Closing Bell - Closing Bell: Ignoring Mounting Market Risks? 3/25/24

Episode Date: March 25, 2024

Where should investors be looking with earnings looming, interest rates sticky and the Fed urging patience. Adam Parker from Trivariate Research and Meera Pandit of JP Morgan Asset Management give their forecasts. Plus, Reddit shares popped in today’s session following its big market debut last week. Lo Toney from Plexo Capital – which holds Reddit – breaks down what this move means for the broader IPO market. And, Seema Shah from Principal Global Investors is betting on a second half surge. She explains why. 

All right, welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the resilient markets, which are about to notch their fifth consecutive winning month. So are investors simply ignoring mounting risks, or is there good reason to remain bullish on stocks? We're going to ask our experts over this final stretch. In the meantime, your scorecard with 60 minutes to go and regulation looks like this. No big bets either way to start this holiday shortened week. One that sees the all-important PCE report drop on Friday morning, and that's even with the markets closed.

You can see we're pretty much mixed today. Not big wins or losses on either side. Energy, though, is leading the way, much like it has for this month. It's been a mixed day for big tech. NVIDIA higher, but some of the other mega cap names digesting regulatory news, both here in the U.S. and, of course, now abroad. Boeing is one of the big stories of the day on news. CEO Dave Calhoun will step down at the end of the year. Takes us to our talk of the tape, where best to invest right now with earnings looming,

interest rates sticky, and the Fed seemingly urging patience. Let's ask Adam Parker. He's the founder and CEO of Trivariate Research and a CNBC contributor, live as you see at Post 9. Nice to see you. Always good to see you. Do we clear a big hurdle last week for the next leg higher for the rally? Do you think getting through the Fed and Powell was taken to be pretty dovish? I think so. I mean, I think there's three reasons to be bullish. One is the gross margins for the average company have troughed and are going up. Two is the Fed's ultimately going to be accommodative, whether it's two, one, three, it's higher probability than they're not. And I think three is, I think you can create

a scenario where earnings grow for several years in a row and so you grow into the valuation. The bear case, I think, is still the consumer falls apart more than people think. China's a disaster where the whole quantitative tightening is a problem. And I still think the three bull points are better than the three bear points.

And that's the leg we're headed higher. So we're at 5,200. That's called 5,225. You had Oppenheimer go to 55. HSBC go to 54. So, you know, the chase is on. People are raising their price targets as the market keeps chugging along here. What seems reasonable to you for a level that we could reach between now and the end of the year?

I think 10% per annum return is a good base case for equities. Not from here forward, but for the full year or for more than 10? Yeah, I think 12 months forward, you get 10% from here. You know, over the long-term, equities have gone up kind of 12% per annum over time. And, you know, I could see people saying, well, I don't like the starting valuation, but the margins are going to go up. And I think that's what drives multiple expansion. And as we talked about before, there's not a lot of asset class around the world that give you access to the best 20 U.S. equities and the power that they grow. I know what's going to work for the next 10 years. So do you. It's AI, it's software, it's life sciences. You want to be in U.S. equities to get exposure. So yeah, I'd like

10% higher over a year from now. Sure. But even if inflation continues to come down, margins are going to continue to go up. Yeah. In fact, that helps them in many cases because their input costs and their labor costs can come down and they can get productivity. And that might offset price erosion that they have depending on the business. So the way we show up for the top 3,000 U.S. equities we analyze at Triverit, it looks to us like margins trough July of 23 for the median company and already coming up a little bit. And I think that explains part of the reason the equity market's up is margins go up. And it's a bad idea to short stocks where margins are expanding.

I asked the question at the top of the program whether we're ignoring these risks, whether the market is too convinced that three rate cuts are coming, even though that's where the Fed dot plot was at last week. Bostick sort of dialing back his own expectations. He sees one. What if it isn't the three that the market's expecting? Does it matter? No, it doesn't matter. And the reason I say it is because it probably means the economy is good. And I think we're in this pocket, this crazy world where good news on the economy will be good for stocks and bad news will be bad.

And so if they only do one or two instead of three, it's because the economy is in relatively good shape. And we don't need it. I think it'll be okay. What I don't want them to do is the seven that was in the price a few months ago when we were all saying that seems overly onerous. And I think the challenge remains, everyone seems to be analyzing history. And when you analyze history,

you're going to put TMT crisis, the financial crisis, COVID, and you're averaging in something that is unlikely to be where we are today. So I think they're going to be accommodative. I just don't think it's going to require multiple cuts. And if it does, it probably means we go lower first before we get the accommodation. It's not like there aren't any speed bumps potentially in our way. I want to read you something that Goldman's Tony Pasquarello put out. I cite his stuff a lot. Yeah, I like his quote. If I were told in early January

that three of the MAG-7 stocks would trade lower in Q1, that registered equity supply would rise to the highest level since late 21, that core inflation would surprise to the upside for two consecutive months, and in turn, the number of implied Fed cuts for 2024 would be halved, would you have guessed the U.S. equities would do nothing but melt higher? I mean, he's got a good point. Does it need to give, though, at some point? Does all that give? Yeah, sure. The question is just, does it give from way higher numbers? It's a little bit like we talked about, you know, six, nine months ago with NVIDIA. Like, everyone wants to call the top. And then, to me, there's like a perverse sort of arrogance. It's like, I missed

the first $2 trillion, but now I'm going to be God for the next six months forward. I'm going to nail the top. It's going to fall to 20% that I know and everyone else needs to go down. Then I'm going to buy it right at the bottom and ride it up for the next 40% again. This is very unlikely that you could time it that well. I think you need exposure to risk assets. And I think the story is pretty compelling for margin expansion. I hear what he's saying, but I never thought the Fed was going to cut that many times. And I think this maybe is more of a healthy kind of reset to the expectations. Sure. But at the beginning of the year, if you

were told all the things that Tony lays out in his note, you'd have said, I can't imagine that we're going to be setting new record highs for all three of the major averages by, you know, the spring. Sure. But I think the earnings are up. The earnings expectations for 24 are flat from January. The big companies' earnings, top 20 expectations, are up maybe 7%, 8% on net income dollars from Jan 1. So I think there's some, I mean, he knows this. He's a smart guy. But I think there's some counterbalancing.

And I hear what he's saying. Generally, it's earnings in the Fed. And I think we still have that in place on 12-month forward view. It's also why it's, you know, there are more bulls than bears now. Yeah, that's the most annoying part. But, well, because the bears continue to hinge on these facts that he lays out and said, and if all these things are true, there's no way that the market's going to continue to go up and it's all going to come under. I think the flip side would be it's up even despite that that's actually bullish like if you can if you can take all those punches in the midsection and still be standing then what if good economic news happens you think

that's the end you know so I I could see the counter argument too which is markets done pretty darn well been pretty resilient absorbing some of these things and so now I can look maybe a little bit of a cleaner slate forward for the next six months. You've endured a little bit of pain on the energy trade, which you continue to like, and you still do. I do. Now, month to date, it's lead. So it's up 9% energy is. Yeah.

Is energy, materials, comms, services, utilities. That's the four, those are the four best performing sectors month to date. Yeah. And that has fueled a lot of the conversation that, okay, it's the broadening out trade and that tech is going to take a prolonged rest. Are those sectors and that performance, is that the exception or the norm moving ahead? Look, in our portfolio recommendations, we're overweight energy materials. I love oil and copper, and I think it's a nice hedge. So does Goldman today, by the way.

But the issue is more, if you're trying to beat the S&P 500, you've got to own at least a quarter of your portfolio in tech, and you could be overweight owning 8% energy, right? So you're always going to own way more tech. If you ask me what the trends are for the next 5 or 10 years, I know what they are. They're AI, they're software, they're electrification, decarbonizationization, their life sciences. Those are the things, the demographic, you know, tailwinds. They're things that you want to invest in on a 10-year view. From the portfolio perspective, if I'm long AI and software, this is a nice hedge. And I think there are days that I can do okay. Obviously, if you get a day where

NVIDIA and oil are up, then you're really going to outperform the way I'm positioned. But I just, you know, I'm recommending positioning, but I think they make sense to own them. And it's because demand is going to seed supply in the long term. I think the challenge with energy and coppers, I have no idea in a six-month view. It's just so many, 19 variables that got isolated to one. Do you think people tried to write off mega cap tech too soon? Right, because before I left, the whole conversation was, this trade looks kind of ugly, and it may be primed for a long term breather, which in part would fuel the rotation. But there were questions about what the overall market would do. Koston over at Goldman today says continued mega cap exceptionalism could lift the S&P to 6000 because he says, although optimism on AI is high, long term growth expectations and valuations for the largest TMT stocks, which you talked about earlier, are still far from bubble territory.

Yeah, I don't think they're in a bubble territory. In other words, don't get off the ship yet. I don't see how, if the market goes down, that you could tell me that you want to own small caps in the down tape, sustainably. To me, that doesn't make any sense. If you're very bullish on equities, then I could see you saying it's going to broaden because the average company will have margin expansion and it'll go up more than the big companies. But being bearish and calling for a small cap rotation doesn't have a lot of precedent. It only happened in the TMT bubble.

Oh, he's not bearish, by the way. No, he's not. No, no. I'm i'm saying so that more what i get from investors as well you know markets will rich in these guys will take a breather and i'll rotate here in behold in that part i don't really agree with yeah all of the other it may not work um... that we're gonna get earnings coming up to let's bring in their opinion of jp morgan asset management to the conversation sites see you

welcome to post nine uh... do you agree to you differ with adams think is fair to say, pretty bullish outlook for equity market? I think we're still optimistic on stocks for all the reasons that Adam laid out. Look, ultimately, the economy still looks like it's on solid footing. Labor market's still on solid footing. The Fed has really stuck to their guns. There wasn't a huge pivot this time around when we think about what their messaging was around what kind of cuts we can see this year. And underpinning all that, look, if it was just a rally predicated

on the Fed and growth, I would be a little bit more suspicious. But adding earnings growth to that is really important, because even if we're seeing the economy slow back to trend, we're seeing somewhat of a desynchronization in that the profit story is picking up. Even if we don't achieve the lofty profit growth that we expect to see this up. Even if we don't achieve the lofty profit growth that we expect to see this year, even if we get half of that, that's still a lot better than what we were seeing last year. And there should bring more participation into the rally. So the Fed doesn't matter, so to speak, unless they have to hike again. And the chances of that seem to be extraordinarily low at this very minute. Knock on wood, he famously said on March 25th

at 311.07. Well, if you think about inflation, let's go back 18 months. Let's go back a year. When we worried about sticky inflation, it was inflation is going to get stuck above 4%. Well, on CPI, we're getting stuck at 3%. On PCE inflation, we're getting stuck around 2.5%. So we've really recalibrated how much the market wants to get to the Fed's 2% target when the Fed all along has basically said, based on their projections, we're not getting to get to 2% till 2026. So I think the market is very hasty in wanting to get there and thinking about what the Fed needs to do to get there, whereas the Fed's been pretty consistent. I mean, look at their projections of inflation. We are at their projection for the end of the year in

headline inflation. We're two-tenths of a percent away when we think about core inflation. We are at their projection for the end of the year in headline inflation. We're two tenths of a percent away when we think about core inflation. So we don't have to see a huge amount of progress, even if we're just staying where we are today, to get to those three cuts potentially. You think there's yield risk out there if yields remain, you know, if they back up even a little bit further? There's a note out today that suggests that maybe 4.35 on the 10-year is a key level to watch, that that could put some pressure on equities. What do you think? It could. But again, I think if the earnings story overall holds together, that will be helpful. I think inflation will be key to that in terms of seeing that disinflation continue to support margins. But potentially, it's a revenue story if disinflation

starts to hurt revenue. So what I worry about if there is a negative catalyst for the equity market is in three weeks time, we start to get earnings and you hear CEOs and management sound more bearish on the consumer. But I actually don't think that the rates being at four point three five or four point four, which is, again, not really where we think they're necessarily headed, is going to be all that injurious to the equity market overall. I don't think we're too optimistic about earnings moving forward either because in a couple weeks, that's all we're going to be talking about for a month. Yeah, look, three quick things. One is I don't believe that anybody could say, oh, 4.35 is a level that hurts equity markets.

I've heard every level from 2 to 2.5 to 3 to 3.5. I don't think you can empirically show that. I think that's made up. If it works this time, the person will say they're right. But it's like me saying I bought Amazon for Kindle. It's irrelevant. Forget the number. I don't think there's a floor. I think if the economy grows and the 10-year backs up, it's bullish for equities. Even if the 10-year backs up as long as you can see that growth. It should back up if the economy is strong.

How much do you want it to back up? Isn't it already backed up? But 4.35 doesn't seem crazy to me. Does it seem awful to you? At 10, 11% equity return? 4.35 doesn't seem crazy from 4.25. Right. To me, that's a nuisance. It's already an elevated level, though, from what normal is, though. Maybe. Maybe. But if it were 5, I wouldn't panic either if economy was pretty good. I love the word you use. I've never used it before. Desynchronization. That's a long word, but I think it makes sense because a lot of the earnings cycles are not all going at the same time. We're used to like economic cycles, auto, housing, industrials all being at the same

time. I think because of COVID, things are cycling at different times. And that's the reason I think aggregate earnings can hold up okay. I'm not that bearish on earnings. I don't think the bottom up estimates will be achieved. They're always too high. And there may be a little pressure on the second half of the year in industrials in certain areas. We just wrote about that. But I don't think that it matters

as long as I think earnings are growing, right? So to me, that desynchronization thing is kind of interesting because in the past, maybe autos were slowing in housing and everything at the same time. Now housing is still okay while aut OK. Well, we're not getting sort of synchronous contraction that could make me really afraid of an earnings collapse. So as long as earnings are growing, right, as you said, as long as the Fed has stopped hiking. Yeah, if they hike, it's bad. Obviously, it's bad. But I'm suggesting that so earnings don't have to be gangbusters just as long as they're growing. We're going the opposite direction of these three or four consecutive quarters of negative earnings growth, which obviously was a problem. Now we've troughed and we're starting to move higher. That's

good enough, Merit. The bar was set pretty low last year for the majority of the stock market. So as we start to see some acceleration in those earnings, that's going to help more participation. It's not a mean reversion story to us in terms of the market broadening out, or it's not the MAG7 has to start pulling back and therefore other things have to start doing well. It's more a result of, well, earnings in most stocks last year were not great. And as they even start to improve a little bit, that's going to help them participate. And the MAG7, look, when you think about the earnings growth potential there, if we look at quarter by quarter, you're seeing some deceleration in the growth rate, but the growth rates are still strong. So, you know, I don't think it has to be a rotation as opposed to more participation.

And you're seeing underneath the surface, again, a bit more dispersion, too. You know, within the MAG7, you have the best up double digits, you know, the worst down double digits. And that was not something that we saw last year. It's not something that we saw in 2022, and, you know, most of them were down. So seeing some of that really makes the case for being active even within a very small cohort of stocks. I'm trying to remember, I know I'm going to paraphrase, obviously, but when David Tepper famously came on, when the Fed was injecting all this liquidity and cutting all the way down after the crisis, it's like, well, what's going to go up? Everything's

going to go up, right? Because you're just in a different regime as it relates to the Fed. Could we be in another period like that where if we know that the Fed is about to embark on a regime of rate cuts, do you need to be that selective within the stock market itself? So we spend a lot of time on that exact topic in a very quantitative way. More time on that than I spend thinking about whether the market's going up or down. And there's four or five somewhat nerdy things we look at. How much idiosyncratic risk is there? So does stock stuff matter or not?

Are the stocks correlated or not? Is valuation dispersion-wide? Do some things trade at 40 times and some at 10, or are they all at 20? There's a lot of kind of quant things you can do. Our work at Aggregate shows us that stock selection parameters are pretty good right now, actually, and that your ability to pick winners from losers should be pretty good. And I highlight a lot of stocks in our research where I'll see names that I don't see anything in the whole database that looks like this. Really? Can you give me an example? United Therapeutics.

Find me one company that grows faster, has higher margins, and is cheaper than United Therapeutics. There are none. Or stocks that have lower margins, grow more slowly, and are more expensive than, say, Target. There basically are none. Or very few. I think three out of the top 3,000 U.S. equities. So I'm seeing

some opportunities for long and short that make me excited. I think if you get some massive fiscal stimulus like Tepper's talking about on top of the accommodation, then yeah, everything just, it's a rip fast and the lower quality, the better. I don't think that's the regime we're in now. No, no, no. I'm not talking about massive fiscal stimulus. I'm simply talking about don't fight the Fed works both ways. I don't want to fight the Fed. If gross margins go up and the Fed's accommodative, you want to fight U.S. equities, go ahead. Mira, what's your favorite part of the equity market right now, if you have one?

We continue to have high conviction in higher quality, large cap stocks. Again, when you're seeing some more of this differentiation among stocks, you still want quality. You still want the stocks that can stand out. And that has been something that has paid off over the last several months when you look across the market in terms of areas that have done well. A lot of the areas that people were like, well, maybe this is right about to turn around, things like small cap, still tend to lag behind. So I think we want to stick to what has been tried and true and is producing results. The only nuance I'd put on there is I think the quality works in the growth universe,

and growth is two-thirds of the S&P. So in aggregate it works. But in value, you actually want to buy something that looks a little hairy now that you think is going to be quality later. So you're going like two-thirds the high-quality growth, and one-third you hope it improves, and somebody calls it quality later type of portfolio. All right. Well, it's good to be back, and it's great to be with both of you. Great to see you. All right. You guys take care. Mira, we'll see you soon. Adam Parker,

good to have you both here at Post 9. We are keeping our eye on shares of Boeing today, too. That stock is ticking higher today amid a big management shakeup. Phil LeBeau joins us now with those details. Phil? Scott, lots of discussion about the fact that you have Dave Calhoun leaving at the end of this year as CEO, but I want to talk about Stephanie Pope. Who is Stephanie Pope, you might be asking? Well, she was the COO at Boeing, used to run Boeing Global Services. Now she has been elevated to the position of CEO of Boeing Commercial Airplanes. That's important because her job now is fixing the 737 MAX. All of the issues surrounding it. Boeing meeting with the FAA this week as they revise

their MAX protocols. And what do they need to do? Dave Calhoun says it all comes down to slowing things down and getting them right. When you move it down the line, it sends a message to your own people that, wow, I guess the movement of the airplane is more important than the first time quality of the product. And we have got to get that in way more balance, without a doubt. You've been on the board since 2010, 2011. This is not a new criticism of Boeing. This has been out there for years that you guys are about pump the product, pump the product, pump the product, and not enough about quality control. How do you change that? You slow things down.

You catch up. That's Dave Calhoun this morning. Who will replace Dave Calhoun when the new CEO is named? That's up to Steve Malenkov and the board of directors. Malenkov is now the new chairman of the board for Boeing. And one other note, Scott, Boeing and Spirit Aerosystems, they are moving closer to getting a deal done. No time frame for when we might have something announced, but they are moving closer. Scott, back to you.

I appreciate that, Phil DeBow. Thank you very much. We're just getting started here on Closing Bell next reddit surging that stock popping about 20 today and that's following its big market debut last week so what might this signal about the health of the ipo market we will discuss that with lo tony from plexo capital which holds reddit just live from the New York Stock Exchange. And you're watching Closing Bell on CNBC. Welcome back. We're watching Reddit shares again today, surging nearly 20 percent, the third day of trading since the company's IPO last week. Joining me now, Reddit shareholder and CNBC contributor Lottoni of Plexo Capital. No wonder you have a big smile on your face. This debut was good.

It was good indeed. And it's a positive sign not only for Reddit, but I think also for the tech industry and what it might mean for future IPOs. See, I was going to ask you about that, whether this was just an idiosyncratic case of, you know, a company that's been waiting to go public for a while that finally did, and there's enough demand out there for it, or if it does really mean blue skies are ahead for the tech IPO market. You know, it's something that had been in the works for so long. I mean, Reddit has had a really long road to the public markets, but it's here now. I think everyone's super excited. But I do want to follow up on your question. I think this is the question everyone is asking.

Does a successful Reddit IPO mean that the entire IPO window is open? And I think it remains to be seen. But one thing that we do know with certainty is that there was a lot of investor appetite during the roadshow for Reddit. And we see that it's continuing to hold up well. So clearly the market is signaling there's an appetite for more companies to come to the public markets. But, you know, there's some dynamics that may make that happen that may not make that happen. You know, I think we need to probably see a few more names enter the public market and for some of these companies they've

they've raised a lot of money and so they may not necessarily have that financial need and at the same time there are instances where the last private market financing may be higher than what the public market will accept as a public company valuation. But let me ask you about Reddit a couple more things. Volatility in the name, as I think about it, do you think it has the risk of what we witnessed during some of the meme stock mania? You may have some of the same types of investors in this name that could

heighten volatility. Do you think about that at all? Is that way off base to even think about the kinds of trading in this which existed then? I don't think it's off base, Scott, and I don't think so because if we really think back to GameStop, you know, Reddit is the place where a lot of the activity happened to be able to make those stocks very volatile. So I don't put it outside of what could happen. I mean, that's obviously a risk. And I would even say, you know,

the sentiment was a little bit mixed in some of the forums. You know, people, some of the people in the forums are really excited. I think some of the people in the forums were maybe a little bit negative and for multiple reasons. One reason is because, you know, look, let's be real. When we think about how Reddit makes money, it's monetizing the content of others. And, you know, I think there may be a little bit of negative sentiment around that. But overall, everything looks good. We probably would have seen more of that negative backlash if we were going to see it.

We probably would have started to see it by now. But you never know. You never know how these forums are going to play out. You're obviously locked up from doing anything in the stock. Do you feel as though you're a long term shareholder here? Well, at Plexo Capital, our primary focus is investing into the best companies and the best venture capital funds in private markets. So we're holding only because we're locked up and, you know, we're not trying to make a play on public markets as to where the stock price might go. That's not where we play. OK, let's talk big tech, most specifically the regulations. You have DOJ versus Apple. You have the EU, you know, probing three companies today, Apple, Google and Meta on the Apple thing. First, I'm wondering how you how you view that in through the prism of most things that I read over the weekend, immediately went back to Microsoft.

And I feel like any time that we discuss any sort of probing of these big tech companies, we always come to the same end point, which is they'll just pay a fine. And it's not that big of a deal. It's not material to the business. That's why the stocks don't react all that much. But then when you get to the heart of the matter, as some have raised in the articles that I read, especially with Apple and the DOJ, it's the great distraction that this activity causes, and that's the biggest issue of all,

not necessarily the outcome. How do you view that? I think that is the right insight to have. When people think back to the Microsoft case, I think one of the things that people should think back to was a comment that Bill Gates made. And if we remember, you know, and even think about how these cases typically play out, often they're looking backwards. And the place that the Microsoft case was looking backwards to was how it got to the point where it dominated the operating system. And so that's what the case was focused on. point, it caused such a distraction that in his mind, in Bill Gates' mind, it helped contribute to him not being able to focus on the opportunities that were on the horizon looking forward,

specifically around mobile, around music and digital format. And those were areas that we know Microsoft missed. Now, Microsoft obviously has come back, but I think if we were to really look at what Bill Gates regrets, I think he regrets not being able to focus looking ahead as he had to focus on this case that was really looking backwards. And as you say that, I'm thinking about, you know, so he is suggestive that,

you know, they missed out on these transformative trends that were taking place within the technology universe. And now, obviously, we're talking about AI. And so we expect Apple to come to the plate with something substantial probably this summer. They won't be first mover. They won't be first conversation grabber. So I'm not going to sit here and suggest they're behind because they're a different kind of company with different kinds of products than, say, an Alphabet or a Microsoft. But it speaks to exactly what Gates himself was speaking about, burgeoning new trends and being distracted by something else at a most critical time. That's exactly right. And I don't discount Apple's ability to be able to make something transformative. And, you know, this is kind of Apple's playbook.

You know, they're not necessarily always first or at the forefront. I mean, they take a very measured approach. But nonetheless, yes, I mean, even though we'll see that Apple will have a complete staff of internal employees, some external folks, mainly from law firms. It won't completely insulate senior leadership from being a little bit distracted by this at a very important point in time when they do need to be looking ahead to how they're going to integrate AI into the next generation of phones that will come out, you know, next year or so. Lo, I appreciate the insight, as always. Thanks. We'll talk to you soon. Thanks for having me. Yeah. Plexo's Lo Tony joining us once again on Closing Bell. Up next, banking on a renewed rally. We'll speak with a top strategist about how she is

trading the months ahead and how investors should be positioning their own portfolios. Closing Bell's coming right back. Stocks taking a breather from last week's record highs to start the short and trading week. My next guest says, while investors should expect more volatility for equities in the coming months, a renewed rally is in the cards for the second half. Let's bring in Seema Shah of Principal Global Investors. Nice to see you. Welcome to Closing Bell. Thanks very much. Great to be with you. What fuels this rally in the second half? Well, I think there's a couple of factors. I mean, this is a very, very strong environment for risk assets. So we're looking at a continued economic expansion. We are expecting a slowdown in growth, but we're certainly, it doesn't look like there's any indicator of recession around the corner. And then when you combine that with rate cuts, historically, there haven't been many instances of this.

But when you have had a period of a soft landing, so solid economic growth, and then you've had rate cuts on top of that, rarely do you get such a strong environment for risk assets. So we do think that second half of the year is going to be a particularly strong one. How reliant are we on the Fed? I mean, the market's had this incredible ability to go from, you know, pricing in six cuts. Now we're pricing in three cuts. And even some of the, you know, speak we've gotten today is casting doubt on whether we'll even get to three. How much of it matters? It does matter a bit. Right. So I think for the broader market the broader market can exist as long as there is strong growth i mean that has got to be key because the earnings has to be there um however when you start to look at pockets of the market so some of the cyclical

areas the bits that didn't do so well last year um they are very much dependent on the fed cutting rates i'm thinking about small cap value some of the more cyclical areas. So, for those areas of the market, which we are quite positive on, but that is very much dependent on the Fed really delivering those rate cuts. We have to remember as well that, look, there's a kind of different shades of how the market could perform in a very, very strong environment where you don't get rate cuts. That's fine. But if it's seeing there's an inflation resurgence, that would be a particularly negative state of affairs. Certainly, that's not, of course, what we're hoping for.

Expand a little bit further on what you said. So you're positive on small caps. We are. So we know, I mean, of course, small caps, they haven't had the best performance so far. They have been outperformed by the large caps still. But typically, when you are seeing strong growth environment, and then you've had rate cuts on top of that, those small caps, which are also showing really attractive valuations relative to the large cap space, they can perform well. So, we do think there'll be volatility in the near term.

They almost need to have the rate cuts becoming very visible and that the market is very certain. So, no more of the debate of, you know, will they, won't they? But once there is clear certainty, then we do think that should be the green light for small caps to start to outperform. But I want to say, look, this doesn't mean that large caps are not going to perform well. We still have a particularly positive perspective on those large caps. It's just that we think that the small caps can actually join into that rally. What I find interesting, too, from the notes that I'm reading is your positioning remains overweight in equities and fixed income funded by an underweight in cash, right? This idea of moving cash out of money markets as that trade maybe gets a little

long in the tooth if we think that rates are going to come down and that now's the time to play both fixed income and equities. Yeah, absolutely. And this is really important for investors out there to start thinking about. You know, there's six trillion sitting in money market funds. Of course, not all of it is going to come out into risk assets. But investors have been sitting on that cash over the last few years because they haven't been sure

about what the economic environment is going to bring to them. They haven't been sure about what the Fed is going to do next. Well, in 2024, you're probably going to see a lot of those questions being answered. As I said, economic expansion continuing, plus rate cuts. So we do think that that's going to be the time where you start to see this push away from money market funds into risk assets. And it's really important that investors get ready for that. And as I said, that is down to

risk assets such as equities, but also within the fixed income space on the credit side, so investment grade and high yield credit. Some of the other developed markets around the world have gone virtually sideways. They certainly haven't performed to the degree that the U.S. stock market has. Is there a catch-up trade to be had, or does it just underscore stay with the U.S. because it's undoubtedly the best? So we are expecting the U.S. to be the main outperformer for this year. You know, it does look like it still has the strongest growth profile. It may not have the most dovish central bank, but as I said, we should see the rate cuts pushing along as well. And then, of course, it has the tech sector.

So for many reasons, the U.S. does look particularly strong. But there are pockets around the globe. If you think about Latin America, where the equities are extremely relatively, extremely attractively valued, probably the cheapest that they've been in the history that we look back since the early 1990s. On top of that, you have the fundamentals where their central banks are cutting rates. They have fairly strong growth profile. And on top of that, they have kind of keyeded into some of the secular drivers around reshoring. So there are a number of other markets out there. But at the moment, the one that we're looking at the most is, of course, the U.S. at this stage.

We'll leave it there. Seamus, nice to see you. Seamus Shaw joining us here on Closing Bell. Up next, we are tracking the biggest movers as we head into the close. Christina Partsenevelos is standing by, as always, with that. Christina. Well, we have two high flying assets back in favor today. What's driving Bitcoin and Supermicro higher? That's next. We're about 15 from the closing bell. Let's get back now to Christina Parts of Nevelos for a look at the key stocks she's watching. Well, I'm going to start with Bitcoin because it's once again hitting fresh highs of over $70,000 as March comes to a close.

And that has sent stocks like Coinbase, Marathon Digital, MicroStrategy soaring higher today. You can see a sea of green. MicroStrategy up 21 percent, Coinbase up eight and a half. And it's been quite the month for crypto. Bitcoin hit an all time high of over $73,000 March 14th before dropping dramatically to just under $61,000 last week. Big roller coaster and who knows how long this pendulum will keep swinging. But for now, crypto related stocks, as you can see, are enjoying the upswing. iFlying tech name Super Micro Computers also on the upside today after J.P. Morgan initiated coverage of the stock with an overweight rating.

Analysts said the company, which specializes in providing server and storage solution, especially on the power side, still has a lot more room to grow thanks to the AI boom. And a stock that's over $1,000, shares up almost 9%. All right, we'll see you in a few minutes in the Market Zone. Christina Partsenevel is still ahead. Disney shares are popping. We're going to drill down on what is sending that name higher and the latest drama in the company's big activist battle, too. That is coming up. Closing bell.

Coming right back. Up next, shares of Intel slipping amid some big changes in China that could impact chip stocks in a major way. We're going to tell you what's at stake and how the rest of the chip makers are reacting today. 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 the crucial moments of this trading day. Plus, Julia Borsten on what is behind Disney's move today. And Christina Partinevalos on new guidelines from China that could hit the chip stocks. Michael, I'll begin with you.

It's sort of an odd week that we're beginning. Yes, it's the last of the month, but you get PCE on Friday. Market's closed for Good Friday, so we're going to have to wait to react to it. Yes, for sure. It doesn't seem like there's a ton in terms of the known macro catalyst. So that being the case, it's really about how much we're up over various time spans and whether that tells us that, you know, we have further upside to go. In other words, is strength begets strength or is a payback time? Every single thing you look at, how many times have we got 100 days without a 2 percent pullback? How many times have you been up five straight months? How many times have you been up

10% or so in the first quarter? All these things, you line them up and they say something similar, which is you probably shouldn't be surprised if you have a little chop in the short term and maybe you have a random pullback, but almost overwhelmingly, you get 85, 95% of the time you're up six to 12 months later. That's all you get if you look at that. Even recently, it's like every time it's felt like payback time, it hasn't materialized more than a little bit. Exactly. And so the market itself is telling you this is not how it behaves at an ultimate decisive damaging top. That being said, I still have a feeling that you'd be really lucky not to get something a little bit more scary or a little bit more that gives you pause in terms of how the

market reacts to whatever happens with macro. I could even see at random air pocket, people say, oh, people are paying their taxes. Here comes April 15th. You get these seasonal wobbles. And the question is, does it turn into something more or is it just just kind of, you know, grinding higher on this slow escalator? Earnings season around the corner. I mean, we've got 20 new highs year to date. That's a crazy pace for the first quarter. Yeah, I mean, I think Disney's at a new high, new 52-week high today, right, Julia? Disney up nearly 3% today.

This bolstered by Barclays upgrade to overweight. The firm raising its price target to $135, laying out its bull case with three main today. This bolster by Barclays upgrade to overweight. The firm raising its price target to one hundred and thirty five dollars, laying out its bull case with three main points. The first, the streaming business could break even sooner than expected. Second, they see revenue synergies from international networks and they say the India business will become a tailwind over time. And third, the theme parks, which are seeing normalizing operations. Management guidance indicates accelerating strength in the parks despite some tough comps. Meanwhile, Nelson Peltz's Tryon is withholding its votes for CEO Bob Iger's reelection to the board, which is in contradiction to the company's proxy recommendations and also in contradiction to Peltz's comments about wanting to work with

Iger as well as Disney's management. Now, that proxy battle culminates in the shareholder meeting, which is coming up next Wednesday. Scott? All right, Julia, look forward to that. Julia Borson, now to Christina Partsenevel, who's watching chips in China today. What do we need to know? Well, China's blocking the U.S. are the use of Intel and AMD chips in government computers. This, according to the FT, bringing to light a December 2023 Chinese government document that lists a bunch of CPUs suitable for use by locals. AMD and Intel didn't make that list. Beijing also aims to phase out Microsoft's Windows operating system and Ford-made database software in favor of local Chinese options.

You know, for example, Huawei, even if these local options are a little bit less advanced than American options for now. Intel and AMD told me they wouldn't comment. Neither actually break out the revenue stream specifically for Chinese government. But you can see the impact on Intel shows right now negative compared to AMD. And that's because Intel is considered to have a larger exposure to China. Bernstein actually estimating Intel could lose over a billion dollars in sales if this actually works and goes through. One beneficiary, ARM, some of the approved local chip shops actually seen actually estimating Intel could lose over a billion dollars in sales if this actually works and goes through. One beneficiary, ARM. Some of the approved local chip shops actually use chip processors powered by ARM cores. You can see ARM is trading a little bit higher today. ARM also has

a very large presence in China, so that could be a card, too. The Beijing crackdown, though, could be spreading. The FT reporting that state-owned enterprises are next and will have to phase out American chips by 2027. But I'd like for our audience to remember China tried to block U.S. equipment back in 2019 and failed to do so. This isn't necessarily the end all just yet. All right, Christina, thank you. Christina Partsenevelos, I turn back to Mike Santoli since we're talking about the chips. I keep looking at the chips to see if we're going to see significant signs of something that's been up a lot rolling over. And, you know, NVIDIA teased you a little bit that maybe that was coming and not so fast because it had this rebound like everything else did.

It's held. I mean, it's held near the highs. There hasn't really been much of a refresh in terms of a real correction. What is interesting, though, is how concentrated the strength in chips has been this year. The XSD, that's the equal weighted semi ETF, is like flat year to date. It's up the same as the utility sector is. And so you still have this effect, even though the market's broadened out, even though you have a lot of old economy stuff working, it's still about like the winners versus everything else. Basic materials, actually, it's it's up like, I don't know how many, 10 weeks in a row.

It's a crazy number of weeks that materials is up. And so you see these little sleeves of the market getting potentially overheated, like construction materials and some chemicals of all things. And it's great if that means global growth is picking up. And all of a sudden we have this tailwind in terms of the economy. If it's reflationary, then maybe we get a little bit of pause. The bond market doesn't really treat it as alarming just yet. Let's see what this month's trade becomes, whether it's the exception or the rule for a couple of months ahead.

Being energy, best of the month. You mentioned materials performing well. Tech's like number six. Sure. So let's see what happens from here and determine whether really a new trend has started. Apple is so big within S&P tech that that's Apple that's doing that. But yeah, you're absolutely right.

It's, you know, it could just be this sort of interval of mean reversion. And we stretched it pretty hard in terms of the growths per trade. Now the overall S&P, 15% above the 200-day average we clicked to last week. Usually that means stuff ought to slow down a little bit or something's gonna come along to destabilize it. But not yet, it's kinda low volume cruising to the end of the quarter for the moment.

Yeah, we do have certainly one-line FPC even though the market's going to be closed. We'll get to session lows or thereabouts as we ring the bells today. I'll see you on the other side. See you tomorrow. Closing bell ends now in OT with John Ford.