Closing Bell - Closing Bell: Growth Trade Interrupted 5/10/24

Episode Date: May 10, 2024

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

All right, Kel, thanks so much. Welcome to Closing Bell on this Friday. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make-or-break hour begins with the run to record highs. Probably won't get there today, but sure looks like that's the direction in which we are heading. We're going to ask our experts over this final stretch how far this full run can go. In the meantime, your scorecard with 60 minutes to go in regulation looks just like that. It's been a mixed day for the majors. We are all green across the board for the week, and that's the important part. Remember, we closed above 5,200 for the first time in a year yesterday, and we're hanging, I mean, in a month, excuse me, and we're hanging out there now. Utilities, financials, they are among the standouts this week. Yields are up a bit, too, on some hawkish-leaning Fed speak,

and we're going to get to that in a minute as well. It does take us to our talk of the tape, the rally, just how resilient this market can remain. Let's bring in Kevin Gordon, Charles Schwab. It's good to see you. Welcome back. It's been a minute. Nice to see you. So, wow, this market's just been incredible. It's been resilient in the face of so much, theoretically. It's had this nice bounce back. What should we make from it? You know, I think what's nice is that through this mini pullback correction, whatever you want to call it, from late March to mid-April, you've removed frothy sentiment as a pretty big risk. And that had been a risk from, call it mid-November up until March, where you had seen indicators

both on the behavioral and the attitudinal side that had gotten way into excessive optimism territory. But, of course, as we know from history, that can happen for a while until you get a negative catalyst to tip you over. That negative catalyst, I would argue, probably ended up being inflation, a little bit of this reacceleration that we saw in the first quarter. But now that you've taken that back, earnings season, for the most part, has generally been pretty good, maybe less good on the sales side.

But overall, I think there have been enough catalysts to kind of keep you in this uptrend and sort of that broader picture going back to late October and the late October low of 2023 keeps you in the sub track. The key catalyst, if we want to call it that, I think everybody is sort of coalescing around the idea that the Fed chair changed the game at the meeting. He was not nearly as hawkish as some had feared he would be. And that's really why we find ourselves now where we are. I have a little bit of a different view, only because if you look at the shift in market expectations that we've seen, you know, a lot. I mean, there's been so much whiplash since the end of last year when you really started to get favorable readings on inflation metrics.

You know, whether you're looking at it at a three, six month annualized change basis, everything was pointing in the direction of right at 2 percent, maybe sub 2 percent. But if you go back to some of the commentary from Powell himself, December and January, you know, there was no major pivot. I know that in the SCP, there was an indication that on average, Fed officials were expecting three cuts this year. But even Powell himself back in January said, we're not going to declare victory. It's premature. Sure. So I say all that to say and to sort of reaffirm the point that it's not the Fed that has really changed its tune. It's just the market that's had to adjust. Well, let's let's discuss that. OK, we had these hotter than expected inflation reads and we had a bad GDP read. So, you know, all of a sudden we're

sitting there. OK, now, you know, are we going to get any cuts at all? Is he going to come out at the news conference and be really hawkish? And is that going to be a problem? Now we have to worry about stagflation. So he comes out and he says, hikes, more hikes, unlikely. Uses that word, right? Highly unlikely. No stag, no flation. Right.

Yields come down. Yields are down considerably since that day. Stocks are up. I mean, it's directly correlated. But if you look actually from, so when, at the point that the market started to aggressively, you know, sort of price in cuts up to seven, if you want to go from that period from, you know, sort of late fall into the end of the year and at sort of the max point, I guess, was January of this year when you got to seven. At that point, yeah, you would, that had coincided with some weakness because you had the

correction last year from late July to late October. Then of course, with the turn in yields that helped propel stocks in the opposite direction. But since then, as we've gone from pricing in seven to maybe just one now to maybe two, the market's still rallied. So that's a disconnect there where I don't think that the market is purely just trading off what the Fed is going to do this year. If you had come out and said or even gave you the glimmer that another hike was on the table, we would not be where we are. But they've always entertained that as an option.

Yeah, but the way that he came out and wasn't nearly as hawkish as some feared has to be a considerable part of the story. And so does the sector performance. Let's just take this week. Utilities are leading the way, 4.5%. Financials, materials, industrials. You're telling me those sectors would not be leading this market if rates were still 20 to 25 basis points higher where they were around Fed Day and he was hawkish. There's no way. But even if you look at the leadership profile since late March, I mean,

you look at what's been leading and I pick, I'm sorry, excuse me, late February, early March. That's really when you started to see a shift where technology kind of took a step back, hasn't really participated as much since then. But the three top performing sectors since that time, since the beginning of March have been utilities, energy, communication services. So that's a traditional defensive area. That's a traditional sort of deep value area. And that's a growth area that are all leading. I'm not really sure what the market's message is there. So it's not a clear cyclical risk on tone, but it's not a clear all in defensive tone either. I think that's consistent with where we are in this part of the cycle where nobody's really sure how much of a reacceleration in inflation is to be believed,

whether we start to turn lower from here. That brings cuts back on the table for the Fed. But now you also reintroduce a little bit more on the labor weakness side and the consumer weakness side, where I don't think that we're in dire straits right now because of one jobs report that got you down to 175 in payrolls, the unemployment rate ticked up a little bit, you had a weaker claims number this week. It's not enough to make a trend, but you reintroduce some of that and it fits with at least how we think about the Fed cutting potentially, which is inflation and disinflation. The trend sets the stage, I think, for them to be able to cut. But what ultimately probably pushes them towards cutting, and a lot more members have mentioned this, is weakness in the labor market if the unemployment rate was to gain more momentum

to the upside. You know, we had a special event really in the last hour, an exclusive with President Schoolsby and Kashkari with Steve Leisman up in Minneapolis. Steve's with us now. I wanted to catch you before you got on your plane to come back because I thought this was significant, Steve, in that, you know, it almost feels like now the Fed chair's on the island and almost everyone who's coming out, certainly today, and there have been many who definitely have a more hawkish tone certainly kashkari yeah well i think the way to think

about that scott is you follow the data and i think what you're talking about just to set the whole scene uh you talk short end because you know the news like the back of your hand but so people were watching logan came out. Bowman came out since you didn't think they should cut rates this year. Logan asking the question, maybe the Fed is not tight enough. That's from Dallas. And then we had Kashkari on who says, you know what? Well, you know what? Let's just listen to what he had to say. And the good news here is he's not talking rate hikes. So let's hear what he is talking about. If we get concerning inflation data continued, we're going to sit where we are for an extended period of time. I mean, I think that that's the

default, that we don't feel compelled. If the labor market stays strong, we don't have to do anything. We can stay here as long as needed. Now, I don't think Austin Goolsbee's viewpoint is any different from that, given the scenario where Austin might be a little different. Kind of picking up what Gordon was talking about is he seems to have a little bit more optimism that inflation is going to work itself out. He will keep reminding you that we had an historic decline in the inflation rate last year. Obviously not the price level, but the rate of inflation came down, Scott, very precipitously. And he's a little bit more optimistic. He does not accept the idea that we're in this kind of last tougher mile of inflation. He seems to expect that the inflation

progress of last year can and should continue this year. I also, to be honest, was struck by the issue of rents. Right. The Fed chair at the meeting had you believe, and he said it numerous times, that he believes it's a lagging indicator, that rents are going to come down. And he sounded pretty confident in that. If you listen to these two gentlemen with you today, man, they almost talked as if it's a leading indicator to them still, that the stickiness there, or as I think it was Mr. Kashkari pointed out, the tick up in new leases gets him a little bit worried. So I wonder if we have differing perspectives on that. Well, you're 100 percent right to point that out. Look, whether it's leading or lagging, the Fed can't get there from here if indeed housing inflation is not going to fall. That is a prerequisite for the Fed getting back to that 2% inflation level. If it's going to remain at 5%,

6%, 7%, it's not going to happen on the 2% target. So therefore, you get into this thing. Goolsbee calls it a puzzle. Kashkari's a little bit more worried about it. And as you said, Powell is kind of, I don't want to say doubling down, but more confident in his forecast that the decline in housing rents has to show up in the CPI. It is a puzzle, Scott. We don't know quite what's happening. We do know that market-based rents and other data from that have shown a decline. It hasn't shown up in the CPI.

What we do know is that if you're going to get to 2% inflation, those housing numbers must come down. Yeah, Steve, it was great stuff. And it's rare to have two presidents together live on television. Safe travels back. I appreciate you spending some time with us. Steve Leisman, our senior economics reporter. Pleasure, Scott. Thank you.

So, Kevin Gordon, off the macro and back to the market. Do you believe that the trades that have worked this week, the sectors that have outperformed, as I said, utilities, financials, materials, industrials, are now the place to be? That the economy is going to remain good enough, irrespective of what the Fed does down the road, that the market dynamic has shifted enough? Yeah, we think it has. I mean, if you look at even our sector model has a couple of those as those as outperform financials, materials, and then I would add in energy. The move in utilities, you know, I think if you were to take it back to, you know, what we had seen back in October, especially specifically for the utility sector, not only did you have it relative to the S&P 500 fall to a new all-time low, but in absolute terms, the sector itself fell to a three-year low. Highly unusual to see in a bull market. But that sector had gotten so deeply oversold.

It's not a surprise to me to see the run that we've had since then. That being said, our view that the Fed is probably at this point not going to go into an aggressive cutting cycle, that they're probably going to take it slow, assuming the economy hangs in there, that's not consistent with utilities and traditional defensives continuing to outperform. So I would say that the cyclical bias is still there in terms of what we look for, for quality and everything that looks relatively strong, even in a higher rate environment. All right. Bryn Talkington of Requisite Capital Management joins us, of course, a CNBC contributor.

All right. So we're wrapping up this week and we got above 5,200 on the close. We're not going to do a new high on the S&P today. It doesn't appear, barring something dramatic in the final 50 minutes or so that we have, because we need a 1% move from here. But how should we come away from this week thinking about this market? I think that the S&P is going to be up about 2% this week. I think today you have a bit of profit taking going into next week's CPI. But I think this conversation around industri Amazon, Microsoft, et cetera, Tesla, about the massive spend that they're going to continue to do.

And where does that play into, actually? It plays into data centers, which plays into utilities. And so if you look at NextEra, NEE, I think it's up about 23% this year. That's up close to 15% of XLU. And then you think about industrials. We're doing so much on shoring. You look at what's happening with Intel, the chips, IRA, et cetera. That's also to bring technology back on shore. And so I think you have these cross currents. And so I think it's really important for investors that old playbook of like, when did you buy

utilities? Because you would think that rates could actually on the back end start going up. That's not great for like dividend yielding utilities. But you have this other aspect, I think, of energy spend around onshoring and data centers that's actually budding that and is a much bigger move that could help utilities be strong for the rest of the year. See, that's an interesting play.

And a lot of people are talking about that, Kevin, including Carl Quintanilla, my colleague posted on social media, the conversation that he and Kramer had this morning about utilities, that they're no longer, at least now, a defensive play, but rather a generational growth story as the power hungry data center drives upgrades to the grid. Is there something to that? I mean, we do, you know, when we, I was thinking back to when Bryn was talking about that, when we wrote our outlook for 2024, we do have this view that, yes, in general, not just this year, but maybe you're at more of a secular turning point where the AI beneficiaries and the adopters maybe start to take, you know, more of an importance in terms of market returns than just the creators. That being said, though, there's still enough from

a fundamental perspective, especially where we are given rates, I think, to weigh down on utilities. Not that they have to go down, but I think in terms of relative performance, you look at the debt levels, the interest coverage ratio for that sector, it's not very high. It's actually rolling over. You also just look at the fact that for the sector as a whole, the dividend yield relative to what you earn in the bond market, that spread has been slipping. And now you're kind of into a zone that is consistent with weaker returns, not outright negative, but just weaker relative to history. So I do think that, yes, there's probably a secular story there, but I'm not sure, given where we are in a fundamental aspect and what the market's been focusing on in terms of quality, I'm not sure that that's a long-term play right now.

Bryn, financials, we're showing them on the screen, these week-to-date sector gainers. It's number two on the list. They've certainly done quite well. It's 11% year-to-date. It's one of the top performing sectors in this market. What should we think about right now? Again, that feels like directly correlated to the fact that rates have come down. There's a better feeling about how this whole thing is going to end. Yeah. So, I mean, I've been, I think, really consistent. We are very underweight financials. We're trying to be away from financials. I think there's better returns outside of a few individual names. I think that we could go into when we look back at the end of the year, the Fed could actually lower rates on the short end. But you actually have an un-inversion of the yield curve where

the long end actually goes higher. And so whereas the big banks can actually do some stuff with that, I still think with the long end, commercial real estate mortgages are priced more on the long end, not the short end. And with the trillion dollars of refinancing on commercial real estate, I still have this unease that we have these landmines in the commercial real estate market and other areas that if you continue to get, once again, an un-inversion, regardless of what the Fed does, that's going to put some pressure on some sectors that were not ready within financials. And I think that probably brings most of them down with it if that occurs. Yeah. You like financials, don't you?

Yeah. But I agree with Brennan. If you start to break it up between large cap versus small cap. I'm talking large cap. Let's talk large cap because, you know, Goldman Sachs has been hitting a new all time high almost every day. And JP Morgan's been doing the same. I definitely think we need to separate the kind of conversation we're going to have. We're not talking, you know, regional banks out of the Russell 2000. We're talking about large cap, either money center banks or, you know, capital markets, focused banks, things like that. Yeah, when we look at the factors that we use, whether it's quality, sentiment, growth value, that sector scores pretty well. So for now, you know, it's worked, thankfully, you know, for us. Knock on whatever here.

But I think that you still have strong trends in place. The underlying breadth and internals of that sector are really strong. Financials is one of the S&P 500 financials, I should clarify, is one of the sectors that's scoring the best right now in terms of participation among its members. Bryn, what about energy? Because I think we have some differing views of late. What, you know, what's been a disappointing trade and shows fits and starts should we be believers in that asking somebody of course who's sitting in the houston texas area and maybe a little biased just throwing that out there i mean i'm fact-based i'm boots on

the ground so i think i have a really good i have a really good lens that's fair that's fair enough channel checks i think i got you other people are biased uh and so I think that you're going to continue to have dispersion. I still like the smaller names. I mean, if you look at a diamond bag, I mean, that stock, if you took the name off, you would think that would be a technology stock. I think that, you know, 80 is the new 60. I think these companies in general have good capital discipline. The free cash flow yield isn't as good as it was last year. I think it's about 7% in aggregate. But I still like these names, like the Diamondbacks, those kind of

names. We're playing it generally via RSPG, which is the equal weight. So I can get some smaller EMP names and not just sit there with Chevron and Exxon with XLE. But I think that this needs to be part of the portfolio. Also, energy does well in this kind of market when you're expecting rates to come down. Energy is one of the top performers. And I think energy is up about 11 percent, the ETF for the year. So it's been a really strong performer. Yeah. Well, you know, over a month, it's been the worst performer. Energy, you like that, too. Yeah, you keep I mean, you go through fifths and starts, but we take a longer term approach.

If you extend it out over the past couple, past three years, even past four years, energy is still the dominant performer out of all sectors. So I think that, again, when you look at fundamentals, talk about a sector that looks a little bit or a lot of bit different than something like utilities, even in terms of interest coverage. You know, the profit boom for this sector over the past couple of years, notwithstanding the weakness that we've seen over the past year, has been enough to really lift that interest coverage ratio, keep it elevated, which is one of the reasons that we think areas like this can still do well, even with rates really elevated. Because, you know, we have to keep in mind, it's about risk appetite. It's not as much about the level of rates permanently affecting any given sector or any given company. If risk appetite comes back and you're able to withstand it, which a lot of energy companies have been able to so far,

then that ultimately is a good thing, especially in a higher pressure economy, which we still seem to be in right now. Bryn, let's finish by circling back to one of the areas of the market that's had it tough this week. And those are those high growth stocks, high beta stocks, like Roblox, for example, got crushed the other day. We had you on halftime in which you said you were going to buy more soon. And that time has come today. Yeah, I mean, I added to Palantir earlier this week, very overblown. And I added to Roblox this morning. I think that I was originally said yesterday I was going to wait till Monday. but after the market, it seemed really washed out. And so I think that once again, this stock, we'll see $40 again. It's in a really strong channel. The market overreacted to this. And so

I think this is a good opportunity. I can buy it around 30, probably take profits on this piece around 40, you know, in the next six months to a year, which would be a great total return. Yeah. I'm getting a decent little move today. Bryn, thank you. I appreciate it very much. Bryn Talkington, Kevin Gordon, nice to see you as well. Thanks, Scott. Good to see you. All right. Let's send it to Christina Partsenevelis now for a look at the biggest names moving into this Friday close. Christina. Well, move over Tesla, Chinese EV maker Zeker just IPO'd in the U.S. and shares are up 30 percent right now. Zeker is backed by Chinese-based auto group Geely,

offers several luxury EV models, and really opened up at $26 this morning. The Zeker listing is the biggest by a Chinese-based firm in the United States since Didi back in 2021. Shares of the largest chip manufacturer in the world are also higher, but up just over 4% after reporting a 21% sequential monthly increase in April sales. That's 60% higher than last year at this time. Those big numbers driven by demand for AI products, standard server bills, stable demand from Apple, and we're starting to see the seasonal improvements in handset and PCs. Scott?

All right, Christina, thank you very much. Christina Partsenevelos, we're just getting started. Up next, growing pains, a number of high-profile growth stocks stocks. We just mentioned one like Roblox getting hit this week. EMJ Capital's Eric Jackson. Well, he's been a big believer in that trade. Find out if he's still bullish or if the recent turbulence has him changing his tune. We're live at the New York Stock Exchange. It's Friday. You're watching Closing Bell on CNBC. Welcome back.

Stock market heading for a positive week. A different story, though, for a handful of high-profile growth names. Roblox, Shopify, Uber, among the stocks down sharply since reporting earnings this week. A little bit of a recovery after that, but it's been a tough week. And our next guest says there's still more gas in the tank for that trade. Joining me now, EMJ Capital President and Portfolio Manager, Eric Jackson. Good to see you. Welcome back. It's been a while. Hey, how are you? I think that's the theme of this week, really, is a lot of the blowups that we had. I could, you know, six, seven, eight names really got hammered after their earnings just didn't didn't weren't good enough. That's true. I mean, this is a market where you come up short, you're going to get punished.

But I, you know, looking through those those examples, I mean, I think there is some good news this week, Scott. AI, the big AI trade, you know, the names are much higher than they were a week ago. And Christina just mentioned it in the prior segment about the Taiwan semi news overnight and their April orders being up 60 percent year on year. So that's definitely helped those stocks. The Russell also is up just, you know, compared to a week ago. The VIX is down 10 years sort of flat. Most of these most of most tech names, most most growth tech names, if you go back and look at the charts, bottomed in the third week of April. And so despite the bumpiness and the individual names, I still think that growth is on its way up from here, not down.

Why then did you exit out of Microsoft, Amazon and Google? We could start there because that's what I see as part of your notes that you recently got out of those stocks. Yeah, after earnings, you know, I look at those. Those are all great companies. And I think there's going to be opportunities to trade all the Mag7 names throughout this year, including Apple and Tesla. I just thought they'd had great pops. There was good news. There was sort of pessimism going in. I decided to take profits. My two favorite names in the Mag7 all year and continues to this day is Meta and NVIDIA.

I think those are the two, you know, solid holes for all of this year. The others, you know, some of them have stretched valuations. Some of them, the growth prospects aren't as great. I think there's, you know, opportunities to look elsewhere in some of the smaller names, you know, where the valuations aren't as stretched. There's sort of a growth story emerging. A lot of a lot of companies have have cut headcount significantly. So they're much more profitable than they used to be. NVIDIA, I mean, the earnings are looming large. Now we're going to have to wait 12 days or so before we get them. How important a moment is that going to be for the whole market?

It's the biggest name affecting the whole market. I mean, there's no one else bigger. If they tanked, if they stumbled, it would have profound impacts on other names and other sectors that are far away from AI. So there's no question that they're that they you know they're everyone's looking to them the taiwan semi news though of today uh and just april sales being up sequentially 21 uh for for them and and ai chips being a big reason why i think you know goes back to the story of nvidia is really the the core way to play AI, despite the fact that they've had several good quarters to this point. And so I just don't think it's going to be a three-quarter and done story. I think it's a multi-year story, and NVIDIA is going to continue to move up from

here. So the top picks you have relative to AI, one of which, to be quite honest, I don't know that I've heard anybody talk about. Maybe that's just me. Maybe I just missed it. Is Dell. Why so? Yeah, Dell is reporting after NVIDIA. Should be later this month, Scott. And I think they've quickly emerged this year as sort of a stealth plane AI. Obviously, Supermicro got all the headlines a few quarters ago for building out the data centers that are wrapping the NVIDIA chips. But Dell is arguably doing just as good, if not a better job than Supermicro. We just heard all these people like Amazon and Meta and Google on their earnings call kind of spooked the market

because they talked about how they are not stepping back from AI spending. And that's good news for the Dells of the world. It's good news for the super micros and others. And so I just think Dell, you know, there's obviously a consumer story, but the data center story, the AI story is one that's picking up steam big time. You like Arm Holdings, too, right? They had earnings this week, too. And, you know, the reaction wasn't great afterwards. It wasn't. It's the bounce back today. They're up even more than Taiwan Semi today, I think, on Taiwan Semi's news. I think the results were better than kind of the first reaction. They've already kind of taken some pain going into the earnings event. So they're an AI story, too.

Obviously, they make the CPUs that power the AI data centers. But they've got a close relationship with NVIDIA. NVIDIA obviously tried to buy them a couple of years ago. And they've got a great management team. So I do think that they will continue to emerge as a very strong story going forward in the rest of this year. And as they roll out more and more chips, their royalty rates are a lot higher. So we'll see that play out in the story as well. And you like one of, gosh, what's been one of the most turbulent stocks, I think, in this entire market over the last few years. That's Carvana.

Maybe the story has turned. I don't know where the short interest is today relative to where it was before. My guess is it's not nearly as high as it once was. Why do you continue to believe in that name? Well, it's been a binary story for well over a year, Scott. I mean, most people who took the bearish side of it thought that this company was frankly going out of business. They thought the debt was going to crush this company. You know, obviously, the management team has done a great job of proving those skeptics wrong over the last year. And so now, as sort of the bankruptcy fears fade, you know, the question is really like, how do I value this company? Is this, you know, historically it's been a go-go growth story, but there have been no profits, no free cash flow. They've changed their tune now as they've gotten fit and gotten much more focused over the last couple of years. And so now the question is, you know, can they walk and chew gum at the same time? Can they be a growth story and a profitable story, which they showed just in their last earnings report, had jumped significantly?

And if they can, you know, people really will have to say, you know, where does this deserve to trade from a multiple perspective? And assuming that they can continue to march up, they're not just a traditional car retailer like a CarMax. They've got this sort of well-known brand. They've got the e-commerce story. They didn't spend a lot of marketing in this past quarter, and yet sales jumped tremendously. So I still think there is gas in the tank for Carvan. All right, Eric, I appreciate it. Enjoy the weekend.

We'll see you soon. Eric Jackson. Coming up, the return of the Fed put. Ed Yardeni is back. He says that's back. And he says there's rising risk of a market meltdown as a result. I'm going to tell you the catalyst that could drive the rally from here. Makes his case after the break.

Closing Bell's back. Down the S&P in the green, heading back towards record highs. All three indices now on pace to notch their third straight week of gains. Investors turning their attention to next week's all-important CPI and PPI data. Joining us now, Ed Yardeni. He's the president of Yardeni Research. It's good to see you. Thank you, Scott. What a remarkable turn, huh?

Since we're down 5% or so on the S&P, wondering whether we're going to have a 10 percent correction from there. And here we are, less than a percent away from another new record high. What should we make of this? Well, it's clearly still very much of a bull market. I thought we could have a 5 to 10 percent correction. We had something a little bit over 5 percent. Looks like we're not going to have anything like 10%. I think what we make of it is that the economic outlook remains really quite positive. I think inflation is going to continue to moderate. I think the economy is going to continue to grow.

And I think that means that earnings are going to continue to head up, probably not to a new high in the first quarter when all numbers come out. But I think over the next couple of quarters, we're going to make new high in the first quarter when all the numbers come out. But I think over the next couple of quarters, we're going to make new record highs in earnings. So I see the market moving higher. I mean, let's let's kick earnings around, if you would, because I know where the outlook is. But if you look at what just happened in earnings season and it's for all intents and purposes over. The growth was all from the mega caps, right? What are we going to do? Less than 5% total earnings growth, maybe around five. But the majority of that really came from a very, very select group of stocks. Why should

we believe that that's going to turn? We are quite optimistic on overall corporate profits. Last year, they came in at $222 per share for the S&P 500. We're thinking $250 this year, $270 next year, and $300 in 2026. And the reason for that is I think profit margins are going to continue to expand to all-time record highs. We have seen profit margins going up, and you're absolutely right. Some of that leadership and higher profit margins have clearly been from the mega cap names. But, Scott, you know, it is what it is. I mean, we're talking about roughly 30% of the S&P 500 market cap being dominated by eight names, and they're not going away, and they're going to continue to be an important part

of the market. We've got a forward P.E. of about 21 with them, and we've got a forward P.E. of 17 without them. So the market doesn't look cheap when you look at the overall market, but then you've got to consider what you're getting for your money, and you're getting some pretty amazing companies. What about the sector shakeup, if we want to call it that? This week is good evidence of it, right? The sectors that have done really well this week and technology is not going to be mentioned by me other than telling you that it's not in there. What do we make of that? Do you believe in this broadening finally and for good? Because I've you know, I've asked you and others at times when we've broadened out and it's fizzled.

Will it this time? Well, you know, I think part of the broadening issue has been that the mega cap eight, as I like to call them, I watch a lot of movies. So I'm throwing Netflix into the mega cap seven. And a lot of those stocks have really seen their price appreciation, stock price appreciation so great that by comparison, other stocks that are up maybe a piddling 20 percent since the beginning of the bull market don't look all that exciting. So a lot of the breadth issue has really been just a mega outperformance by the mega cap stocks. Yeah, but I mean, I'm thinking like utilities this week, financials have done incredibly well. When you look at utilities, most people look at utilities, they say, well, I mean, it's a yield play. You know, that's where it's defensive. Now, I hear the overwhelming

majority of people suggest now these are just more AI offense plays. And absolutely others would suggest, well, that's going to end in tears. Now we've taken utilities to the point of their AI plays, too? Well, I think I mentioned to you before my pet thesis here is that all stocks are technology stocks. You either make technology or you use technology. If you don't do that, then you're out of business. You're going to be competed out of business by companies that are using technology or making it. And so, yeah, I think the market is actually broadening out in a way that makes a lot of sense to me. Utilities

clearly are going to be big beneficiaries of tremendous demand for power to power the data centers and make this all work. And the notion of, you know, what we heard today from the Fed speakers who are out in force, which certainly tilted a little more hawkish. Now, the Fed chair obviously didn't, or at least that's the read, assuming we're reading that correctly. What do you make of that? Well, look, I don't think the economy needs any change in rates. It certainly doesn't need rates to go up, and I don't think it needs rates to go down. I think we've normalized interest rates. We're back to where interest rates were before the great financial crisis, before the great abnormal between the great financial crisis and the great virus crisis.

So I'm very comfortable with the rates here. The stock market seems to be very comfortable with it. I am concerned that the Fed might just take any bit of evidence that the economy is slowing and lower interest rates. And my concern would be that that would be too much of a good thing. We could have a melt-up situation in that scenario. So I'm rooting for things to pretty much remain even keel here. And I think that'll remain very positive for the market. Are we giving too much credence to the notion that the consumer is just going to hang in there forever? Because the data this week was squirrely on that front.

And if you put Starbucks, the recent earnings report into the mix and some others, too, I'm not necessarily sure that we come away from all of that feeling great. I think the consumer is a lot of different stories in the consumer. It's not just one story. I think you've got a lot of baby boomers that are retiring and the baby boomers have $75 trillion in net worth. It's the richest cohort demographically that we've ever had. And they're spending money like crazy. They're going on tours.

They're going to entertainment venues. They're going to restaurants. They're traveling. And they're going to the health care system. And that's creating a whole bunch of jobs and all those kind of services. On the other hand, you do have people that are struggling with consumer credit. And a lot of them are actually younger folks. And I think what we're missing here is there's a lot of intra-generational support going on where the baby boomers, I think, are paying some of the credit card bills and some of the mortgage down payments for the younger generation. So I know this from a personal experience, Scott, but I also know it's from my friends. All right, Ed, we'll

leave it there and we'll see you soon. I'm sure that Ed Yardeni. Up next, we're tracking the biggest movers into the close. We're back to Christina. With that, what do we see? Well, what is garlic steak and healthy greens have in common? Maybe, Scott, your dinner or maybe a 30 percent stock surge. I'll explain next. We're less than 15 from the closing bell. Back to Christina now for a look at the key stocks we need to watch. Christina. Well, it's all about guidance this earnings season, and that's why Akamai Technology shares are getting punished today. The cloud company may have posted better than expected earnings,

but warned of weak June guidance. The company is facing slower growth in media and gaming markets for its content delivery, and that's why shares are down 11.5%. Bring on the protein. Maybe for Scott's dinner, caramelized garlic steak coming to a sweet green menu near you. But shares are popping over, what, 33% right now because the salad chain beat on earnings and also upped its full-year revenue guidance. Scott, what's for dinner?

I feel like having carbs. Is that bad? It's not that bad, right? No, it's not bad. It's Friday. It's Friday. It's allowed. Thank you.

I'll let you know what I had on Monday. All right. Still ahead, the big biotech bounce shares of vaccine maker Novavax soaring today. We'll drill down into what's driving that near triple digit surge. Look at that. Ninety six percent. Back on the bell after this. A reminder to tune in this weekend for a CNBC Changemaker special.

You're going to hear from a number of women that are transforming business, including the WNBA commissioner and the CEOs of Fannie Mae and Amalgamated Bank. That's tomorrow, Saturday, May 11th, 5 p.m. Eastern time. Up next, a fast food inflation situation. McDonald's cooks up a plan to bring in more customers. Serve that up in the Market Zone next. All right, we're now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, Angelica Peebles on Novavax's huge rally today. Pippa Stevens on why McDonald's is popping as well. All right, we finished another

week. We're not that far from a new record high either. How are we thinking about next week? Inflation, inflation, inflation? Market has really pretty much done what you'd hope it to do off of that low three weeks ago. Response to the oversold conditions makes the most of a decline in treasury yields. Very broad in terms of the number of stocks participating. We've talked about the financials and others that have done well. I do think it was interesting that the University of Michigan consumer sentiment numbers today kind of stopped the levitation

that was kind of underway in the morning, put the market a little bit back on its heels, got yields firmed up a little bit. And all that says to me, because that's really a tertiary type indicator, that one year inflation expectations, it says we have the sensitivity to those inflation numbers. So we're not going to fully relax until we get through those and

see if we're still on track to have disinflation resume or have it be a good enough number that in fact yields can stay calm. All right. Angelica Peebles on Novavax, a near 100 percent one day gain. Remarkable. Yeah, Scott. Novavax is having its best day ever today, and that's after announcing a partnership with Sanofi to sell its COVID vaccine and develop combination shots like one for COVID and flu. Novavax will get $500 million up front and another $700 million if they meet certain milestones. The total could go even higher over time if the combinations pan out. J.B. Morgan's calling this deal transformational to Novavax's overall business.

Remember, this is a company that about a year ago warned they might not be able to keep the lights on. Shares are about doubling today to about $9, but they're still down roughly 97% from their intraday high of $3.32 in February of 2021. And Novavax is still a favorite name to bet against, with short interest representing almost 34% of the float as of the end of April per FactSet data. Scott. Angelica, thank you. Angelica Peebles, you have a quick thought on here? No, I'm just really glad we showed the multi-year chart there because it's still down like 95 percent from the highs. But it does show you it was one third of the float was short.

Look, it shows you sort of, you know, the post-COVID playbook for some of these main names within that group. Pfizer, I think we're dealing with that. Moderna, hardly ever talked about that stock, right? And they don't really know the way out of it. In fact, I don't know if you mentioned it, but the fact set numbers for the first quarter earnings growth would be much, much higher if not for big losses or write-offs from Pfizer and Bristol-Myers. So it's still kind of an overhang on the overall earnings picture. All right, Pippa Stevens, McDonald's making some moves here. Tell us. Big losses are right off from Pfizer and Bristol-Myers. So it's still kind of an overhang on the overall earnings picture. All right, Pippa Stevens, McDonald's making some moves here. Tell us.

That's right, Scott. McDonald's is prepping a $5 value meal to bring customers back in this competitive environment. Two sources familiar told RK Rogers it could include a McChicken or a McDouble with four-piece nugget fry and soft drink. Deal details are still being hammered out, and an initial proposal by McDonald's for the $5 value meal did not clear necessary hurdles, and additional details are now being discussed. One source said Coca-Cola added marketing funds to the equation to make the deal more appealing for owner-operators. Now, value remains key in this environment.

McDonald's has leaned into core items that have done well with consumers, but this value meal would be substantially lower than ordering those items individually. That stock's got up nearly 3 percent. All right, Pippa Stevens, thank you so much. We've got 90 seconds, Mike. Great week for financials. Great week for utilities. And pretty spread out throughout. It's been a nice, broad week. It has. I think one of the factors that's been driving a lot of what's gone on the last few weeks,

we talked about this even going back to February, was the extreme outperformance of high-momentum parts of this market really looked vulnerable for reversal. Well, that reversal has largely happened. So the high-momentum areas of the market, semis and others, have backed off. But what happens there is you get the low momentum, washed out parts of the market benefiting because essentially, you know, the quantitative trades just work in reverse. And I think that's a big part of what's going on with utilities, a little bit with staples that have acted a bit better, too. And the glaring piece of this,

which keeps me from saying, oh, we're seeing a broadening of the market because we have a better macro picture, is the consumer cyclicals, because you still have just a little bit of pressure on the whole storyline about whether the consumer is going to be resilient for all the reasons we've been talking about. So, you know, the market has kind of like gotten itself into this neutral spot, almost back to the highs, no longer overbought or oversold, right into this big data week. Macro's going to pick up next week. All right, you have a great weekend.

You as well. That's Mike Santoli. Thank you. Everybody at home, please do the same, but not until overtime plays out. We go there now with Morgan Brennan. running.