lower that number, the easier it is for a bank to return capital. Analysts have said that Goldman Sachs, JP Morgan, M&T, for example, saw estimated declines in their SCBs, whereas Citi, Citizens Financial and Capital One and Truist saw higher SCBs. So that could be kind of indicative of the stock

price reaction after Wednesday's results. Yeah, we don't care what Goldman says. We're going to get excited anyway. Leslie, thank you. Leslie Picker. As I turn again to Mike Santoli, financials, let's go there. Yeah. Whether there's going to be a catch up trade of sorts for these lagging sectors as we make the turn. I think that's right at the center of this discomfort people have with betting that we are anywhere but late in the cycle. Because it feels as if when you look at the kinds of stocks that have been performing, a lot of the early cycle stuff is moving, the cyclicals, the industrials. The market in general is behaving as if it's gotten this new life to the cycle. But it's hard to trust that when it comes to financials, when it comes to

the banks, just because, you know, is credit going to get better from here? Yes, they have a lot of capital. They can definitely handle some erosion on the credit front. But, you know, do you still have to look across the valley? The stocks are cheap really outside of JP Morgan, I would say, but they've been in this kind of purgatory. So they've perked up a bit. They've not been as much of a drag as they were in the past. But to me, it really crystallizes this debate about what are we to think of, even an economy that does better, that we're doing better than 2% real GDP growth, given the fact that we still have low unemployment, it's hard to feel

like it's going to go that much lower. And the Fed still wants to restrain the economy. Real yields are higher, multi-year highs. So that should put some restraint on growth. So it's a tough call. I do think there's capacity for a catch-up trade. I just wonder if it's purely mechanical in a seasonally strong period of the year. Some nice 4% moves this week for some sectors. Energy's up near 5%. Industrial's up just about 4%. And then you have materials, too. Don't get a lot of chatter. But nonetheless, materials have had a little wake up this week, too. Yeah. And that's to me, it's about a broadening of the rally as people look to get some kind of exposure and don't feel like they want to buy 52 week highs in this stuff that's been working already.

Also, you see things like copper go higher. It's not really as much of a global economic bellwether as it's given credit for. But still, it's been doing a little bit better and you're getting some relief on that front. Again, still going to watch the yields to see if they put a little bit of a break on things on the equity side. The absolute levels are not particularly high, pushing the upper end of those range. Still kind of digestible at this point. But you just never know if we're going to trip into a point where the two-year note was above 5% in March, as we all know, before SVB, if we get back there. And if, again,

real yields, after you account for inflation expectations, are getting to pinch the real economy. So far, though, it seems like a sweet spot, seasonally and otherwise. All right. Let's throw up Apple, guys, if we could as well, because we're going to go above $3 trillion in market cap at the close. Apple, for the very first time ever, it will be the first company to ever close above $3 trillion in market cap ever as well as we close out a stellar first half particularly for that tech trade that does it for us I'll see you on Monday.