Closing Bell - Closing Bell: Going Big for Small-Caps? Investing Under Trump 2.0 1/22/25

Episode Date: January 22, 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.

And welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with a big day for big tech. The AI trade taking center stage once again. It is certainly helping the Nasdaq today outperform the other major averages. Also fueling the S&P 500 today, which is heading towards a new record close. We will watch that closely over this final stretch. 60-90 was the old one. We're above it now.

We'll see what we do over the last 59 and a half minutes. Otherwise, pretty mixed day. Breath not so great. Rates creeping up. That's put the hurt on the broadening trade a bit, especially the Russell 2000. There it is, down one half of 1%, not participating at all. Netflix, a big winner today after its blowout earnings. That stock hitting a new record high. That's take us to our talk of the tape. The bull market's next move.

Let's ask our experts where stocks are likely to go. Adam Parker, founder and CEO of Trivariate Research. Stephanie Link, chief investment strategist and portfolio manager with Hightower. And Lori Calvacina, head of equity strategy at RBC. Steph and Adam are CNBC contributors. Welcome, everybody. Lori Calvacina, I'll begin with you. You have a target of 6,600 on the S&P 500 for this year. 10 percent. I guess we take that.

Why just that? Well, look, valuation is a pressure point, right? And valuations are not an end-all, be-all. But I do think it's going to be difficult to really get a whole lot of multiple expansion out of this market going forward. Now, that doesn't mean multiples necessarily need to collapse, but I do have a hard time making the math work too much better than that 6,600, and frankly, even a little bit lower than that when I'm looking purely at my valuation model. I can get to those kinds of numbers and even a little bit higher on other models, but valuation is a problem. What do you think, Adam, on a day where jamie diamond says of the market i think asset

prices are kind of inflated by any measure what he did see that thirty and fifty percent ago i mean it right i mean he hated the market the last he talked about hurricanes and not right i'm saying we're we're all right we're all wrong about that but his stocks but a monster relative to what he himself but that more relevant today than anything you would have said then? I mean, we have, if you look at the market multiple, we're at, what, 22 times forward on the S&P? The 10-year average is 18.3. As usual, what Lori says is totally sensible.

History dictates valuations at the upper end of the range. It's hard to sketch out multiple expansion. I think the bull case has less juice to it than it did a year ago. Because you don't have the Fed all in front of you, you may be getting closer to the end of that. We'll see. You don't have as much maybe in the form of fiscal stimulus from the U.S. with excess spending. We'll see. The China bull case seems less juicy. But you have two kind of still pretty bullish things out there. One is M&A. And you saw in December and you've seen even this month a lot of announcements on deals. Every lawyer and banker I know is busy. And that could create some valuation premium, certain parts of the market that could prop up some lower valuations. And two is the AI stuff.

And what I mean by that is not just whatever these headline numbers is and what they actually mean to translate to corporates, which is not necessarily the same thing, but just proof cases on productivity on the earnings front. If we get some of those, then the reason we all know the market probably isn't going to collapse is because we're not paying for 25 earnings or even 26. We're dreaming that there's something that's going to keep this going to 28, 29, 30 as we continue to get productivity from the biggest 1, 2, 300 companies. So we know today's valuation is high, but we don't know. We will debate, I guess, and we'll find out.

Is it expensive on 28 or 29 earnings, and how anticipatory will she be? But I took overtime from Steph, so I have to go ahead and talk. We've got plenty of time. All right, good, sorry. We've got plenty of time. No, I was excited, but maybe, yeah. What do you think? Look, I think we have better than expected growth in terms of GDP.

We've got good jobs, employment, wages are OK. You mentioned, Adam, productivity. That's going to help inflation. And as at the same time, if any of the Trump policies work the way we think they will, then you're going to have lower commodity costs, maybe on the energy side, of course, as a drill baby drill. So I think you have better growth, a little bit less inflation. Maybe it stays firm, but that's OK, because that leads to better than expected earnings. Right now, earnings are running at about 11 percent growth year over year. And what people are not talking about, and Scott, we talked about this actually at halftime this week, is that margins and margin expansion. I think it's underappreciated. I think you could see record margins this year,

A, because of restructurings and productivity and pricing power. And companies have been getting more lean and more efficient. And so you add it all up. And I actually think beginning of the year, I didn't think we were going to see 15 percent earnings growth. I actually think that there's a very good shot that we will. And you do not need multiple expansion if you have earnings actually going higher. That's exactly where I was going to go as you were talking, because you need earnings growth to be that good. Do you not? Because you already have a full multiple. How much more expansion can you possibly get on the market

multiple? The real question is, can you get to your 15 percent, if not more? 100 percent. You're going to get it in technology. There's no question in my mind about that. AI, cyber, we talk about all the trends and the themes. But I think you're also seeing financials. We talk about the earnings growth and the surprises from 17 of the big banks over the last week and a half, and it's growing 26% year over year in financials. I think that you're going to see better than expected results in consumer discretionary, especially on the services side. So I think I think about the market overall overall. And so far this year, I've been surprised with the broadening out.

So tech and comm services is running up about two to three percent year to date, three to four percent after today. But financials are up six percent. Industrials are up eight percent. Energy is up eight percent. So to me, up 8 percent. Energy is up 8 percent. So to me, the broadening out can continue because you're going to see better earnings growth from these other sectors as well. Yeah. Can you can you get the kind of earnings growth, Laura, that we're going to need? So we've got about we've got about 12 percent earnings growth baked in our numbers. And we're a little bit less than consensus by a few bucks, not a ton. But I think Stephanie brings up a really interesting point on the margins, because if you do look at the bottom-up consensus numbers for 2025, since last, I think, July, we've seen those consensus numbers for operating margins specifically

coming down. So if you have the potential, right, for that to turn around a bit, I think that could give you some additional juice. I think there is a big debate on sort of the kind of MAG7-ish type names versus everything else. On my team, we read through a lot of earnings call transcripts and we joke that we're still seeing a lot of kind of underwhelming examples of AI productivity gains. That doesn't mean they're not coming, but they haven't come yet. So I think that's where the opportunity is. I want to expand on that margin thing because the bulk of the time that you were bullish over the last 18 months or whatever was built on the idea of margins. Yeah.

Talked about it all the time on this program. Yeah. And what tempered your bullishness, at least a little bit, was the idea that margins had to come in. Well, we think they're going up, but we don't know if the factor will matter as much. So I agree with Steph. We're going to be record margins.

What I mean factor, we rank all the stocks, 1 to 500. You long the ones where margins are going up the most, one through 100. You short the ones that are not going up, 401 through 500, and you see if you made money. Over the last year, you made more money doing that strategy, just buying gross margin expansion, than any time in the last 20 years. So it's worked, it's mattered, and it's never really worked more since the unwind of the tech bubble. So what I also noticed contemporaneously was that revenue acceleration wasn't working. Meaning if I bought the companies with accelerating revenue, I didn't really get paid a ton.

So I was sort of thinking maybe this year I'm going to be down to like I need the top line to follow through. Of course, it's correlated. Seth's point's right. The companies with pricing power are going to work. But I'm sort of shifting a little bit to I need to believe the revenue acceleration's there because then I'll have more faith that the margins, the gross margins will be there. So it's not really, they're not uncorrelated points. I just think the market's going to say, I've been a little bit more optimistic about growth. That's what I believe has happened here over the last few months. I'm going to need to see by the second half of the year some evidence of that accelerating

growth because it's not just the 25 earnings I'm paying for. I'm paying for the 25 earnings and believing they're higher in 26 and so on. If you have 3% GDP growth and you have margin expansion, you get operating leverage, and that you get paid for. Yeah, stocks go up. As you just mentioned. I won't short stocks where the gross margins are going up. But I find it interesting. You always come armed with baskets of stocks, sectors, and long and short ideas. You just talked about one of the reasons why there's good reason to be bullish

is because of animal spirit deal-making, right? But you have short ideas of private equity. Aren't they going to be right in this short ideas, KKR, Blackstone, Apollo? Is this you? No, that's not you. No, it's okay. That's under your notes. It's not you?

No, I think something got trans- Okay, no wonder why I was confused. you know it's okay we we you know that's that's under your notes yeah it's not you no i think you got a some got trend trends uh trends okay no wonder why i was yeah yeah we we i think it's it's fine we all uh you know but we uh we like those businesses so you do yeah yeah i i think we don't like the um businesses where we don't think they're going to benefit from banking and we don't think they're going to benefit from banking, and we don't think they're going to benefit from transactions. So, you know, I think what you're talking about is, I think you just got switched. I don't know what happened, so we'll yell at somebody later. Hey, I don't know. I'm just reading off the notes that I was given.

All right, well, I didn't make those notes. From you. Yeah. From you. But that's neither here nor there. It's not a big deal. Our work is the quality of what I have right here is that i have the best of the first time it's ever happened to us and i think that's is the other side

well well i don't know what i would want work shows you want what we like is the company's benefiting from the transaction so we say pay i'm with stuff i like the financials but only the ones that benefit i don't like the regional banks as much as i don't think they benefit as much from the deal making so i'm more sort of long large cap, long the alts and more negative. What about large versus small? Steph talked about the broadening. It's largely been large.

Right. Right. Large stocks over, like, say, the Russell and small. And principally because where rates are. Right. And look, I have a hard time getting totally on board with the broadening trade. And I'll tell you, in my year ahead outlook, like every other strategist out there, I said we give an edge to the broadening trade. Since we've put that out, I have come to

understand it is a very, very consensus trade. And if you're looking at the small caps specifically as part of that broadening trade, I think we really hurt them by dialing down this Fed dovishness, right? My rate strategist thinks the Fed cutting cycle is done. Other people are sort of in the one, maybe two more camp. But regardless, it's all coming in. And that's been a massive underpinning of support for that trade. You know, I think, you know, it's nice to see energy doing well. That sector has waited for quite some time.

Financials as well. We still like that on the value side. I'm a little more skeptical of industrials just because of how expensive they are. But I have to tell you, Scott, when it comes to small cap, I push people pretty push back pretty hard, frankly, against chasing them here. I'm more neutral. I think we'll get an opportunity. But they're crowded, they're expensive, and we've just taken away the Fed pillar of support there. Jeff, I don't see you as much as you like the broadening trade. You don't like small caps, really, do you? Well, I just don't. That's not really my space. I am large

cap predominantly, some mid cap names, too. But I just think the transparency is not as nearly as good for small caps. They're more volatile. And I just that's I just kind of prefer the liquidity. And again, also large caps and the transparency is really very important to me. So, you know, look, I think you can see a broadening in large caps. That's that's my point. Right. In other sectors. Well, I mean, industrials are at a new high or just right around. Yeah, I mean, they've been stellar. Some of the health care names have been doing better. Yeah. Some of the energy names are being picked over now as well. Yeah, I mean, I think you can

buy some of the winning groups like financials, like industrials. There are powerful themes. Certainly want to have some tech as well. But I think you do want to look at some of the laggards. You know that I've been adding to health care. I was underweight. I owned one name in health care all of last year. I've been slowly adding and building out the UNH position. I love Eli Lilly. There's so much controversy there. And GLP-1, I think you're in early inning. So I think you want to have a barbell. Some of the things that have worked on pullbacks, you buy those, and then you buy some of the down and outers. Last point to you.

Yeah, I like the MAG7, and I think small caps are a lot different from stocks 8 through 500. The only thing I'd say is at the inauguration, I didn't see CEOs 8 through 500 sitting as close as the vice presidents. So that told me something. I don't think you want to bet against the big seven stocks having pretty good earnings growth. And if you're long only, I would own market weight that group at least and then pick the alpha elsewhere. But you don't want to be negative on those companies in this environment. Yeah, I mean, we've seen more fruits of that, too, in the last 24 hours.

On that note, Adam, thank you. Lori, thank you as well. Stephanie Link's going to stick around for a little bit. We do want to get more information about that announcement at the White House yesterday, which did send Oracle shares sharply higher and frankly, almost everything else in that space as well. Our Kate Rooney is following that for us, along with some new reporting on how it all came together, including the very complex personalities involved in all of that. Kate.

Yes, that's right, Scott. We do have some more reporting on what led up to that White House AI announcement. I'm told by a source President Trump had a lengthy conversation, phone conversation, with OpenAI CEO Sam Altman on Friday. It focused, I'm told, on AI's potential. Altman walked through what this technology was capable of and then certain parts of that infrastructure plan that was laid out yesterday. The source said it was productive and described it as amicable. It all came before Trump publicly called Altman the leading expert on AI at the White House yesterday. I'm also told the OpenAI team first met with the Trump team in Vegas. That was back in June. And that Altman has gotten increasingly close to Larry Ellison. He is a longtime Trump supporter, founder of Oracle.

Plus, Altman has the support of SoftBank's Masayoshi Son. Those two are personally close. And SoftBank has invested roughly $2 billion in OpenAI. I am told those ties with those tech executives for Altman have really helped his standing with the Trump team, and it's helping offset some of the beef that Altman has with another close Trump ally, Elon Musk. There had been some questions about how Altman was going to survive in this current administration. With that in mind, Musk is also suing OpenAI over its nonprofit status. He was a co-founder of OpenAI. The White House and OpenAI did decline to comment on this one.

Back over to you. But the beef seems alive and well, right? Yeah, it's happening as we speak. You had the announcement put on X yesterday by OpenAI about the whole partnership, to which Elon Musk responded, quote, they don't actually have the money. Then he said SoftBank has well under $10 billion secured. I have that on good authority. To which Sam Altman replied directly to Musk, quote, wrong, as you surely know.

Want to come visit the first site already underway? This is great for the country. I realize what is great for the country isn't always what's optimal for your companies. But in your new role, I hope you'll mostly put America first. So this beef doesn't seem like it's getting any better. No, it's alive and well, Scott, as you pointed out. I would also say it likely signals a little bit more confidence by Sam Altman that he's replying directly to Musk.

There have been times where Musk goes at him on Twitter or X, and he's sort of silent. He has said publicly at certain times in interviews, at more sort of long form formal interviews, Altman has said, you know, Musk is a bully. He's punched back at certain times. But I think the timing of this, the fact that he just 24 hours ago was on a podium next to Donald Trump

would probably instill a little bit more confidence to go after Elon Musk and say, you got to do what's best for the country, not what's best for your company. So that is a strong tweet and response from Sam Altman. to go after Elon Musk and say, you got to do what's best for the country, not what's best for your company. So that is a strong tweet and response from Sam Altman. And I think you're right that this battle is far from over, not only in the courts, but we're seeing it play out on social media. Yeah, he's feeling himself a little bit, is Mr. Altman. Being called the leading expert on AI by the president of the United States, given everything that's gone on, might make one feel that way.

Kate, thank you. It's Kate Rooney with her new reporting. And by the way, many are wondering what the announcement means for Microsoft and its relationship with OpenAI. Steve Kovach here with that part of the intriguing story as well. Steve. Yeah. On the Microsoft side, Scott, it is the headline that it's no longer the exclusive cloud partner for OpenAI. That's been the case since it started investing in OpenAI back in 2019. Everything that happens on OpenAI

happens on Azure cloud servers. And by the way, that is part of the growth that we've seen in the Azure cloud business, particularly the AI segment of Azure cloud comes from OpenAI. Now Microsoft has what they're calling the right of first refusal. They literally don't have the capacity, the cloud capacity, to do everything that OpenAI wants to do and keep up with that enormous growth. They're saying that's why we saw that Stargate announcement yesterday. We're seeing OpenAI start partnering with Oracle, which it has previously partnered with before.

We saw this last summer when the two companies announced that they're going to start taking some of the cloud business from Microsoft to take some of that load off and do it on Oracle. And it also opens up the idea that maybe other hyperscale cloud companies can also get in on OpenAI. It's not all bad news for Microsoft, though. Again, they're still going to be using OpenAI on Azure for a lot of the critical stuff, and they're going to still have most of the agreement intact. That includes exclusive access to OpenAI technology before anyone else gets their hands on it. Let me, I've got a clip here from Satya Nadella. He was on with Andrew on SquawkBox earlier this morning,

kind of explaining what is staying the same and why this still benefits Microsoft. Take a listen. Look, I think the partnership with OpenAI to us is a critical partnership. We love it. It's working. It's created a lot of value for us. And we plan to just continue forward with it. It's true that on Azure today, there are other models. There are open source models. We have our own small language models, and we'll continue to have all of that because customers at the end of the day are going to demand choice there,

and that's fine, and we'll make sure we support it. But having a leading model on Azure exclusively is a great advantage to us, and it's good. Now, Scott, a lot of people are reading into this. This is just kind of the first step of an inevitable breakup between this partnership. That doesn't mean it's going to totally go away. The deal is intact until at least 2030, and obviously they can extend it from there.

But it does show that this cozy relationship that these two companies have and are increasingly becoming competitors with each other, it's starting to open up a little bit at the same time. And by the way, Microsoft still is heavily reliant on OpenAI to do everything it wants to do on the consumer-facing front of artificial intelligence. That includes Mustafa Suleiman, who was hired last year as the CEO of AI at Microsoft.

His whole group is heavily reliant on OpenAI's technology to do what they want to do and get that engine running as well, Scott. Well, one of the founders of DeepMind is Suleiman. Exactly. Important to note that. What's interesting to me, Steve, is that the market doesn't seem to be worried in any way, shape, or form about Microsoft.

The stock's up near 4%. If you had showed me the stock and it was down 4%, I'd say, oh, okay, I guess I get it. Maybe there is a little bit of concern over the future of that relationship, but not today. Yeah, there's no doubt that growth isn't there. I mean, there will be growth and there will be growth in the Azure business from Microsoft spurred by OpenAI. We're going to see it next week when Microsoft reports earnings on Wednesday. They'll tell us what percentage of that Azure

growth comes from artificial intelligence. And you can go ahead and just kind of assume a lot of that is coming from OpenAI. So again, the relationship isn't going away but it is starting to crack just a little bit right now as many had expected the other thing i wanted to talk to you about was you know we're talking about all these stocks that are up a bunch um apple is now in danger of falling i couldn't believe this is danger of falling below microsoft in market cap believe it or not right it got eclipsed by NVIDIA again yesterday. And here we are with Microsoft putting that in danger as well. It's on pace for its worst month since December of 22.

Another sour note today. Bearish note from Barclays, which reiterated it's underweight. Yeah, that's exact. And they also cut their price target by a buck, I think. So not a huge call, but again, we're seeing this pile on, Scott, from analysts just picking out this dreary data that they seem to kind of ignore last month when the stock was just hitting all-time high after all-time high. So what Barclays is saying is very similar to what I was on your program talking to you about yesterday. There's concern that the December quarter iPhone sales won't look that great. There's concern

that iPhone 16 builds have been cut back for this current quarter. We're in the March quarter, and that guidance might look a little crummier than people had been expecting. And also, just looking forward to what will happen with Mac. They're expecting some good stuff for Mac. And services is still the bright spot, Scott. We've got to talk about that, too. It's expected to continue its double-digit percentage growth, kind of picking up the slack.

The real question, I think, going into it, not just what the iPhone business looks like, but is that top-line revenue growth still going to hold up? Remember, we went through that period with Apple where they went through several quarters in a row where they could not get top-line revenue growth. They've mostly gotten back to that, even with this struggling iPhone sales and this narrative, basically, of Apple intelligence not really driving it.

All right. Good stuff. Steve, thanks for all that. Thanks, Scott. That's Steve Kovach. Steph Link is back with us. Once again, you want to talk about AI infrastructure first? I mean, off the heels of the announcement yesterday at the White House? Yeah. I mean, there are a lot of winners. Microsoft, by the way, is going to be a winner in the long term. But in terms of infrastructure, I think it's underappreciated, Scott. We've been talking for two years about Eaton and Qantas Services, GE, Vernova, which had a great quarter today.

Rockwell Automation, it's a laggard. But the reason it's important is because the total addressable market for AI is like $350 billion today, going to $650 billion by 2029. And that doesn't even include Stargate. And so I think that there's a lot of growth and you can play it through the technology names. You look at playing it through the names that you were just talking about? I do. But well, let's just go one thing here about data center. We have 11,800 data centers around the world. The U.S. has 5,400 data centers. That's going to 10,000. So you can play it through an Amazon. They're the number one hyperscaler in data

centers. You can play it through Broadcom. You can play it through a lot of the technology, PurePlay is right. Or you can play it through the names that I just mentioned. $1.8 trillion of mega projects are expected throughout the world, according to Eaton, and only 16% have been started. So that's why I want to own tech, but I also want to own the infrastructure plays because I think they're just a little bit underappreciated. It's amazing looking at these stocks that have done so well today on the heels of this announcement. Apple notwithstanding, I mean, it's positive now by one quarter of 1 percent um a bunch of downgrades lately there's not a lot of positive sentiment going into the number next week you're looking at the stock again which you used to own and sold last year yeah because it's

gotten so out of favor just in the last couple of weeks on top of the stock was up six percent in december alone and it's up 37% since the spring, which is when I was adding to it. And then I sold it in the fall, probably too early, of course. But I think that right now, a lot of bad news is priced in. I don't think the iPhone 16 is the super cycle, but you do have over 200 million users, right? A user base, an installed base. That's very powerful. I'm just not there yet because, Scott, you're still trading at 30 times forward. When I was buying it in the spring, it got to as low as 26 times forward. I'd love to get it back there. So it's on my radar screen

for sure. But I don't think it's going away. I think you can pick your spots. All right. Thanks for sticking around, covering all that for us. We appreciate that. Stephanie Link with Hightower. Coming up next, we're just getting started. Wells Fargo's Chris Harvey. He is breaking out his market playbook for the new administration. The sectors he is betting on after the break. He'll tell us. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC.

S&P 500 on track for a new record close as a new Trump administration gets going. Not all areas of the market, though, will be a winner in Trump 2.0. That's according to our next guest, Wells Fargo Securities Head of Equity Strategy, Chris Harvey, who is with me at Post 9. Welcome back. Thank you. All right. So not everything's going to win. There's a lot of optimism, obviously.

We're going to probably have a new record close on the S&P. You don't like energy. Let's just start there. OK. What happened to drill, baby, drill? I mean, that's what he's talking about all the time. He just declared a national energy emergency. There seems to be more optimism about that space, no?

More optimism, but drill, baby, drill is not necessarily good for the stocks, right? A couple of years ago, if you recall, it was all about growth, growth, growth. Didn't work out so well for multiples. Didn't work out so well for earnings. Then they got religion. They got profitability. And that worked out pretty well. So we're not seeing this as drill, baby, drill as a positive.

The other thing is just because you say drill, baby, drill doesn't mean that it happens. Okay. That's a good point you make. It's a point that Kramer made yesterday morning that I discussed on this program as well. What you're essentially saying is that the president, with all due respect, can say drill, baby, drill all you want. Right. But the companies have sort of changed their strategy. That's right. On their businesses where they don't want to drill that much.

Correct. They want to return more cash to shareholders because they've seen what it's done to their share prices. Exactly right. And what we think about is we would turn more positive on energy if we thought global growth was stronger, if we thought inflation was going higher. That macro picture is really positive. But when we look at China, we look at Europe, things still aren't where they need to be. And we also think that inflation is not accelerating. It's just more or less flatlined right here, which isn't great for the commodity, isn't great for the energy companies. You don't like tech hardware either.

Yep. Is that Apple? Like, what is Apple talking about when you talk tech hardware? Apple is part of tech hardware. So the reason why we don't like tech hardware is you're paying a premium valuation, but you're not getting premium fundamentals, right? And the stocks are beginning to roll over, right? Which in a momentum market is not something you want to see. And we think there's plenty of scope for downside.

That rollover is really important. And as a result, we want to stay where we think there's a lot better risk awards, a lot better opportunities in the marketplace than paying up for just okay fundamentals. Okay. Such as what? Where are the opportunities? So the opportunities are still in the communication space. You saw what Netflix did yesterday or last night, right?

We still think that is the quintessential GARP sector. You have good valuation, you have positive momentum, improving fundamentals, and the stocks continue to work. And this has been for two, almost three years now. And what's funny is valuation is still trading at a discount to the market. So Meta is in there. Meta, Google, Netflix. You have some cable companies as well and a handful of others. All right.

Everybody now seems to be all bulled up about the banks. Yes. For obvious reasons, right? If there's one sector that folks think is going to do well under Trump 2.0, it's the banks. You get more animal spirits. You get more dealmaking. You get deregulation. Banks can be banks. Shackles are off, blah, blah, blah. We've all heard it. What don't we know, though? I mean, the stocks have already done pretty well.

Well, one of the things is people are very positive on the banks, but they're not positioned that way. A lot of people are not overweight at the banks. They're still saying, well, I think there's going to be a pullback. Well, I'm not so sure about it. Oh, valuation versus the last 10 years, not so great. The other thing is regulation hasn't changed. We've just turned the calendar. We're getting new people at the SEC, the FTC. The enforcement hasn't changed, right? We're hearing more about M&A and M&A activity, but that's just the beginning. Right. We haven't seen the IPOs. We haven't seen the associated trading. And so the E is going to go higher. We think the E is going to go higher. In addition to that the multiple hasn't expanded enough. You've had 15 years of upward regulatory pressure. That's not resolved in three six months. What's your overall view for the stock market this year? Do you have a target yet? We do have a target.

No, I'm serious. I didn't mean to make a joke about it. I'm serious. So we're 7-0-0-7. So we think the market gets to... Oh, that's right. I forgot about that. That's right, yeah.

Forgot about that. 7-0-0. Yeah, how could you forget? 7-0-0 wasn't good enough for you. No, no, it wasn't good enough. So... What's going to get us there? What's going to get us there is exactly what we're seeing, right?

People are worried about, oh, tariffs, this tariffs, that Trump, this Trump, that look at the fundamentals. The fundamentals are pretty damn good, right? In addition to that, you have an economy that I think is better than expected. You have credit spreads are still very tight. You have the cost of capital beginning to come down and it's not exceptionally high to begin with. And M&A is just beginning to kick down, and it's not exceptionally high to begin with, and M&A is just beginning to kick up. So you throw that all together, and you can see the S&P go higher just following growth and growth rates without much, if any, multiple expansion. All right, we'll leave it there. Chris, good to see you again. That's Chris Harvey, Wells Fargo Securities.

Up next, Ed Yardeni is back with us to tell us where he sees small caps heading from here. He might be surprised, too. We'll talk to him next. While the S&P 500 looks to notch a new record close today, the Russell 2000 is lagging amid questions about where interest rates are going from here. Our next guest says he's tempted to get more bullish on that trade. Let's bring in Ed Yardeni of Yardeni Research. Good to have you back.

Welcome. Thank you, Scott. Why are you trying to fall in love with the small caps here? Well, because I've been out of love with them for quite some time. And they have actually done reasonably well. But I think this market is broadening out. I think we've got a roaring 2020s kind of bull market here. And valuations clearly are stretched on the larger caps.

And the mid-caps are looking more interesting, particularly the mid-caps more than the small caps, quite honestly. In terms of the fundamentals, you're seeing better earnings performance and expectations in the S&P 400, whereas the S&P 600 is still, the fundamentals aren't that exciting. But look, it's when people are excited about buying stocks, you see money going in all areas. And I think they will catch up some. Well, I'm glad you clarified it a little bit because it is more nuanced because as, you know, Lori Calvacina, who was on with me on top of our program today, can't get behind the small caps, says they're too expensive. There's not enough growth. To your point, the fundamentals don't really match where these stocks are trading right now. Yeah, I think there's going to be a lot of M&A activity. I think a lot of the large caps are going to continue to pick some of the best of the breed in the small cap and mid cap area.

And I think banks and technology stocks in those areas may very well benefit from an M&A mania, which I think is still ahead of us now that we've got a new administration that's not going to get in the way of with antitrust measures of a lot of M&A activity. It feels to me overall, Ed, like you're trying to get a little more bullish on this market. And it's not just through the small and mid caps. It's that you're raising your estimates for earnings growth, which you're going to need really given where valuations are, correct? Well, Scott, I've been bullish all along in terms of where it's going. I still think it's going to go to 7,000 by the end of the year. I've had $285 a share for the S&P 500 for this year for quite some time, and that's probably the highest on the street in terms of what the S&P 500

can accomplish. And I'm thinking maybe that number is conservative or maybe I'll have to raise it because so far it looks like the fourth quarter of 2024 is coming in better than expected. Analysts were expecting 8 percent. Now they're expecting 9 percent year over year increase. I was expecting 10 percent. I'm expecting 12 percent increase in the fourth quarter. So we ended up last year with quite a bit of momentum and earnings. I did think that there might be a pullback maybe even a correction. Back in December I thought it might might occur. I that we did have a bit of a

bit of a pullback down about four percent. Through what January tenth. But last week was a. Quite an amazing week because all the concerns about the bond market. When a five percent kind of melted away a fed official. Said that well

maybe they will cut. By more than two times, maybe three to four times. The inflation came in better than expected. And now with the inauguration, Trump did not raise tariffs from day one. And that was a bit of a relief, suggesting that tariffs will be used for negotiating purposes. Well, I mean, they could start soon enough. You know, day one doesn't really tell the whole story. I think the president himself made that point. Now, to your point, you know, Jamie Dimon's message today. Let me just jump in and just say that just yesterday, I mean, it's a very fluid situation, right? Because Trump was saying 60 percent on China. Now we're saying

10 percent. So we've got to be flexible in terms of what we're hearing coming out of Washington. Well, I mean, what he says, what he does, we've already learned our lesson about that. So I got that. Even Jamie Dimon knows. Right. It's like in terms of terrorists is like, get over it. Right. I guess we'll just deal with it. We'll deal with it. And it's not going to derail, though, the prospects of this market? I think this market's going to continue to be driven by earnings. And I think we are seeing productivity improving, continuing to improve. I think it's been doing it for quite some time. We're back kind of to normal productivity growth.

I think we're going to see it possibly double to 4% by the end of the decade. You know, I still think we're looking at a roaring 2020s kind of scenario with technology boosting productivity, which in turn means record profit margins. And I think S&P 500 earnings will be up to $400 a share by 2029. So I think earnings are kind of the let the force be with you. And that's certainly what we're seeing with earnings. All right. We'll see. Ed, thanks as always. Thank you. Talk to you again soon. Up next, we track the biggest movers into the close today. Christina Partsenevelos is standing by with that. Hi, Christina. Hi, Scott. Well, from the auto to the health care sector,

two market heavyweights are making waves today. We'll tell you who and why after this short break. About 15 to go before the closing bell. Back to Christina Parts of Novelos now for the stock she's watching. Tell us what you see. Wall Street's growing cautious on automakers, with Barclays downgrading Ford with a lower price target of $11 today. The bank cites rising Chinese EV competition, dealer inventory cuts and potential Trump tariffs as key risks heading into 2025.

Shares are down 3.5%. Johnson & Johnson beat expectations this quarter thanks to strong cancer treatments as well as medical device sales. But here's the catch. Wall Street's not loving their sales forecast for this year, reflecting negative impact of a strong U.S. dollar, and that's sending shares down about 2% lower at the moment, Scott. Christina, thank you. Christina Partsinevolo still ahead.

We'll tell you what's driving travelers higher today. That stock leads the Dow. We are back after this break. We'll be right back. Coming up next, a pair of big Dow components bouncing today. What's behind the jump in Procter & Gamble and Travelers? We will tell you inside the Market Zone next. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus two big Dow movers today leading the index.

Contessa Brewer on Travelers. Seema Modi on Procter & Gamble. Mike, I begin with you. Maybe the bad breath of the market is coming back to bite us a little bit at the close. We may not actually get that new closing high on the S&P. No, and it really did show fatigue. And why are we fatigued? Because since last Monday's low, the S&P 500 was up five and a half percent. The average stock did better than that. You had five days of super strong breath, which followed a couple of weeks of really bad. So the market has been really sloshing around pretty aggressively, and it was

probably time. And even at the beginning of trading this morning, the majority of stocks were pulling back. I'm also noting the volatility index. It's at benign levels at 15, but it's firmed up. In other words, nobody's betting that this return to the S&P 500 high means we're just going to keep clicking in an orderly way higher to record highs. We are headline sensitive. I think the way the markets behave, you know, if you say that no across the board, punitive tariffs is part of the reason the market has a little bit of a bid this week, I think what it tells you is investors in aggregate just prefer the policy set and the economy and the earnings picture that we have. You don't really have to do a heck of a lot. And I think that right now it explains why the market is here, maybe why it feels like sudden moves or or harsh rhetoric would be the

kind of thing that at least on a quick basis would cause an air pocket. I'll come back to you in a second. Contestant Brewer, tell me what's up with travelers today. Yeah, we really saw the traveler shares popping, Scott, on fourth quarter earnings that swept away expectations. $9.15 per share versus the street consensus of $6.63. Posted record profits for the year, fueled by an increase in rates. It's seen growth in all three business segments. Net investment income for the full year up 21% on the largest portfolio ever. But of course, wildfires are the top of mind. Traveler said damage in L.A. County

will be material to these first quarter earnings. It would not get more specific. Warned analysts that the publicly posted market share numbers, basically they list travelers as having 4 percent market share in California, that those are outdated and don't reflect its efforts to reduce its exposure to wildfire risk in the state. As for the overall outlook, CEO Alan Schnitzer said he loves the business they're booking. He loves the pricing they're getting. He loves the stability of the marketplace and the way they're keeping customers loyal. So it seems like all things steady as she goes. We'll have to see, Scott, whether that pays off for them. After all, there's so much consumer sentiment against the higher prices in insurance. You have to wonder

whether that's going to pressure regulators into rate crackdowns. Yeah, no doubt about that. Contessa, thank you very much for that. That's Contessa Brewer. How about Procter & Gamble, Seema? Yes, a move into the consumer staple space, Scott, with P&G quarterly earnings getting a lift from its family care and feminine care brands, which include Charmin, Puffs and Tampax, fueled by growth here as well as in Europe. We're seeing some reacceleration of top line growth, both volume and sales, particularly in our biggest markets, North America, we were up 4% on sales, and that was on volume growth of 3%. Europe up 4% on volume growth of 4%. That growth is across the board. Nine out of 10 categories growing sales.

We're building share. Mueller also telling CNBC that he saw a notable improvement in China, where organic sales were down just 3%. That does compare to the 15% decline they saw last quarter. He says P&G continues to invest in China, which is interesting, Scott, given that most companies at this time seem to be sort of diversifying away from the country. Back to you. All right. Seema, thank you very much for that. That's Seema Modi. All right, Mike, I'll turn back to you. We'll see how we settle out here, obviously. We're just a few points below that record close for the S&P.

Okay, so we have to watch for White House-driven market trading. And then we get to mega cap earnings next week. And that's really what the market, I think, is going to be waiting for. Yes. In terms of just filling in a lot of the blanks in terms of weather, I think more full-year 2025 numbers look like they have any upside or have to be trimmed. That's going to have a big sway in it. And, you know, the market at the index level inherently is just so hard to sort of handicap in terms of leadership.

I mean, could the market over the next few weeks decide to pay 33 times earnings for Microsoft, Apple and Nvidia instead of 31 where they are right now? Sure. Nothing happened. Fundamentally, the market gets a little more enthusiastic. Maybe that comes from the earnings reports or not. So, yeah, I think this is this is the time where investors want to be able to turn their attention to companies and we'll see if they're allowed that privilege. I mean, Apple's going to have what's on pace for its worst month in some two and a half years. Yeah. Be nice if one of the largest but is still the second largest by market cap stock in the market can get its act together. It goes in these streaks because it had such a run into just about the end of 2024. And again, not on very much changing.

And so I do think we're just paying for that to some degree right here. One thing I've been looking for is every morning is a drumbeat of sell-side analysis of Apple saying, you know what, yeah, channel checks indicate it's been a soft quarter. Demand's not really there. You want to see the stock just stop responding to that and actually not trade so heavily. Maybe today's a little bit of the start of that, up a half a percent, even if it's underperforming the rest of the NASDAQ. But that has been pretty conspicuous and also why I've often said Apple's not really a bellwether. Ultimately, over time, it matches up in the direction of the market,

but it isn't really needed to drive each flag of every rally. Well, maybe NVIDIA is the new bellwether. Who knows in this new era of AI? That stock's up 4%, by the way. Microsoft is as well. They're two of the standouts. Bells ringing. We'll see as we settle out if we are, in fact, ringing in a new closing high on the S&P. Doesn't look like it, but we'll see. I'll see you tomorrow

into OT.