Closing Bell - Closing Bell: How Far Can the Rally Go? 01/22/24

Episode Date: January 22, 2024

Rockefeller’s Global Family Office Cheryl Young – who advises high net worth clients – reveals what she is forecasting for stocks. Plus, Chris Verrone is highlighting where he sees the S&P headed from here and the two sectors he is betting on right now. And, two top chip stocks moved in opposite directions today. Our Kristina Partsinevelos breaks down what is behind those moves – and what it might mean for the sector. 

All right, welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make or break hour begins with the rally in stocks. So let's get right to your scorecard with 60 minutes to go in regulation to see exactly where we stand right now. That's where it is. We're in the green across the board. Dow trying to close above 38,000 for the first time ever. As Goldman Sachs, UnitedHealth and Caterpillar lead the way there. Take a look at those stocks. Nicely in the green today. We're going to watch the indexes every move over this final and most important stretch. Apple, big story today. It's back

towards $200 a share. A couple of positive mentions today on the street as well. Those, I don't know, three downgrades or so in the last two weeks seem but a distant memory. Keep an eye on Microsoft, too. It tries to top $3 trillion in market cap for the first time ever. It's been in the red, though, for most of the day. Of course, we'll see what happens here over this last hour. It is the Russell that's outperforming as small cap stocks get a boost for the markets, broadening and probably that drop in interest rates as well, which takes us to our talk of the tape. Just how far can this rally go?

Let's ask top wealth advisor Cheryl Young of the Rockefeller Global Family Office with me back here at Post 9. Nice to see you again. Nice to see you again, Scott. You have a good eye on the market. You always do. That's why you're in the Barron's Hall of Fame. That's why you're one of Barron's top 100 wealth advisors since 2014. So now we are relying on this knowledge, these accolades. Where are we going from here? You know, I think the market is priced to perfection right now. I mean, we just hit all-time highs today, which is exciting to be on the show today. I'm a little worried. And the last few shows I've been on, Scott, I was very bullish. I was doubling down on tech the last time we spoke in October. And valuations are a little bit stretched. So

things are priced to perfection. One of my favorite names, I can't mention individual names, is down sharply in the day, semiconductor stock. So any kind of... Might start with an N, but we won't mention any names. Any kind of... I think I know where you're going here. Any kind of shocks could cause some pretty big pullbacks here. So I still love most of these magnificent seven names. Okay. But I'm adding protection right now. I'm a rock climber and I like to think of the markets as you get up higher in the wall, let's just put a little gear in and keep us safe. Do you think the market's just gone a little too far, too fast since the October low?

You know, I just don't see that we're going to get six rate cuts this year. I'm guessing it's three. I don't think it's going to happen in March. I don't think it's going to happen until at least June. And the markets are really looking for these rate cuts to extend the rallies. But while we have to watch earnings, of course, we just started off earnings season. It hasn't been that impressive. We're just getting started. Just getting started. And look, big tech starts barely on the 24th. And then really next week is when we're really going to see the numbers come in.

Let me ask you this. So let's talk about rate cuts. Does the how many really matter? Or does the trend that they're going to be cutting matter most? And by the way, Goldman Sachs today, Jan Hatsia says first one's going to come in March. Now, I know there are those who think the market's way ahead of itself on that perspective. But again, why does the how many matter? I think it is really important that we don't have too many, because if you had, let's say, six rate cuts, you could start arguing what is the economic data that's supporting that. And that could cause a fear infusion into the market as well. So I think the rate cuts happening is very good for stocks.

It continues to grow story. There's a lot of areas that have not, as you know, participated in this market rally. So we're really hoping to see some broadening. We saw it a little bit in Q4. If you look at the MAG7, in fact, if you pulled them out of the S&P for just Q4, you would have done better. So we saw some broadening, and then that has completely reversed here today. What if that broadening was, in fact, a head fake? We're going to go back to that same playbook that worked so well in 2023 for a variety of reasons.

Economic slowdown, balance sheets that are just better than everybody else's. You can count on the growth more. You're willing to pay a higher multiple for all of those things that we love those stocks so much for. Well, if you're willing to pay a higher multiple, you are paying a higher multiple right now. That is for sure. But look, the margins are almost double. If you take the top 10 names, almost double on these names than the entire other 490 names on the S&P 500. So there's reasons why this trade is crowded, but I'm concerned it's getting a little bit too crowded. I would love to see small caps, which, you know, were down 5% last week. I think they're down about 2.5% as of today, year to date. But look, small caps are up 12 percent in December. And and again, we sort of see some signs of life there. There's a lot of

potential momentum on those smaller cap names and they could do better than large caps this year. But you still think we're going to have a good year? I mean, you you came in here, you know, the first words you said where I'm a little worried, but you still have a pretty good outlook for this year for the market overall, right? Oh, absolutely. Look, I think there's still a good story for stocks. Election years typically are positive years, especially when you have an incumbent running again. So just statistically based on that alone, we haven't had a negative election year with an incumbent running since 1944. So that that bodes well. You have to watch the earnings. You have to watch what's coming out in terms of the estimates.

A lot of large cap CEOs are actually downgrading guidance outside of technology. It's really only in technology we're hearing upgrades in terms of the earnings outlook. Don't you think that if, you know, if there are these cuts, and let's just say it's three for argument's sake, but rates continue to come down or at the very least stop going up, you know, is that's just say it's three for argument's sake, but rates continue to come down or at the very least stop going up, you know, is that's going to continue to be good for growth stocks? Because that, again, is, you know, people like David Koston keep talking about that, that just lower rates are going to fuel the growth trade. We've seen this every time we've had lower rates. It fuels the growth trade.

And you have to, of course, watch not just in the U.S. If I think about the companies that are in Silicon Valley where I spend a lot of my time, Scott, over 58 percent of their consumption is coming from overseas. So when we think about rates, we tend to focus on the U.S., but it's not just the U.S. I mean, China's still got some concerns. India's inflation, I believe, is still over 5 percent. So it's not just the U.S. We've got to watch rates. We've got to watch rates globally. So you alluded to what one of your favorite stocks and largest holdings is. And I know you can't talk about individual names,

but we can read through the lines, so to speak. Let's talk chips. So the SMH just had the best year in 20, in 2023. And now it's the best sector to start this year. What do you see there? I think chips still have some room to move. You know, Sam Altman talked a little bit about this last week when he was talking about AI and A's eyes, furious demand for chips that we're just not going to have enough chips. And we saw that pop a couple of the big semiconductor names. But again, price to perfection. So I am not selling my chip names. I'm holding them. I'm selling calls on them. I'm

using that income to buy some puts just again to make sure we ensure that downside, because when we get the drops, they tend to be large and massive. You feel like there's people like, you know, Ed Yardeni had an interesting note today that got people talking where he talks about, and he's more bullish than most, but talks about a, quote, exuberant melt-up phase. And he talks about the potential of AI, but that maybe this is underway. We're a little bit on the road to irrational. I would agree. If you look at the earnings calls we had in Q4, 40% of CEOs talked about AI.

This is unprecedented. I mean, more than any other topic. You know, before that, you heard, you know, COVID was mentioned a lot. You know, you heard political risks mentioned a lot, geopolitical concerns. AI was the number one, you know, term coming out of these earnings calls. And it's a lot of companies that are sort of piling on this train that don't really have AI. I'll pick on some software companies. You know, we just don't see the earnings coming from AI really probably till Q4 this year.

There's still ways to go for that. What outside of the growth universe do you like best and why? Let's just say outside of tech. Tech gets all the conversation. Tech gets all the conversation. Biotech is cheap. You know, Biotech has not moved in so long. I feel like, what, two, three years it feels like stocks haven't done anything, right? Done nothing. And look, you look at CRISPR technologies, you look at gene therapies,

you look at what AI can do in the biotech space. It's really interesting what's going on there. It's a sector that doesn't do well during the election year. So that's where I'd say, I'm not sure I'm really bullish on it in an election year. But if I look at the valuations, interesting. Financials should do well this year. Although, again, some of the earnings out of the gate, not exactly exciting. And financials, you know, this is an area where you have to be really picky. I would be a stock picker in that space and not just a broad indexer. Why? Why? Well, I'll give you an example.

If you take the top 25 banks, they have about 13% exposure to commercial loans. You take all of the other banks out there and their loan exposure to commercial loans is 44%. So there's a massive disparity on some of the risks on some of these commercial loans. So you're still worried about that coming home to roost at some point this year? A hundred percent. The rates have gone up a lot for all of us. But if you are on the commercial lending side, your rates have gone from a four percent environment to an eight or nine percent environment. More so for smaller banks, right? The regionals than the big ones. So I'm very concerned about some of those regional names. I would be picky in that space.

Now, some of those have not moved in the last year. So again, looking at valuations, but you have to really understand the banks. You have to understand what they're holding. You know, this meltdown we saw a year ago in March with Silicon Valley and First Republic was problematic in terms of, are they matching their balance sheets

and with their loan maturities and their treasury maturities? And there could be some mismatch still. Energy's disappointed a lot of people in that, you know, obviously it performed poorly, but the thought was, okay, well, now this is a new year. This is one of the lagging sectors that's going to have a good 2024. Where do you come down on that? Look, energy was down, what, 11% in 2023. But if I look at the last three years,

technology did 46% last year, but it's up 50% in three years. So basically dead even to where we were three years ago. Energy, however, was actually the big winner in the last three years. So if you ignore last year, energy's up 87%. These are areas in the economy where, again, if we can buy on the dips and round out our portfolios and not just have technology, I think there could be some good

plays. And that's what you're doing? You're looking to buy on the dips that we've seen? I am. Anytime we get a dip in energy, anytime we get a dip in technology, I'm adding to financials, I'm adding to health care, but I'm still avoiding certain sectors as well. OK, let's bring in Keith Lerner now of Truist Wealth. Keith, welcome. It's good to see you again. Great to be with you. Cheryl mentions, you know, you heard at the outset, you know, she's a little bit concerned that valuations have gotten stretched. What about you? Well, no doubt valuations have come up. Expectations have come up.

But our view is the path of least resistance, at least if we're looking over the next six to 12 months, is still higher. If you think about the fourth quarter, that strong momentum that we saw in the fourth quarter, that tends to be a positive when you look out. And when we came into this year, we were extended, we consolidated. During that consolidation that we saw in the first two weeks of the year, it was minimal selling pressure, credit markets were well behaved. And then as we broke to a new high, we just did a study that we published on Friday that looked at what happens after you make a record high for the first time in more than a year. And a year later, you're up 13 out of 14 times. Now, to be fair, the one big outlier in that study was 2007. So this is also predicated that we don't go into recession, which is the big debate today. But again, I think the underlying trend is positive.

And I think you want to stick with that. And I think there are opportunities. We also put out a note last week saying we still like tech or overweight tech. But on this pullback, we thought you know, increasingly attractive. And we're actually like the action today where it bounced off of support. And we're seeing some of that rotation follow through today. Yeah, no, your point's well taken. Russell today's up one and a half percent. So it's the leader by far. History is one thing, right? When we look back and we say, well, you know, when the market does this, it often does that. We still have to justify, though, these valuations, don't we?

Certainly. Yeah. I mean, I think Warren Buffett said is if the only thing you need was history, the richest people would be librarians. But I think it is a good starting point to say, hey, our new highs are good or bad thing. And then you stack on other things. So, sentiment is somewhat extended as mentioned you know valuations is a curious thing and and it's it's it's you look at the the board market certainly expensive around 20 times if you look at the eco weight the average stock you're around average you know just below 16 times and if you're saying the market is expensive then you're making a bet that the mag 7 and others will come down i'm not you know i don't have conviction in that call saying that the mag 7 is going to come down so I don't have conviction in that call saying that the Mag 7 is going to come down. So if I look at the overall market, maybe that moderates how much

upside you can get. But I think the trend is still higher. And I think you want to respect that. What do you think? You know, I will say this on the valuations. While this market definitely probably has some legs, I just don't see we're going to have the same kind of returns we had last year. I think it's going to be more muted. So I think there's some upside, but I think you have to be a little bit cautious. And sentiment, he alluded to sentiment, which I very much respect his work. I listen to Keith actually quite a lot.

Sentiment has been really, really good at predicting greed and fear. And so when sentiment is high, I actually get nervous. So not to play devil's advocate here, but the fact that sentiment is high actually makes me a little bit nervous. Yeah, no, your point's well taken too, right, Keith? That, you know, when everybody was seemingly bearish, we had this rip-roar rally and, you know, kind of people were a little slow to make the transition. But now it feels like everybody's getting all bulled up except for a few outliers. Is that concerning that we have many more people on the same side of the boat now than we did? Yeah. And just to clarify the position, I do think sentiment is becoming more of a headwind

as opposed to a tailwind. But when you look at the overall market, I think you still have to focus on the underlying trend. Forward earning estimates have just reached another record high this week or last week, I should say. Credit markets are there. So I do think if you say what's one of the risks or why could we go back to a choppy fashion, it's because that sentiment's becoming somewhat more extended. But listen, sentiment is important, but I would say the trend trumps that

as far as the fundamental earnings, the economy, and the direction of inflation. So I think the way you use sentiment this year is when it starts getting to an extreme. In our work, we're not at that extreme yet on the upside. We could use that to trim positions or add to positions. But again, I don't think that's enough to overwhelm the weight of the evidence that we just discussed.

But maybe, Keith, this whole thing has become too complicated in that we just go back to don't fight the Fed. We know that the Fed is turning into our friend after being our foe in terms of what it's going to mean, their regime of hiking rates for as long and fast as they did, that was going to be negative for stocks. But now we can clearly, we think we can clearly see the other side. Isn't that all you need in some respects? I don't know if it's all you need. You need the economy also to stay resilient.

And given that valuations are high, I do think you need that for corporate earnings to come through. You need to see profit margins preserved as inflation comes down. I do think it would be healthy to see some broadening. If you look at this market breakout that we just saw, the main sector that's up is technology. So we want to see, you know, boarding out there as well. But I don't know if it's that simple. I think it's I think the big picture, though, is positive that the Fed is no longer the enemy. Inflation is favorable or coming down disinflationary and i think that should support valuations and we can move up i'm not calling for the same type of returns that we had last year in fact after we have big years like last year the next year tends to be more average um so that's kind of where we stand

but on a relative basis we still think there's upside left uh for this market what do you think cheryl what do you think about this idea of the don't fight the Fed, right? We've learned our lesson in the past about, you know, either playing it or trying to fight it. What about now? Yeah, I mean, part of me worries of a FOMO rally, right? There's a little part of me that says, is everyone jumping on the bandwagon? Because to your point, almost every major economist last year was really bearish. And now they're like upgrading these stocks that are trading at all time highs. And so I don't like a market where nothing is really cheap and people are jumping into names that are crowded. But to your point on fighting the feds, you have to think about where the markets are going and

some of the momentum trade. And I think about where the markets are going and some of the momentum trade. And I think that this momentum trade is going to participate through, I think it could be sideways to the election and then we get a quarter rally for Q4, you know. And I'd be happy to see an 8 to 10 percent return on the S&P this year. I'll ask it this way, too. Are you even with your bit of nervousness, cautious outlook, even though you're positive on the market, are you looking at your portfolio and saying, wow, this stock was up so much from November 1st until now. You trimming a little here and there or no? No, I am.

Look, I do a lot of options because I do believe in holding these positions long term. I have a couple of names that will get trimmed. They're going to get called. They're in the money right now. And I'm probably not going to roll them. I would love to have some cash to play with right now for the bumps when we get the bumps. Because I just don't see that this is a straight up market. I think there's still volatility ahead.

So you're writing covered calls to hedge yourself? A hundred percent. And so it sort of keeps you honest. If you get called out on a name, you know, and if I get called on a name that's up 300% in the last year. Yeah, it's kind of a good thing, although you hate to get out of the position. How much am I going to apologize to my clients? Right, right, right. Keith, let me give you the last word because we've heard of healthcare, financials, energy outside of the whole tech universe that Cheryl thinks can work this year. What about you? We still like tech this year. I

would say I expect it probably is going to consolidate after this big move up. Same with semiconductors. You're up 14 percent in a short period of time. But I would look at any pullbacks in that area. I think that will be leadership. We still like discretionary. Discretionary is a big sector. So I think you have to go underneath the surface. And some of the more of the retail consumer side, I think, is still positive as inflation comes down and that real consumer spending is positive for the first time in several years. I think that's also a good place to look. We're closely watching financials and health care for potentially an upgrade. We're not quite there yet. So we'll be patient for some of our work to move that way. I'll give you actually the last word. I changed my mind when Keith said, well, when Keith said discretionary, we didn't talk about that.

How do you feel about the consumer and retail related names, restaurants, things like that that play into that into that story? Yeah. You know, we talked about this last year, Scott. The consumer has been very strong through 2023. Yeah, surprisingly so, right? Shockingly. I mean, the retail numbers were shockingly good. But but you look at credit card debts, you look at the interest rate on these credit card debts and and you look at what's happened to the savings rate. The savings rate has been cut in half. People have spent down their reserves. So sooner or later, that has to catch up with the consumer. You can't just spend money you don't have. I mean, people do. Credit cards are out there. But sooner or later, there's payback that has to be done. All right. We will leave it there. Keith, thank you. We'll see you soon.

Keith Lerner of Truist and the Hall of Famer. Cheryl, we'll see you again soon. All right. Let's send it over, Christina Partsenevelos, for a look at the biggest names moving into the close. Christina. Well, let's start with Union Pacific and Northfolk Southern. Both are getting a boost today as Bernstein upgrades the two rail giants to outperform. Analysts there think we're nearing the end of the downward trend that we've seen just as of late in the freight cycle and expect both companies to benefit from a rebound in the trucking market. And since we're talking about trucking, J.B. Hunt is higher today as UBS also upgrades the stock to buy despite his disappointing earnings report that we had just last week.

Analysts say J.B. Hunt's margins have hit a bottom and it has a history of performing well during periods of improving freight cycles. And that's why shares are up 4%. Scott? All right, Christina, we'll see you in just a bit. That's Christina Partsenevelos. Zion's Bancorp earnings are out, albeit a little early, right, Steve Kovach? Yeah, about 45 minutes early only, and we're seeing shares up about 5% here, Scott. Let me just give you some of the results.

EPS is coming in at 78 cents a share, though we're not comparing that because of the $90 million FDIC special assessment impact that's going on. So that kind of throws comparisons a little wonky. And then I'll also just flag here, Scott, net interest income down 19% to $583 million. We've reached out to Zions to ask why this came out early. But that's the numbers we got right now. Shares up about four and a half percent right now, Scott. I mean, you hit the wrong button at the wrong time. I guess I got it the wrong time. We've seen this movie before. Steve, thanks. Thanks, Kovac. All right. We're just getting started here. Up next, trading key levels.

Top technician Chris Verone is highlighting where he sees the S&P heading from here. The two sectors he's betting will break out. He'll make his case after the break. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. All right, we're back with the S&P 500 on track for a record close for the second trading day in a row and also pacing now for a third straight up day for the first time in this young year. Strategas' head of technical and macro research, Chris Ferron, is here at Post9 with me. Good to see you again.

Great to be here. So you were last with me the very first trading day of 2024. And here we are. We've got some new record highs. Now what? Well, I think what's interesting over that interim two or three weeks, it was a market that really chopped for about two weeks. Yet our kind of big call was there was no meaningful selling pressure

under the surface. You know, when you're looking for a change in the character of the market, you're looking for really strong down days where decliners overwhelm advancers. And there was just none of that. It looked like a healthy, normal consolidation from that momentum surge in the fourth quarter. So we've seen this market break out. You can kind of get to 5,100 in terms of technical targets if you want to circle a level kind of in the distance. But for us, it's always about what is the character of a move. And I like to look to the cyclicals or the defensives.

And this is a market still largely led by cyclicality. I think as long as that's the case, don't fight the trend. Well, hasn't the character of this move changed in some respects? We had this broadening out. A lot of people were looking at small caps. Now, obviously, today they're outperforming. but that trade looked like it was fizzling. And money was just going right back to the tried and true mega caps. I think there's actually a pretty remarkably attractive period for small caps in terms of them being timely.

You had an epic momentum surge in the fourth quarter. You've consolidated that with a 6% correction, almost like so what, right? We're into support, 200 days upward sloping. I like the fact the last couple of days, you've begun to see some renewed leadership from the smalls, today in particular. And look at this group, right? Small caps, it's banks, banks drive it.

And I think the way the banks have responded, not just the last couple of days again, starting to work, but really the entire fourth quarter is suggestive of some small cap leadership. It's funny you say that, because I mean, I just had a conversation with a highly regarded and respected wealth manager who says, watch out for the regionals because of all of the commercial exposure.

It is something we always do in our work. We pay special attention to what the consensus perceives to be the weakest part of the market, right? So whether that's regional banks right now or office REITs, and we simply ask the question, are they behaving as if they're the weakest part of the market? And I think you could say pretty comfortably right now, neither the regional banks or the REITs are behaving as if they are still the weakest part of the market. So I think that's a testament to strength. I just wonder, like REITs are performing well because rates have come down.

Regionals are performing better because the economic outlook has stabilized. And the Fed's already come to the rescue once. And there's no reason to believe if something substantial sort of melted up again that it wouldn't. Well, take banks broadly here. Something like 80% of banks right now are in an uptrend. That's the best reading in two and a half years. So the underlying technicals of the group give us confidence that a pullback or a correction in financials or in banks would be one you would want to buy here. The other place where you've seen really important internal improvement is health care. And I think importantly, health care strength is not extending

to the other defensive groups. So this is just not some move into defensive health care or defensive future staples. This is health care working on its own right, which is a change in terms of what the leadership fabric of this market's been. You want to tell me what the not just technical aspect of this move in semis means, but, you know, this the macro reasons or what justifies this move? And maybe there's plenty. I'm not I'm not trying to throw stones at it. It just continues to blow the mind. I think what's important, we know the story of NVIDIA. We know the story of AMD. It's getting broader than that. I mean, the breakout in Taiwan Semi in the last 48 hours is meaningful. Look, their guide last week is one of the reasons why tech sort of got restarted.

Importantly, equal weight technology. So, you know, moving away from just NVIDIA or Microsoft, equal weight tech just made new relative highs versus S&P today. So this is not seven stocks in tech or five stocks in tech. It's actually pretty broad. And I recognize enthusiasm on groups like Semi is probably high here. And it's something one must be. Or is high. Probably. It's one, it's something one must be mindful of in the first quarter, first half of the year.

But it's hard to position against it until you begin to see the relative leadership deteriorate, which has not happened yet. I mean, this is the power of momentum. Exactly what you're talking about. I mean, we're talking about today one of the highest readings in technology sector, 52-week highs in many, many years. That tends not to be bearish. You can consolidate from it. You can pause from it. But that's more of a signature of a bull market, not a bear market. And You can consolidate from it, you can pause from it, but that's more

of a signature of a bull market, not a bear market. And the internals from tech still reflect that. Before I let you go, I mean, is there one thing that you look at and you say, well, this concerns me? Yeah, I think it's always important to be like, what are the blemishes there? Or what could disrupt this? Watch crude here. Crude over 77, 78 would be a change in character. And I will continue to emphasize the weakest groups in our work are European luxury and European auto. So LVMH, Hermes, BMW, Mercedes, for all the cyclical momentum out there, they're weak charts. Because of China? Let's presume that's the case. But I also want to be open to it's something we don't know yet. And I think

that's the wisdom of the charts. All right. We'll see you soon. Thank you. All right. That's Christopher Rohn, Strategist. All right. Up next, Charles Schwab's market playbook. We get it today as stocks hit fresh highs. Kevin Gordon breaking down how he's navigating this trading environment. He'll join me at Post 9 just after the break. Closing bell is coming right back. All right. Stocks are in the green across the board. The Dow and S&P hitting new all-time highs today. Investors preparing for a big week focused on a wave of economic data, including the first reading of fourth quarter GDP. And of course, plenty of earnings. Joining me now at Post 9 to discuss Kevin Gordon of Charles Schwab. Welcome back.

Hey, Scott. Good to see you. So, all right. So we're back above 38,000. Well, not back above. We're above 38,000 for the first time ever. We fluctuated a little bit today, but we're still sitting there. For somebody who has been cautious for a while, I think that's fair to say, where are you now? Well, a lot of it started to turn, you know, when we got to the October period where you had started to see a pretty healthy washout in sentiment. Breath wasn't as good, but the sentiment backdrop was enough. And then you had the rolling over in rates, which sort of started to propel and helped lift basically everything. So have you done a 180 then on your market? Well, it's never that we were completely outright bearish last year.

It was more of a cautious optimism on the part of the rest of the market, which you and I have talked about a lot, the rest of the market not really following up to what had been this leadership status from things like the Magnificent Seven. That obviously changed to a significant degree in November, December. And then we've kind of entered back into this chop phase in the beginning of January, because I still think, you know, even though you're getting to all-time highs on some of the indexes like the S&P, you still have some of these strange divergences where, you know, I think it's still the first time where you've gotten to an all-time high for the S&P,

but for something like the Russell 2000, that's still in a bear market. You've never really had that before. The closest instance you had was in 98 when the Russell 2000 was still down, I think, around 19%. S&P made a new high. It wasn't Armageddon for small caps because they ended up catching up. It took a little bit after that, but they ended up catching up. So our thinking has never been, you know, don't just villainize the small group of stocks that are leading the market, which is no longer the case. Things have broadened out from here.

You've gone through a little bit of a corrective phase under the surface of the market, which is kind of the way you want it to happen. But it's not this, you know, I think outright bullish, outright bearish way to view things. We look at it at a much more nuanced level than that. Sure. But if I just asked you plain and simple, is the stock market going to do well this year? What's your answer? I think the runway is improved if you continue to see what you and I have talked about a lot, which is this rolling weakness under the surface of the economy transform and sort of transfer to different sectors at different times.

Because you look at certain sectors like manufacturing, particularly in the sentiment world, where a lot of that data still looks weak, still looks recessionary. If you were going to take something like the Empire Survey last week, which got a lot of that data still looks weak, still looks recessionary. If you were going to take something like the Empire Survey last week, which got a lot of attention, doesn't pretend a very strong reading for ISM manufacturing, and at the same time you're starting to see more cracks underneath the surface of the labor market. But if that doesn't morph into this widespread weakness at the services level or at the overall labor level, then you don't go into a full-blown recession and you sort of continue to roll on with the unique nature of the cycle.

All of that being said, that probably paints a better scenario for equities. And I think it's a much better way to think about it where you kind of normalize. You go into an environment where you no longer have these huge divergences between large caps versus small caps or the MAG-7 versus the rest of the market. That was very much the story last year, as we all know. But a character of a market that was November, December, where you did really start to see a broadening out, that's something that we would look for this year. May not be as great at the headline level, but under the surface, it would be a lot better. Do you think that was anything more than just

run for the, you know, run for the money heading to the end of the year? I mean, I think there was definitely a lot of, you know, pressure that had built up and sort of pushed money that was itching to look for other parts of the market that hadn't done well. But at the same time, the breadth picture for even something like small caps has improved dramatically. Just look at the percentage of companies within even the Russell that are above their 200-day moving average. You've made a series of higher highs and higher lows in that index. So even though you've been in this chop phase since 2022, where you've gone up 20%, down 18%, up 15, down 10 for a considerable period of time, throughout that entire period, it isn't that breadth this weekend. It's actually started to strengthen. So then I'm not suggesting you should be anything in your view of the market,

but why aren't you more bullish if you're here pointing out this broadening that you think is believable, especially under the surface in something like small caps, because money's gone back into the mega caps. So if you believe in the mega caps and now you believe in the small caps, aren't you painting a more bullish scenario for your own outlook? Yeah, and it's not a binary trade. I think one of the things, and I talked about this last time I was on with Mike, one of the things I think we get caught up in a lot is,

is it going to be one group that has to do well at the expense of the other? I don't think that's the case. I think that both can do well, and that's why I talk about this more normalized environment where you can get to a scenario where if the economy stops sending these sort of late cycle signals, whether it's from the leading indicators or whether it's from the manufacturing and the housing side, which thankfully some housing data look to be turning and maybe not entering their own expansion, but at least firming up a little bit, that ends up being a better scenario for the overall market itself. But, you know, headlined index gains that you saw last year because of a couple of names that happened to, you know,

constitute a large portion of the index, maybe that's not the case moving forward. But I'd much rather look for something that's a lot healthier where you have participation under the surface improving at a much faster degree. Sorry, how many rate cuts we get in this year and when do they start? Gosh, I don't know. You're not modeling it in? I mean, you've got to be thinking about how many we might get. I think the discussion around rate cuts, if you're thinking about it as to when or how many, that to me is sort of missing the broader picture of why are they happening.

So to me, it's tell me the economic data when we're at the first rate cut, and I'll tell you if it's a good cut or a bad cut, and I'll tell you probably if you're going to get more or less. Aren't you placing your bets now, though, that there are going to be good cuts, so to speak? Good cuts would theoretically mean that inflation's come down to a level where the Fed can start normalizing, your word, rates. Bad cuts would be they have to cut because the economy's softened too much. Absolutely. I think that, yeah, in the scenario where they're easing a little bit, but you still have a lot more pressure from real rates because they stay elevated.

I mean, think in the instance of inflation continuing to come down, let's say you continue to ease at a trend that you've been seeing over the past couple of months, maybe even over the past year, and the Fed only cuts three or four times. That still keeps real rates in pretty restrictive territory. I don't think that's a bad scenario if they think, and the economic data prove that the economy can handle that situation. But at the same time, yes,

if you have to pivot to more aggressive rate cuts, then they see something that's a little bit sinister under the surface, and then that probably means a little bit of a weaker scenario for risk assets. But I think that the unique nature, again, of the cycle is that you can't really pick out any certain analog from history and say, well, if the Fed is cutting at this point, it's bad or it's good for stocks. You know, basing your whole investment analysis off of just the Fed, I think, is, you know, is a pretty useless exercise when you're not taking into account the economic data itself.

Really? I mean, because someone suggested actually is that simple. Just don't fight the Fed. I mean, no, because I mean, look at the look at all the instances in the Fed tightening cycles going back, you know, early 1900s, where you've had the final hike to the first cut in 50 percent of those instances, the market was up in 50 percent of those instances, the market was down. That doesn't tell me anything about what the you know, that doesn't tell me anything about an investing strategy based on the Fed itself. You have to take into account the economic data. Look at an instance like 2019, where you could argue those were just insurance cuts. Obviously, the pandemic sort of ruined the trajectory from there.

Market did fine. You still had economic data that was hanging in there. But look at an instance like 2007 and then 2000, 2001, when obviously they were cutting for the wrong reasons. But isn't your base case at this point that they're cutting for the right reasons? And if not, why? Yeah, no, I do. I do think if we stay in the current trajectory where you have a labor market that stays relatively resilient, I wouldn't call it healthy because under the surface, there are still

a lot of cracks. But then you have GDP growth that's holding up. You have labor force participation that hangs in there. And you have inflation continuing to ease back towards the trajectory that they're comfortable with. And, yeah, they'd be cutting for the right reasons. It's just too soon to extrapolate that forward and say, yeah, a year from now, everything's going to be totally fine. But you have to make your sort of market decisions and calls based on, you know, we don't wait until the exact minute to see all the by by then the trains left the station, so to speak, right? Yeah, absolutely. Yeah. And that's why, you know, our, you know, the way we think about being,

if you're cautiously optimistic or if you are optimistic, or even if you're pessimistic, you can stay pessimistic and reflect that in your asset mix. You can stay cautiously optimistic and reflect that in your asset mix. The key is staying invested throughout that entire period. And also recognizing that even if you have more of a defensive mindset as an investor, you know, the post-pandemic era has told us that the concept of defense has shifted. It's no longer in the traditional utilities, consumer staples, healthcares of the world. It's now in things like the mega caps. But look at what has been dear and what has been sort of missing for a lot of companies that have suffered in this current cycle is those that don't have strong cash positions, those that don't have high interest coverage ratios, a lot of the MAG7 group,

and even beyond that. I don't want to just sort of keep it to that group itself, but even beyond that, they exhibit those qualities. So it's understandable why a lot of times now the knee-jerk reaction is to go into those names at the expense of the rest of the market. I appreciate it as always. Kevin, thanks. That's Kevin Gordon. All right, you too. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is standing by with that. Christina. Well, the SEC is looking into the accounting practices of one food processor and a cancer

drug trial did not go as planned. We've got the details next. We have just about 10 minutes or so to go before the closing bell. Let's get back to Christina Partsenevelos with the stocks she's watching. Christina. Let's start with Gilead Sciences heading for its worst day since 2014 after a key cancer drug from the company failed to meet its primary goal in a trial. The company says it will work with regulators to identify whether certain patients could still benefit from the drug,

which is already approved, and a top seller for treatments. You can see shares down 11%. And ADM is having its worst day on record as the food processor and farm supply giant faces an SEC probe. The agency is scrutinizing some of the ADM's accounting practices related to its nutrition business. The company is replacing its CFO on administrative leave effective immediately and lowering its full year outlook. And that's why shares are down a whopping 23%, Scott. All right, Christina, thank you. Christina Partsenevelos, we will see you in the Market Zone.

Still ahead, we're drilling down on the chip trade, Western Digital, and AMD moving in opposite directions today. We're going to tell you why and what it might signal for that sector. Closing bell is coming right back. United Airlines reporting top of the hour in overtime. We'll have that and more when we take you inside the Market Zone next. We're now in the closing bell Market Zone. CBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day.

Christina Partsenevelos is back, this time talking the rally in chip stocks, most of them anyway. And Phil LeBeau looking ahead to United results out in overtime. All right, Mike, we're trying to get 38,000 here at the close for the Dow. Yeah, a little follow through. I mean, for the first three weeks of the year, the message here was, you know, the market is, you know, paying back in subtle ways for the rally in the fourth quarter, but it wasn't breaching any of the tripwires where you'd say, OK, something a little more sinister is going on. So it's still stayed in that routine zone. The breakout to new highs, as we've talked about,

as other people have talked about, it tends to be more bullish signal than warning sign. So all that in the books, you'd say, what would I look for if I were trying to find something to worry about? Credit's not really going to do the trick. The market did not really surrender the breath move of the fourth quarter. It definitely tested it. You're seeing it bounce again today. And I think that the willingness of the market to live with a firmer economy, better economic news, pushing out of the Fed's first rate cut, at least on paper, is a net positive. Rates up for the right reason. Yeah, rates up for the right reasons. And also people trying to readjust exactly how friendly the Fed's going to be. So I would say, you know, all to the good on those fronts. And so in the absence of something new to worry about, aside from, you know, the basic ebb and flow of the market needing to stay on the soft landing path, I think, you know, things are in a decent spot.

Ton of earnings this week. So we'll see. The chip rip continues. Christina Partsenevelos. Yeah. And I've got to start with NVIDIA because it's continuing that AI euphoria ride. The stock is up 25 percent year to date, up to soaring 240% last year. Recent bullish guidance from Taiwan Semi and Meta's plans to purchase more graphics chips for a total of 600,000 keeps NVIDIA top of mind and why the stock keeps hitting all-time highs like today. AMD, though, not getting the same love from analysts at Northland Capital. They're saying, yes, AI is big, but not as big as investors are thinking, which is why they are downgrading AMD on valuation to a heck-if-we-know rating.

They believe AMD's AI earnings potential is just a little too inflated right now. And Morgan Stanley making an interesting move, replacing NVIDIA with Western Digital as its top pick. They are giving the storage chip company a new price target of $73. That's why shares are climbing higher. The analyst, Joe Moore, says the stock is dirt cheap and memory prices are ripping higher. He also points to a split of memory businesses within Western Digital that's going to happen in the second half of the year, which should unlock value. That's why shares are up 4%. Yep. Christina, thank you. On to Phil LeBeau, looking ahead to United Airlines. And Phil, both of us have had conversations in the last week or so with Delta's Ed Bastian. Nothing he said leads you to believe there's any weakness anywhere in terms of airline business.

Oh, no. Yeah, not right now, Scott. I think in the fourth quarter when we get these numbers, look, it was a strong quarter for demand and execution for United. Don't be surprised if we see strong numbers for the fourth quarter. But so much of what's driving the airline stocks right now comes down to guidance. And for United, three things we'll be looking for in their guidance. What's the Max 9 impact? What do they say about the grounding over the last couple of weeks?

The full year guidance for 24. International demand remains strong. And with regard to the Max 9, keep in mind that about 9% of United's fleet is on the ground right now. And the impact will grow every day they continue to be grounded. Don't forget, tomorrow morning, Squawk Box, we'll be talking with United CEO Scott Kirby. You do not want to miss what he has to say, not only about the MAX 9, but also about this broader question of they got a lot of MAXs, Scott, that are due to start deliveries over the next couple of years. Is that going to get pushed out because of these issues at Boeing? Yeah, yeah, absolutely. Phil, thank you. Look forward

to that interview. That's Phil LeBeau. And we'll see, of course, with the earnings in overtime. All right, Mike. So Dow is right now barely above 38,000. Russell, 2,000, ramping into the close, almost 2% today. Yep. So you have a little bit of that catch-up money in there. Russell 2,000 ramping into the close, almost 2% today. Yep. So you have a little bit of that catch-up money in there. And also, quiet in the bond market is helping that out. We talk about stocks being able to rip to a new high with bond yields going a little bit higher. Well, under the surface, the Russell 2,000 is a little more sensitive on that front.

So, so far, so good. And I don't really see investor sentiment getting overheated just yet either. All right, the bell's signaling that we're extending our records here. We're closing them up.