Closing Bell - Closing Bell: Ignore the Warning Signs? 3/22/24

Episode Date: March 22, 2024

With investors squarely focused on the blessings of a soft economic landing, a benign Fed and an exuberant AI buildout – are any hazards being ignored? Bryn Talkington of Requisite Capital management gives her take. Plus, Former Dallas Fed President Robert Kaplan maps out what he thinks the Fed’s strategy should be in the months ahead. And, some major retailers took a big hit today. We explain why – and where there could be some bright spots in that sector. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. We begin this make or break hour with stocks gliding toward their first winning week this month and what would be a fifth straight monthly gain if it lasts through next week with all the bull market drivers reengaged. You see the S&P 500 just around the flat line but that sits on a 2.4% gain so far week to date. Big tech, reasserting leadership behind NVIDIA, the S&P 500's largest upside contributor both today and this week after its splashy developers conference to stock up almost 3% today. Healthy economic readings and heavy capital spending leading industrials to a record high. They did click to a new high earlier this morning.

And a dovish message from the Fed helping to pull treasury yields down into a more comfortable zone for equity investors. The 10-year note back down to 4.22. So here's your scorecard with 60 minutes to go in regulation. You see the Nasdaq up about a quarter of a percent, modest gains, but certainly hanging on to a strong week. The Russell 2000 giving back some of its outperformance down almost 1% on the day. That all takes us to our talk of the tape with investors squarely focused on the blessings of a soft economic landing, a benign Fed,

and an exuberant AI buildout. Are there any hazards being ignored? Let's ask Brent Talkington, requisite capital management, managing partner, and a CNBC contributor. So Brent, it's great to have you. I mean, obviously, good news can be good news. The market is fully embracing what it sees in front of it. Do you think it can be that easy for a while longer, or should we be on the lookout for a little more chop here? You know, bull markets always feel easy in hindsight.

We've had, Mike, a year of return in three months, right? Whether you look at pretty much every broad index is up close to nine, seven to 10%. And so I just think it's natural. We're not going to continue on this three month tear that we've had that you would have some settling out. But I think unless some exogenous event, which isn't even worth talking about because it's exogenous by nature, it just seems like we're in this really nice area where the market's not panicking about the 10-year solidly above four.

The market's not panicking that we went from six to three rate cuts. And so it really comes down to excitement about AI, but also a broadening out of returns being enjoyed by many, many other sectors and securities besides NVIDIA, Meta and Microsoft. That is for sure. People asked for it and the market delivered it this year so far in terms of broader participation. You know, you mentioned it's like a year's worth, an average year's worth of returns in three months. But it's also true that in bull markets, it's actually rare for 12 months to give you 8 to 10 percent, usually kind of overshoot to the upside. You get, you know, the S&P has been up more than 20 percent in a calendar year, like three times as often as it's been down 10 percent. So I guess the question is, is there any reason that you would want to be

rebalancing away from what has been winning already and looking for still other things that haven't yet quite caught a bit? You know, how we've been allocating is I would say we have our core kind of down the fairway S&P exposure, but really barbelling that with technology and then companies that have a high free cash flow yield. And whereas last year was really just the Nasdaq and that free cash flow yield. And whereas last year was really just the NASDAQ and that free cash flow yield, I think they're like nine or 10 percent. You're already seeing those types of those types of companies, which actually are more value biased, do really well this year. So we're going to stick with what's working, having that core S&P exposure with a barbell around tech and then free cash flow yield. I think that's going to continue to be a winning recipe. In terms of some of your core holdings, I know you do own Apple and, you know, it's about flat

for the week, actually, even though it did have this big wobble and is relatively underperformed after the Department of Justice sued the news out of that yesterday. What you read right now on maybe not just the merits of the case, but how Apple finds itself right now having to persuade investors that it can kind of clear that hurdle, but also prove that it's going to reenter growth mode? Well, I mean, reenter growth mode has been a question for some time. And I think the reason why you have a premium on the stock is like a Costco, like a Procter & Gamble, their earnings are very durable and stable and they have this such a huge installed base. Apple's down, what, 10% for the year.

And so I think it's less about this DOJ, but more about they don't have an AI story, which is fine, but that's like exciting for investors. And I think that we're really going to have to wait one or two cycles, I think, to get people really wanting to upgrade. And then if you want to talk about, you know, the DOJ suit, I think it's not even nearly as explosive as it could have been once I read through it. Okay. So you don't think that, well, I was interested to see the fact that the stock did go down 4% on the news. In other words, you know, everyone's looking at the same details. It seems the kind of thing we thought

that the authorities might scrutinize and try to contest, and yet the market sort of backed away. Right, well, it's kind of, you know, it's interesting if you just even skim through it. It seems like, I mean, there's multiple points, but to me, they're having an issue with Apple because in order seems like, I mean, there's multiple points, but to me, they're having an issue with Apple because in order to watch, I mean, this is their quote, high quality videos,

you have to buy a very expensive phone, which like, that doesn't make any sense. It's like, well, it's expensive because it gives so much value. And then, you know, they don't like the Google that when you text from an Android, it turns green. And they're very competitive, but to me, this is not a Microsoft case like we saw in the early 2000s or late 90s with the Microsoft, which I think had so much teeth and meat and really put Microsoft back years and years.

And by the way, allowed other companies to go forward. I think this is gonna last a while, but I don't think it's gonna be a hangover on the stock very long. I think it's more about the AI story and the refresh of the Apple phone. When's that going to be and how many people are going to upgrade, to me, is what you need as a catalyst to get the stock above that 250 or 100-day moving average. Right, yeah, it has been sort of technically sort of compromised a little bit. Finally, also another word on Tesla. You know, you've owned it for a while, various

levels. It's obviously been under a lot of pressure and it's mostly about volumes and pricing. It's not necessarily a lot of the ancillary stuff. So what's the what's the path out if there is one for that name? Well, there's always a path out. there is one for that name? Well, there's always a path out, right? And so I think that I never want to underestimate Elon and his team. You know, they continue to iterate and evolve full self-driving. I think that in the U.S., they're going to continue to dominate the EV. But really, Mike, it's China.

You know, China is the axe in the EV market. They have a ton of competition from BYD. I think you need a catalyst to get investors excited about the story again, because right now what's not exciting is that their earnings growth is looking this next quarter to be down 25 percent year over year. Those types of important metrics are going the wrong way. And I think until you get stability in earnings and revenues, you're not going to have new money come into that stock because it's too big of a company to not have the earnings growth behind it in order to catalyze it to go higher. Yeah, it's obviously been sort of trapped in that that gravity field for a little bit. Bryn, stay with us. Let's bring in Scott Wren of Wells Fargo Investment Institute and Ed Klissel of Ned Davis Research to the conversation.

And Ed, I'd love to just get your sort of current checkup on on the bull market, how it's acquitting itself. And what do you think we have in the way of fuel left in the tank in the immediate term? Yeah, big picture, things are in pretty good shape. Recessionary risks are low. And historically, you don't get non-recession bear markets this close to the one we had in the end of 2022. So it's really about are we setting up for a near-term correction? There are some ingredients in place. We've gone 100 days without even a 3% pullback in the S&P. The last time it went that long was ended in January of 2018, right before the Valmageddon incident with the VIX ETNs.

So we're overbought. Our sentiment composite is showing lots of optimism. We've gone 16 weeks of excessive optimism. That's like the fifth longest on record going back to 1995. So the ingredients are there. Is there a downside catalyst? We could all kind of hypothesize about, you know, if yields spike, if the Fed changes

course, if we get some downward earnings revisions, those could all be catalysts. But we need to think in terms of a healthy pullback within an ongoing bull market. Gotcha. Yeah. So you've got the atmospheric conditions, but we don't know if it's really going to develop into anything. And then I guess your work would suggest whatever comes on the way of a pullback, it probably wouldn't be the big one. So I guess reassuring. So, Scott, how would you think about things? I know you're looking at the possibility for maybe a little bit more downside or at least not the most favorable risk reward here. Yeah, I tell you, Mike, I don't think the risk reward is that favorable.

And certainly, you know, stocks have made a gigantic move since the October 27th low. You know, we're not chasing the S&P 500 from these levels. And, you know, stocks are expensive. But, you know, as the tech bubble back in 2000 showed, they can get more expensive. But what we're trying to do is look under the hood a little bit. And really, if you look back, whether it's calendar year 23, whether it's the last 12 months, tech looks expensive to us. Communication services look expensive to us. There's been some headwinds in the consumer discretionary sector,

which you just talked about. But for us, you know, we're trimming from those sectors. And this has been over the last few months or so. And we've been buying things like materials, industrials, energy. And if you look over the last six months, those have not been outperformers but if you look over the last month you know you'll see materials energy uh industrials in the top three so i think things are starting to turn we we definitely we want to be overweight large cap underweight small we don't think it's time to buy the russell 2000 or anything like that We want to be overweight U.S. relative to international. So there's been some things that have worked as the market's gone higher than what we initially expected it to. But certainly, to have a 5% or even 10% pullback from here,

that's not a bold call in any stretch at all. And so we're looking for some volatility here. I think the market's been comfortable that we're not going to have six or seven Fed cuts this year. And I think, surprisingly a little bit, the market's starting to get comfortable that we might not even have three cuts. So I think the market's running on momentum here. There's a lot of people that are kind of I think the market's running on momentum here. There's a lot of people that are kind of getting into the market.

I don't sense that, you know, there's a lot of chasing going on. Certainly money managers who have the S&P as part of their benchmark, you know, can't be sitting on cash and watching this thing set records every day. Traders, they're going with the flow on a daily basis. But on a retail sort of basis where we know there's a lot of cash on the sidelines, I don't sense a lot of chasing so far. So we could see a little bit of upside here. But I think you need to be cautious on just jumping in and buying the S&P 500 here. Yeah, I guess it depends where we're looking. I mean, if you look at the real high active trader retail segment, Yeah, there's been some chasing. There's been some, you know, some wild moves in the options market, things like that.

But in terms of, I guess, the overall retail base, you have a lot of cash still in those accounts. Ed, when it comes to the pace of rate cuts, I know you've kind of said for some time that actually fewer cuts might be better for the stock market. Now, the market maybe is showing us that, but why would that be the case? Yes, what we did is we looked at historical rate cut cycles. We said, well, let's say the Fed is cutting very quickly, five or more cuts in a year. Well, actually, the market's done much worse under those scenarios than when the Fed's cut four or fewer times in a year. And the reason is when the Fed is cutting quickly, it's because they've already made the mistake of chasing their tail, trying to prevent a recession

and usually doing a pretty poor job of it. So the move from calling for the Fed fund futures looking for seven cuts to now three, maybe two, that's actually moving into the better situation of a slow cycle. The Fed moves slowly because it can. So you think about the last few times that happened, say, in 84, 95, 2018. Those kind of slow cycles tend to be positive for the market. So, yeah, this is actually a better setup than what the futures were pointing to earlier in the year. Yeah. I do want to mention we do have a little bit of a deeper pullback. The Dow is mostly leading to the downside. A lot of that is Nike. And, I do want to mention we do have a little bit of a deeper pullback. The Dow is mostly leading to the downside. A lot of that is Nike. And Bryn, obviously Nike's had its issues,

but there has been some spotty guidance from consumer companies. It hasn't always been about, you know, the consumer is very healthy. It's been a little hit or miss. How does that fit into whatever thought you might have in terms of where we are in the cycle and where you'd prefer to look within the market? You know, I think on the consumer side, these earnings are idiosyncratic. I mean, I feel like Nike is China. I feel like Lululemon. It's like there's a lot of other brands out there and and tastes change. And so I think we still have I mean, we can look at the credit card data that's moving up, credit card delinquencies. But don't forget, Mike, it's like a strong jobs market equals a strong consumer. They are one in the same.

And so until that jobs market, we start getting higher unemployment, which I don't think anyone sees that. The consumer is going to stay relatively strong. And so I would really pass that off to more idiosyncratic specific companies than a broad brushstroke on the retail consumer. Yeah. And Scott, I mean, I was struck, but you think that maybe there's going to be some slowdown risk, I guess. But yet industrials materials you prefer. It's this tricky place in the market where if you want to look at some things that appear that, you know, they're well positioned with earnings revisions and things like that, you kind of have to be making a bit of a macro call that the economy is going to hang in there, don't you?

Well, you kind of do, Mike. And for us, I think as far as the energy call, oil, we don't think it's going to trade much below 70. That's why we're favorable on energy there because we still think there's some supply issues out there. And then really, if you look at materials and industrials, they're benefiting mightily from all this infrastructure spending that's going on. And whether it's, you know, who's going to be the next president or what the economy does here in the short term over the next couple of quarters, there's going to be a lot of infrastructure spending that's in the books that's going to be introduced that's going to go on and so I think those sectors you know normally this might be a little early for those sectors to be outperformers but you know given this stimulus this deficit

spending that's going on that you know clearly isn't going away anytime soon I think those have those have been more favorable than they normally would be. And that was kind of our thesis behind trying to get behind those sectors. Yeah. You know, example number 4000 that this cycle hasn't really been synced up to what we might have been used to in terms of reading all the signals. Bryn, Scott and Ed, thanks very much. Appreciate it. Have a good weekend. Let's send it over to Christina Partinevelos. Thank you for a look at the biggest names moving into the close. Hi, Christina. Hi, Mike. Well, FedEx is a top S&P 500 gainer today,

even though it posted its sixth quarter of year-over-year sales declines, which the company blamed on lower fuel surcharges and decreased shipment volumes. But the company beat analysts' expectations thanks to stringent cost-cutting. The logistics company also announced a new $5 billion share repurchase program and promised to keep trimming spending for the rest of the year, and that's why shares are up over 7%.

Shares of Digital World Acquisition Corp. are off earlier lows, but still down about 10% after the shell company's shareholder approved a merger with Donald Trump's social media company, Trump Media. The newly merged company, Trump Media, could begin trading under the new ticker DJT as early as next week. The former president holds a majority

stake in this new firm, which could be worth billions of dollars if it regains that 10% loss that we saw today. All right, yeah. Very tricky situation. Christina, thank you. We're just getting started here. Up next, former Dallas Federal Reserve President Robert Kaplan is here. What strategy he thinks the Fed should be taking and where he sees inflation heading from here. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. We're getting some news on the IPO front on a Friday afternoon.

Pippa Stevens has that for us. Hi, Pippa. Hey, Mike. Ibotta has filed to go public, the company said, into filing today to trade under the ticker IBTA. Now, this is a digital software marketing firm that is backed by Walmart. And back in November, there were reports that it was valued as valued at as much as two billion dollars. Goldman City and Bank of America are handling the IPO. Mike. All right. Yeah, I guess the window is open. Thank you. All right. The Dow

pulling back from its record high, still heading for its best week of the year, though. The major averages all on track for healthy gains this week following Wednesday's FOMC meeting. Chair Powell reassuring investors that rate cuts are likely on the way. Joining me now to discuss is Robert Kaplan, former Dallas Fed president. He is also former vice chair at Goldman Sachs. Robert, it's great to see you. It's interesting the market had, you know, net positive reaction, considering that the statement and message were almost identical to what we saw last time. Right. So in other words, not much change in the Fed stance. It feels as if policymakers are wanting to make use of the luxury of time to maybe allow inflation to get a little bit better. But what do you pull out of of what Chair Powell had to say that's most relevant to the outlook?

I'd say the statement, his comments were pretty much as expected. He's setting up the option to cut in June, but leaving them flexibility in case they don't like the information and data they see over the next few months. I think he reaffirmed what they said back in December. But I think the Fed's going to want to turn over a few more cards, and he gave them the flexibility to do that. The market may also be reacting to his comments on the balance sheet, which actually may be more significant for the market in that it's clear the Fed is moving toward slowing the runoff of the balance sheet over the next few months.

And I think that actually might be as or more significant than the statement and the comments on interest rates. Right. So I guess he said essentially soon that they will likely have a plan for tapering the quantitative tightening. And perhaps that was a little bit sooner than people were expecting that to be on the radar. Seemed as if maybe the market did take a little bit of heart in that. But bigger picture, it feels as if the Fed, the committee is pretty wedded to this idea that there's just a lot of room between where rates are and where inflation is, even if it's not near target. So almost like there's an urgency maybe to get started as a matter of just, you know, normalizing, getting that process going, even if it's not really to explicitly help the economy.

Yeah, listen, the Fed is very mindful of the fact they probably were late this cycle in raising rates and starting to run off the balance sheet, maybe as much as 20 months late. I think they're now thinking about the fact they don't want to overstay keeping rates high for too long. The issue that's making this more difficult, though, is you still have very substantial fiscal spending on unspent ARPA money, American Rescue Act money, Inflation Reduction Act projects, Infrastructure Act projects, which are stimulating demand for labor as the Fed is trying to cool demand. And I think that's creating resiliency, particularly in the service sector and on wages. On the other hand, you've had a couple of positive developments. You've had more labor

supply growth, probably from immigration. And productivity looks like it's a little higher, which means maybe we can grow a little faster with lower inflation. But these are cross currents. And I think it's still unclear which of these cross currents is going to be more dominant, which is why they're kicking the can at least a little bit longer. Sure. I guess there's even another overlay on all those cross currents that you mentioned, which is the parts of the economy that would or are most responsive to higher interest rates to restrain inflation are the goods parts, the housing. It's the stuff that's already maybe felt the effect, whereas it's just unclear if services inflation can be addressed in a similar way by keeping rates up here. Yeah, that's right. I agree with that. So it's not like it's not like

tight monetary policy isn't working. As you just said, it's affecting real estate. It's affecting the desire to keep inventory. It's affecting banks willingness to lend to small business. So it's having an effect. The issue is there's a counterforce, which is fiscal spending, deficit fiscal spending on projects, which is resilient. It's not stopping goods disinflation, but it probably is making service sector inflation a little more resilient. And so the Fed is getting ready to take action, but it's not committing to it by any means. And I think they'd be wise. And if I were there, I'd want to I'd want to withhold judgment for a little longer just to see how this is all going to shake out. Yeah, no, they're probably glad to have two or three months before they're expected to do anything whatsoever just to see how things shake out. Robert, great to have you. Thank you very much. Robert Capp. Great to see

you, Mike. All right. We're getting some news on AI startup Anthropic. Kate Rooney has that for us. Kate. Hey, Mike. So you may have heard of that AI startup. It is the hottest tech investment out there right now. I spoke to three sources who tell me a stake in Anthropic is being shopped around to sovereign wealth funds. But Saudi Arabia notably will not be one of those new investors. Anthropic has ruled out taking any money from the Saudi public investment fund, the PIF, as it's also known. That is despite the Saudis interest in technology investing and more than 900 billion in assets it has to spend. Sources tell me that Anthropic has privately cited national security risks. This stake in Anthropic is for sale because it belongs to FTX, the failed crypto exchange.

It's being offloaded as part of that bankruptcy FTX invested three years ago for around $500 million. That stake is now worth more than a billion dollars after this recent boom in AI. The sale, I'm told, is still ongoing. The proceeds will be used eventually to pay back FTX customers. Perla Weinberg is the banker in this process and declined to comment in this story. Anthropic has raised more than $7 billion in the past few years from tech giants, including Amazon and Alphabet. Salesforce as well amid this AI frenzy. Its large language model competes with OpenAI's chat GPT. These are class B shares that are being sold at the same valuation, I'm told, as the company's last financing round,

which a source tells me is $18.4 billion. While the founders of Anthropic preemptively told bankers that they would not accept Saudi money, they do not plan to challenge potential funding from other sovereign wealth funds out there, including the United Arab Emirates, Mubadala, that is the UAE-based fund that is now also actively looking at investing. And according to one of the people that I spoke to, the potential buyers of FTX's stake are also made up of this syndicate of new investors. A source tells me, I'm also told that Amazon and Alphabet are not increasing their holdings through this particular stake. Anthropic, the PIF and Google and Amazon all declined to comment.

Mike, back over to you. All right. Eighteen point four billion dollar current or at least most recent valuation, Kate. I mean, in the grand scheme, with all the kind of big numbers being thrown around, you know, AI capacity, it seems like a modest number. I was going to say you can see that as a discount, depending on how you look at it. It is. It is. And it's also interesting seeing kind of the makeup of the potential investors who typically had sort of these big tech investors on the cap table.

It would be fascinating if you started to see more sovereign wealth and also these individual investors. There's money being raised through special purpose vehicles as well. So you have smaller investors trying to get in. So you may get a little bit more diversity on the cap table with this FTX stake being sold, Mike. Interesting. Kate, appreciate it. All right, up next, investing with artificial intelligence. Generative AI has made its way into the world of finance

and is shaking up how investors are approaching managing their portfolios. We'll speak with the head of one investing assistant company about how this could impact the market and your money. We'll be right back. Welcome back. While generative AI has become the defining narrative for the tech sector, it's also making its way into the world of finance as a tool for individual investors to manage their portfolios. Here at Post9 is Vinay Nair, founder and CEO of Tiffin, the company behind the AI investing assistant Magnify. Vinay, great to see you. Likewise, Mike. Thank you. Give us just a quick snapshot of what the service is and what makes it AI. What does it enable an individual investor to do?

So, Mike, we have a collection of AI assistants at Tiffin. Magnify is one of them, which really helps an individual investor bring together all their accounts, all the self-directed accounts. In the U.S., there's more than 25 million people with more than one self-directed account and ask questions, get insights, get suggestions. I'll be specific. Sometimes people come and ask us, what happens, get suggestions. I'll be specific. Sometimes people come and ask us what happens if I buy Nvidia or for example

how much Apple do I hold because they exist within funds and indices and positions and multiple accounts or we find people come and ask us what happens to my portfolio if rates go up or emerging markets drop. The early investors often ask us how do I retire early? What is a plan I can put in place? Essentially, it's a decision support system, a guiding tool, if you will, to make better decisions for investors. How is it different from what might have been out there already, which is some kind of a

recommendation engine or some profile that you would just sort of have in your accounts that says, you know, do my risk weightings and all the rest of it that you might have been able to do for a while? It's a great question. And in some cases, the question hasn't changed for the investor. They want intelligence. And intelligence wasn't delivered in many places, the brokerage account, the advised account, the workplace account. So we have AI assistance for these places where money sits. Think of it this way. Back in the day, you had a paper map, which you looked up and took a pen and mapped out your journey and you went off. Today, we have a GPS system that real-time adjusts things. You can take a turn, it'll adapt to it. So this is a conversational interaction where it'll give you options. One

could be a scenic route. One could be a fast route. You take one and it'll adapt to that in a back and forth manner. About a decade ago, I remember, you know, the big wave was robo advisors or just the software based, you know, advisory service, which is instead of perhaps a human financial advisor that you could just plug into, and it went on autopilot and it would adjust over time. Obviously, those have grown, but it has not really displaced individual financial advisors very much. So how does your sort of set of services fit in? I don't believe, we don't believe that financial advisors are going to be displaced anytime soon.

Essentially, we believe that individuals will have going to be displaced anytime soon. Essentially, we believe that individuals will have money in three places, the self-directed account, the advised account, and their employer account. And intelligence will seep into all these three places using AI assistance. Advisors are using AI assistance also to get better answers. Effectively, all this together boils down to what is inevitable, which is better advice for more people. That's what AI systems are enabling. And just quickly before we go,

does somebody just subscribe to the service or do you have an account with Magnify, say? No, you go to magnify.com and you subscribe just like you would subscribe to a streaming service with monthly subscription. And then you just plug in your information. That's right. You can connect to your accounts, get answers. Great. Rene, thanks for coming by. I appreciate it.

Thank you. Interesting stuff. All right, up next, we are tracking the biggest movers as we head into the close. Christina, standing by with those. Hi, Christina. Well, the CEO shakeup at Papa John's getting a price target downgrade for the stock, and Dutch Brothers selling some more shares. Details on those stock movers next. 20 minutes till the closing bell. The Dow down about 250. The other index is just below the flat line, all set for weekly gains of better than 2 percent, though. Let's get back to Christina

for a look at the key stocks to watch. Well, let's start with Papa John's shares. They're down about, what, 3 percent after Bank of Montreal lowered its price target of the pizza chain to 80 bucks from $90, although they still maintain an outperformed stock. It's actually almost 4% lower. The analyst was surprised by Papa John's CEO Rob Lynch's departure, which was announced yesterday. Lynch had been with Papa John's for almost five years, but his departure adds to the growing list of C-suite departures like the CEO, the COO, the CFO, the chairman of the board. The list continues. And this comes as the company is facing market pressures, competition from dominoes, and also questions about franchise economics.

And from pizza and burgers to coffee, shares of coffee chain Dutch Bros are down about 6% after announcing a secondary public offering represented by TSG Consumer Partners. The selling stockholders want to sell roughly 8 million shares priced at $34 a piece. Shares are now $33.47. Mike? Christina, thank you. Thanks. All right, coming up, your retail rundown. Nike, Lululemon, and LVMH all getting hit in today's session. What's behind those moves and what it's signaling about the health of the consumer. Closing bell. Be right back. Welcome back. The Dow's recent run bringing it pretty close to 40,000, less than 2% away right now. So what stocks might push the Dow over that milestone? Head to cnbc.com slash pro for the details, or just scan the QR code on your screen. Up next, Reddit shares slipping on its second day of trading.

The details and what its market debut could be signaling about the IPO market. Plus, Best Buy getting a boost. One JP Morgan analyst is getting bullish on that name. He will join us. We'll have that and much more when we take you inside the market. We're now in the closing bell market zone Julia Borsten is here with how red it fared in its second day of

trading. Plus Deirdre Bosa on a report that Apple is exploring a deal with Baidu. Courtney Reagan brings us big moves in the world of retail and J.P. Morgan's Chris Horvath on why he's getting more bullish on Best Buy. Julia, a little bit of a dip in Reddit, but still well above its offering price. Yeah, that's right. Reddit lost about three and a half

percent in its second day of trading, but it is still about a dollar and a half above where it started trading yesterday at forty seven dollars and up forty three percent from where it started trading yesterday at $47 and up 43% from where it was priced at $34. So now Steve Huffman, the CEO of Reddit, faces some key challenges. The FTC's inquiry into the company's data licensing practices, including its $60 million deal with Google, New Street Research calling that inquiry a 5% overhang on its $54 price target for Reddit. He also faces some stiff competition for digital ad dollars with larger rivals, Pinterest and Snap, and particularly with Meta, the giant in the space.

And then there's also the question of what happens if Redditors turn against the stock. Chatter on Wall Street bets, the popular Reddit forum, is still pretty mixed. And finally, we'll have to see how Reddit creates a business around subscriptions, the user economy. Newstreet saying that this business, which Reddit creates a business around subscriptions and the user economy. News Street saying that this business, which Reddit says it's excited about down the line, will take years to build. Mike. All right. Again, not a bad gain from the offer price at 34. We'll see how it goes from here. Thanks, Julia. Dee, talk about Apple and Baidu and AI ambitions.

Yeah, so first let me say that the chatbots that we're talking about all the time, that's chat, GPT, Cloud, Gemini, et cetera, they're very good at English language queries. China, a totally different case. So if Apple wants AI devices there, enabled devices there, it needs a partner like Baidu. Baidu has the Ernie bot that's already in different smartphones, not just for functionality, but also to navigate the many regulatory hurdles that exist there. Now, Baidu shares, they were up as much as 5% on that report, but they look to finish only about half a percentage point higher. Take a look at Apple, though. It started the week higher on a separate report that it would

potentially incorporate Google's Gemini AI into the iPhones. That is the English language version of AI. It looks to end the week with only a slight gate. Actually, now that's turned into a slight loss. So between Baidu and Gemini, some investors are starting to ask, where's Apple's own AI strategy? And that's kind of the takeaway of this week. Yeah, it seems like a deal, although I guess I suppose their strategy could be we will partner. We'll essentially outsource it. You know, you could have at some point maybe said, what's Apple's search strategy? And their strategy has been let Google do it.

Exactly. And you bring up a good point. It totally outsourced its search strategy to Google. Not only was that wise, but it brought in, what, some $18 billion annually to Apple services units. So that worked out well, but some believe that generative AI is too important to outsource. It needs its own strategy. Doesn't mean it doesn't have one, right? It just sort of raises the stakes for WWDC, which comes up in June. And some think that Apple is going to release its own version or its own strategy of what it's going to do here. For sure. Yeah, no, it raises the stakes. And we keep hopscotching from one developer's conference to the next, it feels like, from now to then. Dee, good to get

your thoughts on this one. Courtney, retail, you know, we get the tail end of the earnings, and they're pretty eventful. Yeah, exactly. I mean, that retail ETF, the XRT, well underperforming the broader markets today. We did hear from Lulu and Nike, and they both put a better than expected results for their quarters. But the disappointing forecast for both looking forward, that, of course, is what's dragging down shares today. I mean, Lulu limited down almost 16 percent. The CEO, Calvin McDonald, did point to weakness in the U.S. consumer almost at the very top of that earnings call. While Lulu's international sales were strong, up 43 percent in the quarter, mainly in China sales, specifically growing 78 percent. Sales in the Americas gained only 7 percent.

Now, most analysts aren't concerned. They actually advise buying on the share weakness here. But obviously, investors are disappointed. Now, Nike's brand turnaround, we know that's been going on for a while and it continues. Executives there, though, now leaning more into these wholesale partnerships than they did before when direct to consumer seemed to be the entire focus. Nike shares are down almost 7 percent intraday and then shares of luxury conglomerate LVMH down more than 2 percent in European trade. And while

it has not put out results recently, it did put up a record 2023. But I think, Mike, it's getting caught up in this fear about what's going on about the consumer, maybe particularly the high-end consumer, because I know we were just talking yesterday about Lululemon and how it doesn't need to discount in order to sell. And so that, I think, is sort of part of this triple ripple effect fear that's moving even overseas into shares of LVMH, which has historically been extremely strong. That has been, of course, also this week. Didn't we see some weakness in Gucci's parent as well on the pure luxury side? The Lulu thing is amazing because I get it that, you know,

the analysts are saying long term story hasn't really changed right here, but there seems some sensitivity among investors that of the possibility that maybe not just a broad consumer slowdown, but maybe that the brand is no longer as bulletproof as it has been. Yeah, exactly. I mean, there are so many brands that stay strong for some time, Nike, of course, being one of them. And look at where they are now, right? They're not not strong. I mean, they're still a very strong brand, very preferred by teens and a number of athletes alike, of course. But they're still seeing some weakness. And so that is sort of a worry that I think investors have that for some reason, at least right now, analysts don't. And they're looking past it.

But you've gotten some more competitors over the years. Maybe it's an Aloe or a Viore or any number of brand that has their own athleisure wear that has admittedly gotten better when it comes to performance and quality. So, I mean, it's not out of the realm of possibility that Lulu starts to seed some share and the brand momentum can't always continue into perpetuity. Yeah, it's a good test. We'll see, thank you very much. Chris Horvath, you upgraded Best Buy today to an Overway, raised the price target to 101. What are you seeing in the business right now? And why is this opportunity there for investors?

Yeah, Mike, that's a great question. I think at the end of the day, what you're seeing is that the goods economy is starting to come back. You had two years in COVID where we're buying laptops, appliances, TVs, doing all this work on our home at Home Depot. And then we went into this sort of recovery area on the wallet towards services. Well, during that time, there was this big replacement cycle pull forward. We've had negative comps. Now you're seeing green shoots and you're seeing it across the goods categories. You're seeing home decor.

Laptops turned positive for Best Buy in the fourth quarter. That's over two years before they had the last time that they had a positive comp. TV units are turning positive. So the green shoots are emerging. And as you think about it, four years ago, almost to the day, we got locked down and we had to spend all this money on technology to work and learn from home. Well, we're coming back out of it and while they're not comping positive yet, you look to the back half of the year, there's more newness coming on computing on the chip side. That's going to drive higher prices on the laptop side. TV units are already positive, share of wallets back to pre-COVID levels.

So you flip this very sort of thin margin model to positive comps with the cost savings that Best Buy is generating. And you just put a normal mid-cycle multiple. That stock's north of 20% higher from here. And given the re-rating in retail, you could argue that this could actually go much higher, maybe 30% or more. Interesting. Now, you mentioned a re-rating in retail, you could argue that this could actually go much higher, maybe 30% or more. Interesting. Now, you mentioned a re-rating in retail. I mean, get to that a little bit more, where there are these chains that have managed after the pandemic and after a little bit of a hangover to sort of retain a better valuation. Would we be talking about Dick's Sporting Goods here? What other ones? I mean, you see it across the board. It's interesting right now. It feels a little like the back half of 09, early 2010, where you essentially had this

like cyclical Fed accommodative Fed re-rating of all these consumer stocks. It's a little far just because it's not like the past two years were because of a recession. It was because of just give back from COVID. So you've seen share prices move up 20, 30 percent on re-rating. We're now back to peak valuation. All the strong names like Home Depot and Costco and O'Reilly, their tractor supply, they're valued on 2025 estimates already at the high end of their historical range. You've seen a Dick's, a Williams Sonoma basically go from something like six times EBITDA all the way up to like an eight to 10 times EBITDA. And Best Buy, frankly, is lagging. And it's one of the reasons that we upgraded the stock. One element you mentioned for Best Buy story in particular was potential newness in laptops. And we keep hearing about AI laptops is going to be some new kind of twist

on computing. Are you banking on something like that or is it just more or less a refresh cycle? You know, it's really it's really just math and it's and it's both. So refresh cycle started. You're already seeing positive laptop units, positive TV units. You know, this is the most deflationary category in goods retailing because you're constantly marking down old product at a deep discount to make room for new product. When the technology newness is low, you don't get enough bump off the new price. These chip makers are just going to sort of force the consumer to buy higher-priced technology, and that's going to sort of harmonize with better unit growth and drive faster sales growth.

Makes sense. Best Buy up almost 2% today, up almost 5% for the week. We'll see how it goes from here. Chris, thanks very much. Appreciate you running us through that call. As we are in the last 45 seconds of the week trading, you see the S&P 500 just barely below the flat line, but still at more than 2% for the week,

leading to the upside. NVIDIA, Alphabet, Apple, and Amazon, the typical winners. You see some profit-taking in the likes of Visa and, of course, the crack in Nike and Lululemon. Bonds have cooperated post-fed. Yields have come down from about 4.3 on the 10-year to 4.21. Small cap Russell 2000 down 1.2 percent today, but like the other indexes, up more than 2 percent. The S&P is going to be going up at pretty close to a 10% year-to-date gain with one week left in the first quarter. That's going to do it for Coge and Bell. We'll send

it into overtime with Morgan Brennan.