Closing Bell - Closing Bell: How to Invest in the Second Half 6/28/24

Episode Date: June 28, 2024

NewEdge’s Cameron Dawson, Invesco’s Kristina Hooper and CIC Wealth’s Malcolm Ethridge break down their second half playbooks. Plus, top strategist King Lip tells us where he is seeing opportunity in the tech space – and the one big tech name he is trimming right now. And, solar stocks sold off in today’s session. Pippa Stevens tells us what is behind that leg lower.  

All right, Kelly, thanks so much. Welcome to Closing Bell. I'm Scott Wobner, live at Post 9 here at the New York Stock Exchange. This make or break hour begins with a great first half for your money and the big question now, what comes next? We will ask our experts over this final stretch. In the meantime, take a look at the scorecard. With 60 minutes to go in regulation, the Fed's favored inflation read was tame. No big lift, though, for stocks on the other side of that. I mean, the S&P and Nasdaq did hit new highs earlier as technology once again led the way. But we are now red across the board. And maybe it is due to yields, which are actually up on the day.

And that's something we'll keep an eye on over this final hour. Elsewhere, a brutal day for shares of Nike, one of the worst ever following the company's lackluster guidance. Look at that. Down more than 20 percent at this moment. It does take us to our talk of the tape. How to invest in the second half. Well, let's ask Cameron Dawson, chief investment officer for New Edge Wealth, with me here at Post 9. Welcome back. It's good to see you. Good to see you. So what's up with today's action, right? The PCE came in in line. No surprises whatsoever. Yields are elevated. And after hitting these new highs for the S&P and the NASDAQ, we kind of rolled a little bit. Yeah, we are extended and overbought. And

maybe that is a little bit of what's going on, which is that the PCE was good. It was right in line. You did see some revisions higher in last month. So maybe that caused people to say, oh, all the data isn't great. But we have to respect the fact that though the trend is higher in the very short term, you are hitting this wall. We're in the blackout period for share purchases. You're overbought. You have very extended valuations positioning. It's not surprising to see this little bit of a breather. We'll see if it continues, though. You know, I don't know if you were one of the voters in our Delivering Alpha quarterly poll here, but we did ask people what's next for stocks. 36% say we're due for a drop of 5% or more by autumn.

Now, it's always hard to read into that because you could say, well, we haven't had hardly any volatility, and we're only due for a drop because we really haven't had a drop. And when we have, it hasn't been even 5%. So what does this all mean for where we go from here, do you think? I think that some of this momentum can continue into July. We do know seasonals are typically supportive in July, but then you start getting into August and September and you start looking around at some of the things that could drive the market higher.

One of the things we're talking about is that earnings for 25 are starting to look really aggressive, very elevated. And that's when you start seeing analysts roll forward their models and consider, are we properly calibrated for 2025? We've also seen this deteriorating in some of the economic growth. Atlanta Fed GDP now was just revised down to 2.2 percent. So how does that square with GDP forecasts, which still remain elevated? So is this one of the biggest risks then that earnings are too optimistic at a time when valuations are already what you would say are historically elevated? Yeah, that's the high bar to jump over, which is that valuations have already priced in great news. Earnings are pricing in great news.

Now, the point is that earnings are still moving higher for 2025 and your 12-month forward numbers are still trending higher. That's why this market remains so resilient. The question is, if you start revising those numbers lower because you're revising GDP lower or you're saying that certain expectations are too aggressive, like margin expansion, which has in at 100 basis points, incredibly aggressive, if those start to be revised lower, that's when we think you could hit more of an air pocket in the market. I've heard people make the argument that rate cuts, you don't want them

because at this point, it's going to mean that something's wrong, that the economy's slowing, that maybe it gets to the point that the Fed has to step in rather than wants to step in at that moment because they're not fully confident that inflation is close enough towards target. Rate cuts because you can are great. Rate cuts

because you should are bad. And one of the things that we're seeing is finally starting to see the impact of higher rates on this economy. Look at the housing data. Look at the capital goods, the durable goods. You're starting to see this weight of higher interest rates on some economic activity. It's not bad enough yet to call and pull the recession alarm. We don't think we're slipping into a recession, but it is enough to suggest that maybe growth forecasts are a little bit too high. That says to me, you probably think it's too soon to expect much broadening out of this market? I think so. The thing that has been the key driver of the narrowness of the market has been earnings narrowness. The S&P equal weight earnings have continued to be revised lower, whereas the MAG-7 continued to be revised higher.

If you look in the back half of the year, though, the bar is highest for the 493 of the S&P 500. The consensus has those estimates going up to the high teens in the third quarter, the fourth quarter, and the first quarter 2025. So that's actually room for further disappointment. So unless there's a good earnings reason for the market to broaden out, we don't think it will. I guess that's why when we asked the other question, what is the best investment right now,

45% of those asked big cap tech stocks. Go where the money is. People still think that this is going to be the winning trade. I think that it can be at least until 2025 when we start to see those earnings for the big cap tech start to slow down. The deceleration will be meaningful. The challenge is that we know that big tech is already crowded. We know that big tech is extremely expensive when you look at the overall tech sector, it's above 2021 peaks. You think it's extremely expensive, extremely? Well, look, we never want to baseline our

expectations to a once in a generation bubble that happened in the 2000s. If we look at growth versus value, growth is trading at an 80 percent premium to value. That's back to the 2021 peak, but that's far lower than the 180 percent premium it got to at the peak in March of 2000. So, yes, extreme may not be the right word, but compared to recent history, valuations are very elevated. I mean, I'm looking at a stock like NVIDIA, for example, which is, you know, before the run, was it like 60 times? Now it's 40 times. So how would you assess what that stock has done? Has it left the market a little more vulnerable or not? I do think that what's interesting about NVIDIA is the last three months of its stock move have not been about earnings revisions moving higher. The earnings have gone up. They've gone up by 8%. The stock is up by 80 percent.

So what you've seen is a return to multiple expansion for a lot of these names. You could say the same thing about Microsoft. Its earnings revisions are only up two and a half percent this year. A lot of it is multiple expansion. It's not to say that they won't deliver those earnings and that that multiple expansion can't continue. It just has to be given a good reason to stop before you actually see it reverse. It's funny because when you look at other questions in our survey about outside of NVIDIA, which of those pure play AI-related names

are going to do the best, and Microsoft tops that list. So there's still a lot of optimism around these stocks. And I think investors are just willing to chase higher multiples because they just still believe that that's where the hype is going to be. And that's where the real results are going to come from relative to everything else. Yeah, narrative is a beautiful thing.

But as long as you still see these earnings revisions, which is a heck of a lot better than you're getting from industrials or energy or health care, which have all had huge earnings revisions lower over the last year, which just means that those areas that you were hoping for to broaden out and to give you a bit of diversity and leadership simply can't deliver on the earnings front. So it just gets more narrow. All right. Well, let's continue to debate this with Christina Hooper of Invesco and Malcolm Etheridge of CIC Wealth. Malcolm is CNBC contributor. Good to have everybody with us. Christina, it's a good segue from Cameron to you because you do think the broadening is going to happen. You do think that we should be buying value stocks and small cap stocks and cyclically sensitive stocks away from mega cap tech.

Absolutely. Because what's going to power this is the strength of the consumer. Now, the consumers, lower income consumers, have come under pressure. But that pressure will start to come off as inflation continues to ease. And so what we'll see is real wages improve, and that will be an important catalyst. We'll also start to get rate cuts. I really do believe we'll get two rate cuts this year, and that will also be supportive of the consumer. And so if we don't see unemployment go up significantly, this could be an environment where we actually see a re-acceleration. So that takes me to the cyclicals, to the small caps,

areas that are likely to more fully participate now. It's not going to be as narrow a market. You want to come back at that? Yeah, I think that we're growing a little bit more concerned about the consumer and seeing that it is the bottom cohorts of the consumer that are really starting to deteriorate. And we don't necessarily see the catalyst for that big acceleration. I had a conversation with some industrial experts and talking about what they're seeing boots on the ground. They're saying the macro is bad. Earnings estimates are getting cut. You're not seeing this lift to things like PMIs. We get the update for the PMIs next week,

which just means that we're still in this muddle through economic surprises are still negative. And that's why we're still thinking that those with idiosyncratic earnings growth are likely those that lead. Malcolm, how do you see this where Goldman's Tony Pasquarello says my instinct that he's been bullish and he's been correct. My instinct is now would be a good time to tap the brakes a little bit anyways. It's a bull market, but the probability of a drawdown is rising. So I'd look for the places to reduce overall portfolio risk as we navigate the next phase of this political game. What do you think? Yeah, I don't see too much flaw in that argument, especially when you look at names like NVIDIA, for example, that have carried the market to this point. I definitely think we're entering a space where maybe we don't hit the pause button, but we definitely see a lot more volatility than we did in the first half of the year. I know we're hanging our hats on the statistic that as we have a strong first half to the year, that means that we're

setting up for a strong second half to the year and 15% so far to the positive really helps to make that case. But I also think in order to get there, the ride is going to be pretty rough. So anybody who's sitting on massive gains in names like Microsoft, Nvidia, Apple, et cetera, it's not a bad time to be looking at at least trimming the position or even putting in some protective puts, maybe if you're not willing to sell. But separate from that, I don't know that the broadening is gonna extend

as far as small caps and other names that I just heard. I think where the broadening is likely to happen is really in those top S&P constituents, especially in tech. So I think there will be a broadening across mega cap tech as the AI narrative continues to power the markets right now. But I don't know that it's going to extend to other places in the economy. Christine, I mean, if the consumer and the economy are softening a bit, I mean, I think the evidence would suggest that that is in fact the case.

Wouldn't you be a little early for small caps? So it all depends on what happens to the consumer from here. that that is in fact the case? Wouldn't you be a little early for small caps? So it all depends on what happens to the consumer from here. And we're certainly seeing those lower income consumers under pressure. We've seen credit card delinquencies go up. We've seen credit card balances go up. But that's relative to pretty low levels.

We're where we were pre-pandemic. In some cases, we look better than where we were pre-pandemic. So what I would argue is that we're at apandemic. In some cases, we look better than where we were pre-pandemic. So what I would argue is that we're at a crossroads now and the Fed will be a big determinant of what happens to the U.S. consumer. If they're willing to start cutting soon, and I would make the argument that they can and should, then that could be a different outcome than if we stay at very high rates for a lot longer. Okay. so we have, this is a binary conversation.

That's what this essentially is, is binary. If the Fed cuts twice, like you say, your trades are likely going to work. Your positioning is probably going to be right. If they don't, that's not going to work. Absolutely. So let me give you why I think the Fed will cut. Right now, with core PCE at 2.6%, we have a Fed funds rate that is 2.7% higher than that.

That's the most restrictive we've been since 2007. If we look at the San Francisco Fed's proxy Fed funds rate, which factors in other monetary policy tools, we're at about 6.3% right now. This is pretty restrictive given the environment and the progress we've made on disinflation. So I think this actually makes the case for a July cut. I don't know if the Fed will be that bold to do that, but I think we will get a September cut, if not a July cut. Well, Mohamed El-Erian was with us the other day and argued for the very same reasons that you mentioned, too, although he thinks the economy is weaker than most people would otherwise want to believe,

that they should cut now. They should cut in July. Now, I think the chances of that are reasonably low, right? Pretty low at this point. Others make the case that rate cuts for any reason are going to be positive for the market, that the chances of us going into a severe or steeper recession, let's say between now and the end of the year, unlikely. But the Fed wants to cut.

They keep telling you they want to cut. Bostick yesterday said, yeah, it's probably appropriate to cut later this year. And that's going to be positive. Why get negative in front of that? Yeah, I think that that's a really fair point, which is that we do know that it can lift animal spirits. Maybe it re-enlivens the IPO market. You heard from Jeffrey saying, look, if we just get a little bit of easing in the backdrop of policy, then maybe we could see some better activity. I think the challenge would be is what does one or two cuts actually do to

the underlying economic picture? If we really are starting to tip into a softer period, does 50 basis points make that much of a difference? Maybe it does. Psychologically, doesn't it? I mean, it's not the 50 basis points that make the biggest difference. It's that 50 basis points is eventually going to become 100 basis points and probably 200 basis points and maybe 250 basis points. So you're at the start of something just like before when you were at the start of the hikes. The market saw that and sold off. But the Fed has never cut rates by more than 75 basis points without a recession in the last 40 years. So if you're thinking that three cuts leads to nine cuts, which is what's priced in through the end of 2026,

you're effectively saying, I think that growth is going to slow materially at some point. But we also haven't had inflation like this in those same 40 years. So if you are forced to hike so much and so fast, and then you just want to normalize policy, it's sort of like history kind of goes out the window. It's hard to cite precedent for what they've done towards what they might do next. The Fed did keep real Fed funds rates between two and a half and three percent for three year periods before the 2000 cuts and before the 2007 cuts. So there is precedent for them to keep real Fed funds rates elevated. Malcolm, if we only get one cut this year, let's just assume that we're going to get one, right? It feels like we're going to get one at least, okay? Is that

good enough? Is that good enough to take the S&P to the 6,000 target that Evercore ISI has on it, for example? I think they're the highest on the street right now. Yeah, I am actually leaning more toward Cameron's camp, I think. I think that two or three cuts that you're talking about in the next, let's call it nine months, doesn't necessarily get us to a place where all of a sudden animal spirits come back in. You know, the third of the Russell 2000 companies that aren't even profitable suddenly start to power higher and lock in better earnings. I don't know that that actually is the case. I think one cut actually is negative, like you started off talking about, where it makes investors cautious enough to say, well, what is happening underneath the surface that the Fed sees that we don't see? Maybe it is time to get cautious and

actually hit the brakes. And unless they're willing to go, you know, the six or seven cuts that are baked into a lot of the analysts' expectations for next year and make it clear that that's how aggressively they're looking to cut, I don't know that it actually helps. And I think wedging somewhere in the middle does more harm than good. It doesn't actually get us to where we want to be. So I'm more concerned at this point that the Fed has boxed itself in to where one cut in 2024, where we came into the year expecting six or seven, does more harm than good. We haven't even talked about alternatives to equities, fixed income.

I think there are probably a good amount of people who are still, Christina, sitting in cash, like in the near 5%, 4% or 5% or whatever they're getting. What about opportunities outside of stocks? So I think there's a lot of opportunity in fixed income. I mean, dare I say it's a golden age of fixed income. It looks certainly that way if you compare it to the last couple of decades. So there's a lot of opportunity and emerging markets bonds present opportunities,

corporate bonds, high quality, high yield presents opportunities. Munis, I'm really excited about Munis right now. So there is a lot of potential there. There are a lot of places for investors to go, including bank loans. You say corporate bonds, high up on the quality? Investment grade, yes. But also high quality, high yield. I mean, there are opportunities there. I don't think we're going to go into a recession anytime soon. That is a low probability, in my opinion.

I think locking in some level of duration makes sense as well. Cameron? Yeah, we do think that there's lots of opportunities within fixed income, muni specifically. Within credit, we think we have to be very selective because what we've seen is spreads come in a ton. If you look at the BBB spread, so the spread between investment grade and high yield, what you're seeing is actually lower today than it was in 2021. So it just means that credit is

priced for perfection. It's priced for perfection because people don't see recession risk. If that starts to kick up, just be aware that there's not a lot of wiggle room to surprise to the downside. So as we make the turn into the second half, Malcolm, look, everybody is going to be watching equity, the major averages, obviously. But bond yields interesting today, right? The fact that yields are up with the PCE, is the direction of yield still going to be the deciding factor for the near term in where stocks go? Yeah, I think actually, assuming the ladies are right

and fixed income is about to finally join the party as far as that side of the portfolio becoming more important than it has been in quite some time. I think that might actually be seen as a negative for the markets as well, considering the yield curve would actually have to normalize at that point. And we haven't had that conversation meaningfully in quite some time about what happens after the yield curve finally normalized after being inverted for so long. But I think that that does at least bring it back into the zeitgeist, which from a narrative perspective can't be constructive for markets, especially in a place where we're already talking about being on a razor's edge because valuations have gotten way stretched beyond our

imagination. You disagree with that? No, I think that that is very reasonable. And we do wonder if one of the reasons why yields are up is because of the results of the debate last night and the question of will Trump's policies potentially be more inflationary. Oh, interesting. When you think about the labor market, you think about tariffs, things that could potentially cause inflation to reaccelerate. I don't think anybody is pricing in a 2025 reacceleration and inflation. That would be a big surprise. Yeah, I'm glad you mentioned that. Cameron, thank you. Christina, thank you as well. Malcolm, we'll see you soon. Good weekend, everybody. Seema Modi has the stocks that are

moving into the close. Hi, Seema. Scott, 40 minutes left in trade. Take a look at Synchrony Financial. It just hit a new 52-week high and is the best performer on the S&P 500. Shares climbing around 6%, 5.6% after Baird initiated coverage with an outperform rating and a price target of 56. Baird calls the stock a solid investment within the consumer financial sphere. And Tractor Supply says it is done with corporate diversity and many environmental efforts. The rural retailer known for selling animal feed and workwear says it's eliminating all jobs focused on diversity, equity and inclusion and withdrawing its carbon emission goals. The stock did take up on the announcement. It's currently higher by seven tenths of one percent. Scott.

All right, Seema, we'll come back to you a little bit. Seema Modi, we're just getting started. Up next, trading tech in the second half. Baker Avenue's King Lip breaking out his playbook for the rest of the year. We'll find out where he thinks investors should be putting their money to work. And the one big name he's trimming right now, he'll tell you after the break. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. NASDAQ pulling back from a record intraday high earlier as we close out the first half of the year.

Will the historic momentum in the tech sector continue into the second half? Let's ask King Lip of Baker Avenue Wealth Management. Welcome back. So you think that there's momentum here and it can continue through the summer? Hi, Scott. Yes. We don't see a lot of evidence of tech slowing. If anything, you could argue that it's accelerating.

You know, Amazon hit an all-time high this week. Alphabet hit an all-time high this week. Alphabet hit an all-time high. Other laggards like, you know, Tesla in the Magnificent Seven saw 11% gains this past month. So we're expecting tech momentum to continue through the summer. I do think we're going to hit some resistance in September and October. I think there's typically seasonal weakness during that time. I think election uncertainty would also cause during that time. I think election uncertainty would also cause some investors to take some profits and potentially rotate

into other names. Are we getting, though, into dicey multiple expansion territory where the fundamentals around these companies just can't keep improving every single week to justify the kind of price action and acceleration we've seen in these stock prices. So how do we match those two things together? You know, it's been a very unusual time, Scott, in terms of how these companies are performing. It's incredible how companies like Amazon, Nvidia are having able to grow their earnings, not just single digits, but double digits, even despite the size. So I would normally agree with you that how could companies keep up like this? But the reality is that these companies have been so well managed through thick and thin

that during times like this, when the economy is growing, they're able to grow their earnings quite significantly. So there's a reason why tech is so large. A percentage in the S&P is because these companies have delivered. How much risk do you think is around earnings, which are, you know, look, admittedly, it's still a few weeks away. But, you know, nonetheless, I mean, that's going to be a moment of truth. So far, we're seeing still pretty decent earnings.

You know, Micron recently reported that's probably the most name that's closest to the AI business recently. Yes, the stock dropped on earnings, dropped a couple of percent, but not to be unexpected since the expectations were so high on Micron. Nevertheless, analysts raised their estimates. Micron's news suggested that capital spend is going to continue to increase significantly. So despite higher expectations, we still see these stocks having good long-term views. I mean, Micron, if you want to go there, I mean, the stock's still down 6% this week, right? It is. And we expect, you know, we've actually seen a little bit of a pullback in semiconductor names, perhaps not surprisingly so. You know, expectations are high

among many semiconductor names. But there's still names that are, in our opinion, quite cheap. Names like Intel, for example, that are still selling at or below their historical averages in terms of their multiples with upside potential. We've seen some rotation from semiconductor names into software, into cybersecurity, into cloud. Those areas have underperformed semiconductors. Their expectations are lower. So we are seeing not investors getting out of the tech trade, but then just rotating

into other industries. No, I also want to make clear here, since June 10th, you've trimmed Nvidia, right? So you've taken a little bit of money off the table. Tell me about the thought process behind that, even as you remain, you know, obviously bullish on the space. We have. I mean, we've owned NVIDIA for our clients now for several years, even before this, you know, huge AI boost in the stocks. So our clients have done very well on the stock. So for us, it's a little bit more of portfolio management, if you would. Our long-term thesis on NVIDIA hasn't changed, but we are taking some chips off the table,

not too dissimilar to Jensen's Wands, selling roughly $750 million worth of the stock. So we're taking some profits and redeploying into other names that we think have good upside with potentially just better valuations. You added to Intel. Can you tell me why you did that, along with Tesla too? But the Intel to me sounds a little more interesting. Yeah. So Intel, first of all, the product line looks very attractive for Intel in terms of its AI initiatives.

Stock looks cheap, as I just mentioned. The Catalyst is the company ramping up on their AI chips. It's the domestic chip fabrication, if you would, to compete against the likes of Taiwan Semi, for example. We think effectively the US and China are in a cold war. If that's the case, the importance of domestic chip manufacturing becomes ever more important. And finally, we have insiders in Intel buying their stock. I mean, how many executives in their tech companies are buying in stock these days?

And Intel is one of the few. Well, I mean, they probably see a stock down 30% in three months and say, well, I guess we might as well buy it back now. What about Tesla? Why did you buy more? Well, I know we were actually encouraged by the fact that the stockholder agreement was passed for Elon's pay package. We actually thought there was some threat there that if it hadn't passed, that Elon may have resigned from the company. So we're encouraged by that um i think i think you know tesla is one of the few com one of the companies where i think the company's ai initiatives haven't been fully recognized by the market so we do think there's upside potential there we're going to be looking forward towards the shareholder day in august for more information on how the company's robo taxi fleet could come to fruition all right right. Good stuff. King, be well. We'll see you soon. King Lip.

Thank you. Baker Avenue joining us once again on Closing Bell. Up next, the fate of the rally. Can stocks sustain this strength for the rest of the year? Yardeni researches. Eric Wallerstein, he's with us. He's going to tell us what he thinks and where he thinks the markets are heading, what the Fed's next move should be versus what it might be. He'll join us at post nine after the break. Welcome back. The S&P and Nasdaq are sitting on double digit gains for the year. Both hit new highs earlier today before pulling back.

So can this record setting rally continue or are the markets set up for a second-half slump? Let's ask our Jenny Research Chief Market Strategist Eric Wallerstein. He's here, as you see, at Post 9. Welcome back. Thanks, Scott. So, I mean, Ed's been on a lot, okay? And he's obviously bullish. He gives us his bullish perspective when he comes on. But your target for the end of this year is still 5,400, right? You profess you're staying with that as well. That tells me you're a tinge negative for what's going to happen between now and the rest of the year. Is that right? Yeah. I mean, with where valuations are, we had a top line expectation of around 20 on the forward PE, and we're way

past that at this point. So we might be getting a little more of a melt up where we're getting valuations expanding as well as earnings, forward earnings rising. We think if the Fed cuts, that obviously becomes a much bigger problem. But we're staying with 5,400. We think sideways chop could be where we go through Q4. So stocks are too rich. That's the bottom line. They've gone too far?

I wouldn't say too rich, and stocks can continue to get richer. But I think at these levels— It sounds like you're questioning the multiple at this level. It could be a little ebullient, but I don't think that's a huge issue. And, you know, timing the market based on valuation tends to be a folly. The Fed, you do not think that they should cut rates this year? No, definitely not. I think the whole idea that as inflation falls closer to target,

which it is, if you look at core PCE and you take out shelter, we're just below the Fed's 2% target. So we're getting there as long as measured rents continue to fall to where market rents are. But if you cut rates, you're risking inflation refueling. I'm not sure why you'd do that. And I think the experience last summer and in Q4 kind of gave them a little hesitation with doing that too early. Well, if you don't cut, then you risk the economy rolling over.

So what side of the coin do you want to play? I guess the jobs market still looks good. Growth still looks good. If we look at jobless claims, we're below $250,000. Payrolls were great last month. We'll obviously get the next read on Friday and the following week. But I just don't see the weakness that requires you to cut. You say that, and Ed, I think, has made this point too,

that the Fed put, so to speak, is back. So even if you say that, the implication is that the Fed's going to come to the rescue no matter what. I mean, they're either going to cut because inflation comes down or they're going to cut because they have to. And are you suggesting that under neither scenario is going to be good for stocks if they if they cut? If they cut because inflation is falling, not because the

labor market's unwinding. I think that'll help really fuel a big melt up in the stock market and valuations will expand even further. I mean, we could get to six thousand on the S&P 500 if they start cutting when the labor market looks fine. But I mean, they're they're they're telling you that they want to cut and the market is still and the market is still pricing in a couple of cuts. The market was pricing in seven cuts at the start of the year. So you don't believe the market where it is now? No. I mean, the market's the market. You just believe what they give you.

That's what's being priced in. I think, on balance, the market's saying, hey, they might cut. Maybe the labor market unwinds and they cut four times by 100 bips or 150 bps. That all kind of works itself into those median projections. But no, I don't think they need to cut. And they've already started rolling back QT. So the balance sheet policy is already starting to become easier. In some ways, they are easing a little bit. What about the narrow market? What do we take from that as we make the turn here in the second half? Yeah, I mean, this week, you know, we saw a little bit of weakness in NVIDIA. We think there'll be more rotation from the Magnificent 7 or MegaCap 8 to the other 490-something constituents of the S&P, mostly as the market and companies figure out

what to do with AI. Every company is going to benefit from this productivity boost, and if they don't, they're really going to lose out. So we'll start to see more rotation, I think. I think there's a, you know, a controversy about that, whether there's actually going to be a broadening. I mean, the economy is slowing. It is slowing. The consumer there, some of the consumer data would suggest that the consumer is slowing, too. If that's going to happen and there aren't going to be any rate cuts, as you don't think there are going to be, why is the broadening trade going to work? So, I mean, does it really need to broaden anytime soon? The best analog is the 1990s, right? Infotech and communication services, we'll just call them tech, were around 41%

of the index's market cap back then, but less than a quarter of the forward earnings. Today, they're around the same valuation, but they're a third of the forward earnings of the S&P. And a lot of these earnings are probably, granted, they're forward, I think they're more realizable. You know, NVIDIA is selling to Apple, Google. These are big companies that are going to survive. It's not like the 90s where you're seller financing and kind of relying on, you know, not great demand. I just find it hard to believe when people make the case that the market is going to broaden from here, like to small caps, for example, like the Russell 2000, without, and then in the same breath, they say,

well, I don't think there's going to be any rate cuts either. But the market's just going to broaden out. No, I think broadening out within the S&P 500 is more likely. I mean, small caps are just a far worse index in terms of how they're constructed. Half of the debt in that index or just under is floating rate. I mean, that kills those companies. You're talking a lot about regional banks and everything else. Yes. All right. I guess we'll see. Eric, thanks. Good to have you here. Thanks, Scott. Eric Wallerstein joining us from Yardeni.

Up next, we're tracking the biggest movers into the close. We're going back to Seema, who's standing by with that for us. Seema. Scott, a very mixed view on the state of the consumer. You think about Carnival earlier this week telling us Americans are spending big on cruises. That's one of the best performing stocks. But Nike's report suggesting the consumer is not holding up well. We'll dig into this more after the break. All right, we're 16 minutes from the bell. Let's get back to Seema now for a look at the stock she's watching. Tell us what you think. Okay, let's start with Nike, Scott. Nike shares tanking today after the company slashed its outlook. It is the worst performer in the S&P 500 by far. CEO John Donahue pointing to weakness in China and softness in the consumer overall. Nike was downgraded by at least five Wall Street analysts today. The results adding to pressure on the company and the CEO who is starting to lose Wall Street's confidence after a lackluster fiscal year. We're looking at the stock down about 20%. But again, Scott, a very different picture from some of the companies in the travel space that are talking about a very strong consumer. Take a look at

Estee Lauder on pace for his third consecutive monthly loss. Shares fell after L'Oreal's CEO told investors at a JP Morgan event in Paris that he expects slowing growth for the beauty market this year. Shares down 4.6%. Back to you. All right. Appreciate that, Seema. Thank you. Seema Modi still ahead. Shares are first solar sinking. We're going to tell you what's behind that move today and how the broader solar space is holding up amid the slide. The bell's coming right back. Being a proud member of the LGBTQ plus community, I've tried to not let it define me, but be a key part of who I am.

In a world where visibility and representation matter, you never know who you could be influencing around you. I am proud of my family and the work that I do every day at PIA Pharma, creating life-saving medications. We are back on the bell. Of course, the AI arms race was a huge theme for the start of 2024, and now Rosenblatt is revealing their best AI and tech ideas for the second half. For those names, you can head to cnbc.com slash ProPIC or scan the QR code on your screen right there.

Up next, bank capital announcements are set to hit the tape in less than one hour. We are going to run you through what to watch for, what's at stake for those stocks on your screen right there. That and much more when we take you inside the Market Zone next. We're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Pippa Stevens on the sell-off in solar stocks today. Most of the big banks, well, they'll announce plans for excess capital after the bell today. That's why Leslie Picker is following the money for us as well.

All right, Mike, we're going to pull the curtain down on the first half of the year. Pretty good one for stocks, certainly at the index level. Very good one. I think if you extrapolate, you say what tends to happen next after you have a first half like this, it almost all tilts to a positive bias. We can say that for sure. However, you could also say that at the end of the first quarter, and I'm very mindful of the experience at the end of the first quarter.

It was very celebratory. That was a little more overbought. We were kind of all in. We had had the momentum break. NVIDIA peaked a few weeks earlier, but the rest of the market hung in there. And we were heading into an earnings season that was going to be good. And it was good. But you still had a little bit of chop along the way because of where expectations had been set and because of what Treasury yields did. And they broke up toward higher end of the range, toward four and a half percent. I know you flagged it earlier, but the bond market reaction today wasn't what you would probably expect from a benign PCE inflation number.

I don't want to attribute too much to it. Obviously, quarter end weirdness and, you know, what do you want on and off your books and all that stuff comes into play. But you're mindful of it as you head into the second half. I mean, I've heard any number of excuses for the move higher in yields, including from some of our guests today about the performance in the debate last night by President Trump and what his policies could mean towards the inflation picture, what that means for yields and everything else. So we're going to be parsing that kind of stuff. It's in the mix.

And, in fact, if you just looked at how equities and bonds reacted during and after the debate, it would support some of that reflex reaction. I still refuse to believe that that's going to set the course for the next four months until the election. It's going to be a lot of ebb and flow around that based on the data and the Fed and all the rest of it. But, you know, I think you're on alert a little bit. You started out with a very strong market breath day in equities. It's more like 50-50 now. All right, Pippa, tell us about what's going on in solar stocks. Yeah, Scott. Well, solar stocks are getting crushed today, and it seems to be a bit of a post-debate overhang. The group has obviously

been a big beneficiary of President Biden's Inflation Reduction Act. Now, even if Trump wins, nobody I've spoken with expects a total repeal of the IRA. But it certainly adds an element of uncertainty for the solar stocks. Now, First Solar is perhaps one of the biggest beneficiaries of the law, since it is the largest domestic panel manufacturer. Those shares down nearly 10 percent. Still, last night, Deutsche Bank reiterated its buy on the stock, raising its target to 280. That's about 23 percent above where it trades now,

noting it has a tangible growth plan and that the commercial and utility space it operates in is, quote, highly immune to the weakness around residential demand. Scott? All right, Pippa. Appreciate it. Just a comment from you. I mean, again, as we you make the turn in an election year, you start every day to be one day closer to the actual results. So it's never too early at this point to start looking at sectors. Energy, health care. Those are the kinds of conversations, regulation around certain industries. SCOTUS decision today on Chevron regarding regulation there.

Now's the time to start thinking about stocks and sectors relative to results in November. It is time to start thinking about it and start to kind of game out scenarios. I agree with that. It may be not the time to have a high conviction call one way or the other. And what I remember, you know, for example, the last time around, let's say in 2016, 17, with President Trump there, it was like you had the domestic basket, right? It was going to benefit from tax cuts and tariffs. And you had the global baskets of stocks. And they would just whip around as one basically every day. So we're probably in for some of that.

I don't know that it necessarily sort of nets out to this is going to be the whole story. For sure. I agree with that well-made point. Leslie Picker. So I guess we're going to expect some announcements after the close today from the banks. Yes, we will. Scott, all 31 banks that were subjected to the Fed stress test survived the hypothetical recession. And soon, in about 30 minutes time, we'll find out how much of that excess capital will go to shareholders in the form of buybacks and dividends. Minimum capital requirements actually went up for almost all of the banks, meaning less available to give back to the market. Jeffrey said most banks burned worse year over year, with Goldman and Wells Fargo facing the brunt of it. Only a few, like Huntington and Citi fared better with decreases to their projected

capital requirements. Still, the market really shrugging off what was tougher than expected results and focused on the potential watering down of proposed capital rules. So until there's more clarity on the regulatory side, though, banks may continue to hoard that capital. We'll get a sense for exactly how much of it in about a half hour's time. We'll see. We'll look forward to that. Leslie Picker, thank you very much for that. Let's throw up Nike. One of the worst days ever, obviously, after the earnings, the guidance was certainly a disappointment, down 20 percent today. What's your takeaway here? It's really hard, and the action shows to get clarity on whether this turnaround is going to

really get traction and whether the next few quarters will return at the top line growth. I think when you have a move like this and you have sell-side capitulation to a degree today, all those downgrades, toward a stock where the street had shown a lot of forbearance because the brand value is so elite, I think you have to start asking, is it overdone in the short term? On a price-to-sales basis, it's at like 5% of sales. Forget about the earnings picture.

I mean, that is as low as you get for something, some retail, like really impaired retailers trade down. Actually, I'm sorry, that was the Walgreens number. But nonetheless, price-to-sales on Nike is down to levels you haven't seen in 11 years. So the point being, you've kind of wiped away a lot of whatever residual optimism there was about the earnings power and the comeback of the brand. We'll see if that matters. Some stunners over the last month or six weeks or so, right? Starbucks.

Yeah. These really premium brand names post-earnings getting absolutely destroyed. People look through the near-term results because of the quality of the franchise over and over and over again until they can't do it anymore. There's the bell. We'll go out red and mark the end of this quarter and the end of the first half of the year. But it's going to be exciting as we make the turn. I'll see you on the other side of the weekend.

A good one to all of you in overtime with John Ford.