Closing Bell - Closing Bell: Inflation Risk, Quantum Stocks & Bank Earnings 01/14/25

Episode Date: January 14, 2025

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

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 road ahead for stocks amid rising rates and a pickup in volatility as well. We'll ask our experts over this final stretch how to navigate this changing market environment. In the meantime, we'll show you the scorecard here with 60 to go in regulation. We do have the Dow now green, but the S&P 500, Nasdaq still red. A cooler than expected PPI initially sending all three of the major averages higher today. Yields, they didn't budge that much, and that's probably why we look the way we do. There's the 10-year below 480. Got to watch the 30-year too. I mean, both

the 10-year and the 30-year yield were higher today. We do have some standout stories to highlight for you. Lilly shares are lower after their guidance was weaker than expected. Stocks down 7 percent. KB Homes, well, they're higher today on its earnings beat. And Signet Jewelers down sharply after cutting its own sales forecast. We'll watch that stock. Look at that. Down more than 20 percent.

It takes us to our talk of the tape. Can stocks still turn in a strong year if interest rates stay elevated and the Fed stands pat for several months? That is a key question. Let's bring in Dan Greenhouse of Solus Alternative Asset Management, who hopefully has the answers for us. What do you think? I think clearly you have a little bit of indigestion right now in the market with yields going up, not just to the level to which they've risen,

but the speed at which we've gotten here. But I think we've seen this story before. And on the assumption that yields are going to top out somewhere in the 475 to 5 range, and it's a longer conversation for why that is, then presumably whatever equity rally that we've been experiencing is likely to continue doing so. At least that's my expectation. I mean, is that what you think about yields, that they're going to run out of steam? They're not going to cross 5 percent?

Is that sort of the danger zone, the line in the sand for this market? Well, we always knew as rates were running up that the danger zone, if you will, was in the upper fours. And I think you're seeing stocks wobble. Obviously, the headline index is down a bunch. The equal weighted index is down, call it twice as much, indicating obviously there's some additional weakness beneath the headline. But with yields moving up, you have to ask yourself why that is. And a lot of it has to do with the repricing of the Fed. Some of it has to do more recently with worries about inflation, break even seem to be moving a little bit higher. And we can debate whether that's good or bad for stocks. But I think there's a limit to how far that's going to run, because I think you're not

quite at max pessimism on that front right now, but probably coming up on it. All right. Goldman's Tony Pasquarello had a note today which sort of speaks to this, and I want your reaction to it, in which he says, quote, the character of the trading environment has changed and the distribution of potential outcomes has seemingly widened. Market participants are actively debating the sequence and impulse of Trump 2.0 policies, as well as the attendant path of monetary policy. And with all that comes some friction that manifests in portfolio risk reduction. He says higher volatility is likely here to stay for a bit. You agree with his assessment

of what the landscape looks to be now that the trading environment has changed the character of it? I think that's probably true for the immediate future, but to repeat my position for viewers who may not know, I'm deliberately, qualitatively taking a little bit more of an optimistic view on things. And you have been, largely, for a while. Sure, but with respect to the incoming administration and the policies, I think the view is universally that tariffs are bad, going to be inflationary, etc cetera, et cetera, that any immigration crackdown is going to be bad, is going to be inflationary, et cetera, et cetera. I'm taking a little bit more of an optimistic view of that, partially rooted in some data and some analysis, but also just like I'm going to take a qualitative view of it. he's getting at. But I think over the first quarter and maybe into the second quarter, as a lot of this becomes clear, investors will be able to ascertain exactly what it means, how much is going to happen, where it's going to happen, what any rebuttals might be from

external countries. And you can begin to incorporate that into your analysis. So you're still largely positive on the overall run of the market? I am still positive on the market. I think investors should be as well. All right. Well, I mean, Rick Reeder is a BlackRock who was with us on the program yesterday. I want you to listen to what he told us about, you know, where he thinks the outlook for this market really is. And especially the Nasdaq, too, which he's liked for a long time. Mega cap stock, which, you know, these stocks have been upset now as rates have risen. But let's listen to Reeder.

We're still moderately long. And I think I still think if you look at tech and the return on equity, the stock buyback and the amount of cash that's out there, pretty hard to see the equity market not finding its footing and having a decent year, not like last year. So so you would be a buyer on the dip of the Nasdaq, for example? 100%. 100%. 100%. I mean, he said he thinks stocks, you know, be more volatile and rates can still go up on the long end. You could still do 15% return this year, which I think a lot of people would be really happy with. Sure. But my price target, to the extent that I have one, is call it $7,000, which is still on the not super optimistic side of things.

But I rarely disagree with Rick, and I don't there. I think the underlying economy, not I think, the underlying economy is still holding up quite well. We just saw this with the jobs report, weekly jobless claims. Real wages are positive. And with respect to the market, Rick made the point, the tech stocks, the balance sheets are extremely clean. The investment story is still there. We're still waiting. Everyone seems to be waiting for some headline that the AI story is overblown or perhaps we're overbuilding.

There's no indication as of yet that that's going to be the case. Certainly, we have NVIDIA's earnings to tell us perhaps otherwise. So I think a lot of those stocks, the stories are still fundamentally strong. Now, we've seen Qualcomm and Adobe and Intel, which is dealing with it. There's been huge drops in some of these stocks. AMD, Micron down 30, 40, 50% from their highs. If you believe that a lot of those stories remain intact,

then this is a tremendous buying opportunity. And I think you're doing a disservice. The Royal U are doing a disservice by looking merely at the headline and saying, well, stocks are down three, four or five percent from the highs. I think that obviously misses the larger story. All right. I mean, you mentioned earnings, which are obviously going to be a big story starting with the banks. And on that note, let's bring in Leslie Picker. She obviously follows the space. And you are sort of debating, if not looking at what you call the $185 billion question. Explain. Yes. So as you know, Scott, we've talked about it a lot on this program. Bank stocks have really

come full circle from their post-election glow, where the prospect of deregulation sent the sector soaring. And even as gravity has taken hold in recent weeks, looser capital requirements and what they mean for buybacks remain an open question here. So about that $185 billion figure, well, Goldman Sachs estimates that's the amount, some of which that could be returned to shareholders. That's the amount of excess capital if banks were required to hold less of a buffer against a shock. Now, over the last year, plus, banks have been hoarding capital despite the stronger economy due to the expected hike from the proposed Basel III rules. Under the new

administration and with pending turnover in the Fed supervisory role, it's highly unlikely that new rules will be far, or it's highly likely that those rules will be far less onerous. As a result, Goldman says the industry could repurchase 4.5% of its market cap in 2025. The firm estimates that banks will have $90 billion in excess capital if Basel III were just to be about 50% as tough as it were originally proposed. And says JPMorgan, PNC, and U.S. Bank have the highest capacity to buy back stocks. Scott? All right, Leslie. Appreciate that.

That's Leslie Picker. Now, Courtney Garcia of Payne Capital Management and Brian Leavitt of Invesco join us now. Courtney's a CNBC contributor. Let's discuss this. It's good to have you guys with us because the rubber meets the road. OK, tomorrow we start getting earnings. It's going to begin with the banks. I looked at Bank of America securities equity flows and clients are still buying stocks for 10 weeks in a row. And now they're focused on health care and financials. Should we be as well? Yeah, I actually I think financials look really good here. And I think the focus has been on rates being higher for longer. But I think there's a lot of things that

will benefit the banks for. First of all, you have a steepening yield curve, which is going to be beneficial for them. But also, if we get past the higher for longer rates, I think what's going to be more beneficial is this M&A activity, which is expected to increase here in 2025 when we get into a new administration. And that's where something specific like a Goldman Sachs with their investment banking revenue probably is one of the better banks to position for that. So I absolutely think you want to take advantage of the banks here. They are trading at good value here. They're likely going to be increasing dividends. With the buybacks, I think Leslie brought up a great point about that. For a lot of reason, I would stay in the banks here. They're likely going to be increasing dividends with a buyback. I think Leslie brought up a great point about that. For a lot of reason, I would stay in the banks here. Yeah, I mean,

financials are one of the better performing sectors today in what's a pretty uneven, if not mixed day. What do you think? It has been a mixed day. And, you know, we got a reasonable producer price index report and hopefully the consumer price index comes in in line with expectation tomorrow. And I mean, the reality of all this, Scott, is that we had a market that was expecting lower rates that had priced in a lot of rate cuts over the next year and how to back it out. And the good news is for the optimists out there, including me, is we've basically backed out the rate cuts for this year, perhaps all but one. We've had a pretty significant bear steepening of the curve. And I agree with Dan.

I don't think interest at some point rates get too high. You start to slow things down. So the solution to higher rates is higher rates. So we've done all of that. And yet the markets, the broad market peak to trough down, what, 5 percent equal way to Dan's point a bit worse. But we've done that. So the question is, how much more policy uncertainty are we going to get here? I think the producer price index report helps. The consumer price index tomorrow should help as well. So let me let me ask you this, because I feel like you've been pretty positive on the market for a while. Yeah. So can you be as bullish today as you were in September as rates are up more than 100 basis points since the cut. And projections have changed dramatically for the Fed's road ahead and also the trajectory of rates.

How does that match up? Well, these markets are going to trade now on whether things get better or worse. So we've seen the big move in rates, which clearly has not been good, similar to like we saw in 2022. Now, what you need to see going forward is inflation staying within the comfort zone, break evens coming back lower, yields coming down. As long as that's getting incrementally better, then that should be a good backdrop for markets. But if let's just say if if there were questions about the valuation of the market, then, yeah, OK, the dynamic on rates has changed, which theoretically would put more pressure on the multiple. So do you need to change your own view of the market as a result?

I'm trying to get from where we were to where we are and how sentiment I don't feel like has dramatically changed to reflect what's happened. Well, we're working our way through it. I mean, we hadn't had policy uncertainty for a long time and markets adjust. You get volatility almost every instance there's policy uncertainty. Now, with regards to valuations, the good news is if you look at an equal weight index or you look at the median stock, it's not overvalued. It's generally trading in line with averages, broader market. Sure. So, yeah, when you're at four or eight, that's a different backdrop. But but the markets are moving to respond to that. My point is to say going forward, if things get incrementally better,

similar to what we saw at the end of twenty two into twenty twenty three, you'll be back in a better market backdrop. I mean, the the the big change, obviously, and you know it as well as anybody, because we sat here together on election night. So you had the September cut, you had election night where the outcome was potentially different than many had been figuring it could be, certainly in the waning weeks of the campaign. So maybe the optimism around this new administration and figuring you're going to get deregulation, you're going to get animal spirits on deals, you've got a different FTC, you're going to get tax cuts, you're just going to get a friendlier environment around business.

Not to mention the fact of what Dan said, you're already inheriting what is a strong economy. Now you're going to gas it further. So maybe all that offsets whatever the concerns are around tariffs and these rate changes that have happened and the Fed's slower pace forward. Yeah. And I think that is that is the reality. Right. I mean, markets really ramped up after the election and then they come back down because inflation and interest rates have come back in focus. But the story of deregulation, the story of lower taxes has not gone away. I think it's just kind of sat to the sidelines here. And I think at this point, really, we've gotten past the election. We know who's going to be in office, but we have not yet gotten to inauguration day. So really, markets are trying to price in what was spoken of in the campaign trail, not what has actually happened. So I think that's what a lot of the markets are waiting for. But I think both things can exist. There are still inflationary

forces. I think you want to be prepared for that as an investor. But there's still a lot of really pro-business forces. And the question is, can they weigh each other out? And is the deregulation and the lower taxes going to offset the higher inflation? I think that's the question, which markets are hopeful. Yeah, you put it on a scale and you sort of figure out which is going to outweigh the other as we get more information on what's actually happening. Back to the conversation in a moment. But I do have news developing around Microsoft. Pippa Stevens has that for us. What are we learning here, Pippa? Hey, Scott. Well, Microsoft plans to pause hiring in part of its U.S. consulting unit as a broader cost-cutting

strategy, according to an internal memo reviewed by CNBC.com. This does announce some job. This does follow some job cuts that Microsoft did announce last week. Now, according to the memo, it also instructs employees to not expense travel for any internal meetings, saying that they should use remote sessions instead. And this does follow Meta saying earlier today in a memo that they will cut back on 5 percent of their workforce. You see shares of Microsoft now down more than 1 percent. Scott. OK, but thank you. That's Pippa Stevens. We'll follow that. I mean, you take this as just companies getting a little bit leaner or something to keep in the back of your mind about, you know, cutting travel related expenses and things like

that and say, well, maybe these are the earliest signs of maybe the economy just slowing a little bit. No, no. Twenty twenty five is the year of efficiency. And I think that's that's what's clearly 2.0, 2.0. That's right. Listen, we know all these companies still have massively larger headcounts today than when compared to pre-COVID levels. And so some culling of the workforce, if you will. One of the headlines was we were firing the lowest five percent of producers. I forgot who that was. I don't think that was meta. Maybe it was meta.

I don't, year of efficiency 1.0. I don't read anything into this from a macroeconomic sense. These companies should be getting leaner. You should be getting rid of your bottom performers every year. And so in that sense, when you employ tens of thousands, if not hundreds of thousands of people, it's something that you're supposed to be doing when you're trying to just sort of be as rational as you possibly can. But I want to get back to the market real quick and just say, to the point we've been talking about, in the short term

here, with respect to yields and inflation and the stock market, if the 10-year is going to get up closer to 5%, and momentum certainly suggests that- What do you mean closer to 5%? It's like 4.8. Well, another 20 basis points. But if you were to get up to 4.95% or so, I'd like to see the stock market trade down to its 200-day moving average, which is about 4% lower than where it is now. That's a top-to-bottom decline of about 9%, which is pretty substantial, not inconsiderate, and I think would do a lot in terms of setting up the rest of the year for the types of gains that we expect. Would you guys be buyers of that, Brian? I mean, if you do have some sort of continued rate increase, stock market gets a little bit more upset about it.

You get some tariff headlines on January 20th at 1230 in the afternoon, right, once the address is taken and President Trump is in the White House again, would you be a buyer of it? I would be a buyer of that and I would be a buyer of the 5% yield, right? And so the only way that this gets derailed is if the inflationistas are right and inflation really reaccelerates and the Federal Reserve has to clamp down on it. This adjustment that we're seeing around policy uncertainty because the growth trajectory is too strong, that's okay so long as inflation doesn't break out. There's no evidence, and you're not saying this, but there is no evidence. There is no evidence. You're not. And you see a little bit of it in the break-evens.

I've been saying the irony is the last time we went through a trade conflict, the Federal Reserve lowered rates on the other side of that because business investment went down, growth deteriorated, and the Fed came in and lowered rates. So I would argue that the bigger risk here is that if there's an extended period of policy uncertainty, it may hurt growth, which would be okay because the Federal Reserve can re-engage rather than leading to this inflation environment that people seem to be concerned about right now. Court, you want to weigh in on that? Yeah, and I think really what the bond markets have been telling you

since the Fed started lowering is the Fed does not need to add stimulus into a good economy. And I think that's the question is, did they even need to cut in the first place? And the economy has done very well with these higher rates. So I think them staying at this level is not a bad thing for markets. I think the conversation you're hearing more of is them potentially increasing interest rates. I don't think we're there yet, but I think that would be a bigger conversation for the markets. That would be a game changer.

Game changer. Than them staying where they are. I just want to say, so I was on air with you, and Brian will know this, no offense. Courtney, Brian will definitely know this. I don't think you're reading the Fed minutes as closely as Brian. That's all I'm insinuating. Maybe she is. How do you know that? I don't. I'm generalizing. I apologize to the Brian. That's all I'm insinuating. Maybe she is. How do you know that?

I don't. I'm generalizing. I apologize to the viewers. That's a bad generalization. I'm sorry. Maybe you're both aware that in September of 22, the Federal Reserve put out that Fed meeting had their first projections for 2026. And in those projections, they basically were telling us that inflation was not going to get back to target until 2026. That was the first time they officially said it.

What they also effectively said in the report that was released with the press conference was that they were not willing to raise rates enough to bring inflation back to target sooner than 2026. And that was in 2022. So they told us already that they're not willing to damage the economy enough to bring inflation back to target. So to the point both of them are making about, well, rate hikes are perhaps back on the table, I take the other side of that entirely. They have already said they're not willing to do it. They weren't willing to do it then. They're not willing to do it yesterday. And they're not willing to do it tomorrow. So while higher rates for longer than the market originally anticipated should be your base case,

and it certainly is the market's base case right now, I really, at this point, I don't see any reason why they would hike rates. No, and actually, I agree with you. I think we're making the same point here, that markets can do well in this higher rate environment, just where they are now, right? I mean, I think at this point, markets are realistically saying there's maybe one cut this year, maybe none at all. I still think rates are premature, but you're starting to hear that conversation more.

And that's what I think that is becoming more realistic than them cutting more often than we realized. Any other commentary on what people might be reading, how closely or not? I am going to say that everyone is wonderful and equally smart and talented and capable. And I apologize to everybody everywhere. Okay. Good. Because that was needed. Dan Greenhouse.

Thank you, Courtney. Brian, thank you as well. Let's send it to Christina Partsinovelos now for a look at the biggest names moving into the close. You think Instacart is just another delivery app? Well, I think, again, according to Mizuho analysts who say Maple Bear, which is the parent of Instacart, is underappreciated in the grocery delivery space. They point to a massive supplier network and deep technology integration with groceries across America. BTIG also likes this name and upgrades the stock to buy from neutral. You can see the stock actually just trading within a $46 range all day today when these two notes came out. Switching gears, Boeing falling but recovering from lows in the earlier session, earlier in the session as airplane deliveries actually fell in 2024 to 348.

That's down over 30% from a year ago. And it also widens the delivery gap with Boeing's biggest rival, which is Airbus, which delivered 766 jetliners just last year. But keep in mind, supply and production both weighing on both these names, Boeing down about 2% today. Scott. All right, Christina, thank you. Christina Partsenevelos, we're just getting started here on Closing Bell.

Coming up next, the dean of valuation, Aswath Damodaran, is mapping out where he is forecasting opportunity this year. He'll tell us whether he thinks stocks are too expensive or not. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. All right, we are back. Quantum computing stocks pulling back to start the year following a monster run, to say the least. So is it time to bet against those names even further? Kate Rooney is here with more.

I mean, some of these stocks, what was it, last week, midweek, were down like 40, 50 percent in a single day. Yeah, it's got double digits still at this point. And as far as shorting these stocks, it has been a much better year for those shorts so far, at least. So you saw this 500 percent on average rally in quantum stocks last year. The biggest names in this sector, think of Rigetti, IonQ, they're down, as you mentioned. It's an average of 35 percent. That's after comments a couple of weeks ago from Jensen Wong. And then more recently, Mark Zuckerberg, both pouring cold water on the hype and the near-term potential of this tech.

According to data from S3 partners, short sellers are up about $760 million in marked market profits, recouping more than a third of last year's losses. Last year, bearish interest in these names soared more than 300% to $2.7 billion. And as S3 puts it, the shorts showed unwavering levels of conviction, even though their P&L statements, as they put it, were dripping in red ink. It is now an extremely crowded short position, almost 18 percent of the float for these quantum stocks is sold short. If you think of the average stock, it's about 5 percent. It is a pricey trade, too. Borrow fees can be as high as 200 percent. Scott, and all of this really adds to the volatility

around these names. Back to you. All right. Kate, thank you. Kate Rooney, following those stocks. Joining me now is the NYU Stern School of Business professor. We call him the Dean of Valuation, Athabat Demoder. Welcome back. It's nice to see you. Nice to see you too, Scott. So I know you don't own these stocks, and you probably don't even follow them for that matter. But is there a cautionary tale in here somewhere on a market that has anointed certain types of stocks as the kings and given them huge valuations? And there may not be a lot of there there, at least in the very near term. What do we take from this? I think we've known for a while that these products and services, whether it's in quantum computing or in AI products

and services, that they're not going to be here next year, two years from now, even three years from now, that there's going to be a timing lag. I keep trying to wrap my head around why it's become such a big story. And the only thing I can think of is Jensen Wong and Mark Zuckerberg have made it the story it is. Because until they got up and said what lots of people have been saying, it's almost like the traders were not willing to listen. So I wouldn't be surprised if this wasn't the first of a wave of these things you see this year where somebody with credibility gets up there and says, guys, we're getting way ahead of the game here.

This is not going to happen in the near future. You're going to value the companies based on that premise. I mean, you can have bubbles in certain pockets, small pockets of the market without having a bubble in the entire market. I mean, we've discussed that many times. Is that what you would look at in a case like this, that it can be a self-correcting mechanism as well that doesn't necessarily need to upset the whole story. And these are not really companies in the traditional sense. They're really options on products. And collectively, if you look at the market cap of these companies, even before the correction, it's small. I mean, it's petty cash for many of the big tech companies. My guess is the best endgame for many of these companies, they get acquired by one of the big tech companies. So if you're going to be trading in this space,

I think you're trading for who's going to get acquired by whom rather than what will these companies become as steady state companies, because there's really no business right now that you can point to at any of these companies. I mean, they're a speculator's delight. I mean, that's what ultimately it comes down to. Let's get to the here and now companies, the ones that we know are delivering and we think are going to continue to do so. I mean, when you look at what's going on within mega cap tech, you can talk about NVIDIA directly if you'd like to. I mean, what do you see after a group of stocks sort of ran out of gas, got reignited, we had a top heavy market and now

seem to be in question, at least in the near term, because of the move partly in interest rates. We're seeing what happens when the when the mag seven pulled back in the last six weeks in the market without those stocks pulling the market ahead, you're going to come back to it. And that's, again, not a bad thing. But back to back 20 percent plus years for the S&P 500, first times in the late 1990s. Doesn't mean that this year has to be a bad year, but it's time, I think, to take a break and say, hey, you know what? Getting a 9 percent return on stocks is not a bad return. But I think people's expectations have been set so high based on what's happened the last couple of years that might be time for a correction. But don't you think the environment is still pretty positive for stocks? If I told you

just baseline, you know, the economy is at a good place and now we're going to re-up some tax cuts and we're going to have deregulation and we're going to enable more deals. And that in and of itself is going to be a stimulant for stocks. You could argue that much of that has already been priced in. It's almost like the market started expecting a Trump win mid-term, middle of last year. I mean, it got there well ahead of the pollsters and the experts. And I think it started building it in. The tax cut itself, I would not put too much weight on it because I don't see it as a collective tax cut like it was last time. This is going to be more selective, the 21 percent down to 15 or whatever it turns out to be.

So I think if there's a gain here, it's going to be in sectors that are particularly heavily taxed or sectors where regulation is a challenge. Since rather than market-wide, it might be in smaller sectors, but those sectors don't have the market cap to carry the entire market. So you've got to still keep hoping that big tech doesn't give up too much of its gains, because if it does, it's going to be too difficult to make it back up. I mean, when you look at the move in rates as the dean of valuation, as we refer to you as, do you say that where I thought maybe the market was sort of pushing the limits on the multiple is now going to be pressured even further? Because how can you not have a pressured multiple in a different interest rate environment?

No, I think it really depends on, first, whether rates continue to go up and why they go up. If they go up because the economy is stronger, I think the market can sustain it. If they go up because inflation is increasing, I think the market's going to have a really tough time dealing with that. So not only should we keep our eye on what rates do, but we should also be keeping our eye on what inflation does, because it's that dual effect that's really going to play out in markets. I mean, do you think it's going to be more of the former than the latter? I think it's going to be more of the former, but there's a very real risk of the latter. I mean, I think that you can't rule out the risk that inflation pops back up again,

especially if the economy starts to overheat. So I wouldn't put those worries away because that worry is real and the market seems to be concerned about it as well. economy starts to overheat so I I and I wouldn't put those worries away because they you know that worry is real and the market seems to be concerned about it as well you know we talked about different sectors you know underperformers um and the like and how things have reversed a little bit to to start the year I mean there seems to be more optimism in health care which you haven't liked which you said when we visited not that long ago in the middle of December was, quote, in trouble. I mean, what do we think about here in terms of where that space could go? We're talking about the J.P. Morgan Health Care Conference, obviously. There's some dealmaking

that's been done. I've had some people buy some stocks on the other program that I do here. There seems to be a change in sentiment. Is that how you see it? My concern is more long-term than short-term with healthcare. I think that there are limits on healthcare spending coming because we can't afford the amount we're spending on healthcare. I think it's been a long time that we've been waiting for this to happen, but I have a feeling that it's coming no matter who is in the administration. So what form those controls will take, I don't know. But that's my concern long term. Short term, I mean, healthcare companies trade on how well their products and service, their blockbuster drugs do. I think that's going to continue to carry

the profitable companies forward. But I think this long term, that my concerns remain. All right. Professor, I appreciate it as always. We'll see you again soon. Thank you. That's Aswath Motoren of NYU. Up next, Ed Yardeni. He is raising the red flag ahead of tomorrow's CPI. He'll tell us exactly why. Coming up next. Stocks giving back gains after today's cooler than expected inflation data. Our next guest now cautions there could be more downside if tomorrow's CPI report comes in hot. Let's bring in Ed Yardeni of Yardeni Research. Welcome. It's good to see you again. Thank you, Scott.

Why do you have that view? Well, look, I think the big issue for the stock market is the bond market. And the bond market, we argued back in August of last year, I was discounting too many rate cuts by the Fed. We thought that the economy was going to prove to be resilient and strong. And that turned out to be the case. And here we are, up from 3.65 percent on September 16th of last year to four point seven five percent thereabouts now. And so that a lot of that had to do with the better than expected growth of the economy, with the Fed probably going on pause. And we also have some stickiness in the inflation numbers. So

I think the markets are going to be focusing on the areas of where inflation seems to be stuck above 2 percent. And a lot of that is in the so-called super core, which, of course, is services excluding rent inflation. And in addition to that, we've got energy prices going up here. And it was good deflation over the past several months that helped to bring inflation down. It wasn't services. So now we we've got to be concerned that the next couple of months we may have an inflation scare. I mean, doesn't the PPI, though, tend to be a better read into the PCE? Yeah. Which certainly is a more important gauge on inflation, at least according to what the Fed watches.

You're absolutely right. It's a very good point. I would say that the month-over a month number was better than expected. But when you look at it year over year, you're still seeing an upward trend in the services area. And so, you know, the best of the inflation news is behind us for the next few months. But again, that's not the only issue for the for the bond market or the stock market. I think both of them have had to discount the fact that the Fed may very well be at a none and done outlook for the federal funds rate for the rest of the year. And I'm not sure everybody's understood that. Meanwhile, as you said, just a while ago, a few minutes ago, with one of your other guests, we're pretty close to 5%. I think there's something magical about that number. I think you'll see some rebalancing out of stocks and into bonds. I think 5% is an awfully attractive

rate. I mean, are you changing your view on the equity market? You've been positive. You've been bullish. Are you moving that ball in a different direction as a result of the backup in rates? Yeah, no, good question. No, I'm still looking for $7,000 on the S&P 500 by year end. I still think that the economy is going to be resilient. I still expect that we're in a productivity growth boom. And I think that S&P 500 earnings are going to be $285 a share this year, which I think is probably one of the highest on the street. So I remain very positive on the earning situation. Maybe it's wishful thinking, but I'm hoping for a buying opportunity.

I'm not recommending that anybody sell into this. But if you've got some cash, I would look for an opportunity to buy. But at the same time, I would also recommend buying some bonds at 5%. I mean, cash is looking pretty good at 5% too. Absolutely. There's competition again. I mean, I guess that's the point that you're making for certain. But what happens if the Fed, let's just, I don't know, if the Fed doesn't cut any more this year, however outlandish that might be, maybe once, maybe none, is that a problem or does it not matter as long as the economy remains strong. I think it would happen because the economy remains strong. You know for the

past three years there's been a lot of talk about a recession. I think that's largely behind us. They come back of course. But I think interest rates have normalized I think four and a half percent on that on the 10 year bond yield maybe plus minus 25 or even 50 basis points is kind of the range we're going to see for the next few years and that's what we had before the great financial crisis so i think it just reflects the fact that the economy is resilient it's it's growing at a at a decent pace i think it's going to grow at a faster pace because i'm very bullish on productivity and you put it all together and uh you get an economy that's strong with low and low moderate inflation and a stock market that moves higher on earnings, not valuation. What part of the market do you like the best

right now? I mean, if we're talking about earnings, we you know, we start to get them tomorrow with the banks, for example. What do you like? What don't you like? I think you could start with the banks. I think the banks will report solid earnings. Loan demand has been picking up. The financial markets have had more volatility and their traders are pretty good at making money in that kind of environment. I think M&A is starting to pick up. So the banks, the financials, generally speaking, look quite good. We've got more deregulation coming and a lot of that's going to benefit the banks, the financials, generally speaking, look quite good. We've got more deregulation coming in. A lot of that's going to benefit the banks. A Fed regulator has left and will be replaced by somebody who's likely to be less stringent about the kind of regulations they

want on banks. So financials, for sure. I would say stick with technology. I wouldn't be selling technology. I'd be looking for opportunities maybe to buy some more. Industrials still look fine to me. So really, all the sectors that we've been pushing have done quite well. And we're going to maybe overstay our welcome here, but we're going to stay with them. And we would overweight the U.S. relative to foreign portfolios. We would overweight the S&P 500 relative to the SMID caps. And we think the S&P 493, outside the Magnificent Seven, are all going to be viewed increasingly over the next few years as tech stocks. These days, either make tech or you use tech to increase your efficiency, your productivity, your relationship with customers. And those

companies are going to show good earnings. I'm expecting profit margins to go to a record high this year and next year. How are you thinking about the stronger dollar? And I mean, is that one of the reasons why you say U.S. is best and you should stay here? It's one of the reasons. Look, Scott, we've been recommending over-weighting what we call the stay-home investment portfolio, as opposed to go global. In other words, overweight the United States. We're not telling people not to invest overseas, but the U.S. seems to be the area we want to stay in.

It's worked really well since 2010 for us. One of these days, it may not, but I think the strong dollar is a reflection of the that uh... foreign uh... money is is is coming into the united states i think you'll see a lot of it before money coming into the five percent bond yields or what i far away from that and we may already be seen for money coming in and they've been coming in and buying stocks for for sure

uh... so uh... the u s looks uh... looks pretty good it does look exceptional well that's what a lot of people are buying, American exceptionalism. Ed, thank you. We'll talk to you soon. Thank you. That's Ed Yardeni. Up next, Lilly shares are sinking today after the company cut its outlook.

We'll give you the details, what it could mean for investors next. Thank you. now we have less than 15 to go before the closing bell. Watching Eli Lilly shares today, which are tumbling. Angelica Peebles is tracking that for us and will tell us exactly why. Angelica. Yeah, Scott. Lilly this morning pre-announcing their fourth quarter results, and those came short of expectations. Now, investors are clearly nervous about the outlook for the obesity drug market. And remember, that started last quarter in Q3 when Lilly missed,

and now another weak print is renewing those questions. But Lilly CEO Dave Ricks telling Jim Cramer earlier today that this isn't about a slowdown in demand. We've put our best effort into this latest project, and we're doing something others have never done, right? We're growing a pharmaceutical product at a rate and a scale that really is new for us and new for the industry. We're going to others have never done, right? We're growing pharmaceutical product at a rate and a scale that really is new for us and new for the industry. We're going to get some things wrong, and we have.

We saw a destocking in the channel in the second half. We've put that into our forward outlook. We don't expect that to come back. We've seen ups and downs in various parts of the market, patients switching between the diabetes form and the obesity form. Prediction has been tougher, but to to be honest the underlying fundamentals are incredible but we are seeing all the obesity names down today like novo Viking take a look at those stocks they're all getting hit on this so again a lot of outstanding questions here Scott all right appreciate

you bringing that report to us Angelica thank you Angelica people still ahead meta shares are slipping in today's session. We'll find out what's behind that drop, what it might mean for the rest of the social stocks as well. We're back on the bell. It's after this break. All right. We're in the closing bell market zone now. SEMA Modi is tracking GE Vernova as those shares hit a record high today. Plus, Julia Borsten has details behind Meta's latest round of layoffs. Courtney Reagan on what is driving Cignet's worst day in nearly five years.

Seema, we begin with you, though. A couple of GEs are on the move today. Vrnova, among them, hitting a record high. Why? Well, Scott, President-elect Trump is expected to fast-track AI infrastructure spending, seen as a boon for the power players like GE, Vrnova, which just got a price target raise at Bank of America to $415 a share. That's a $35 boost from its initial target. The analyst there, Andrew Obin, he conducted an analysis of GE-Vernova's gas turbines and found that there is an opportunity to increase pricing. In fact, GE-Vernova CEO Scott

Straszak recently saying that the most pronounced opportunity for pricing is in gas, just given the demand that it's seeing from hyperscalers that are building out data centers, that is pushing shares to a fresh record high, up another 4% today, and up about 111% over the past six months, Scott. All right, Seema, appreciate that. That is Seema Modi. Julia Borsten, to you. I mean, we got some details within the last hour about Microsoft making some job-related moves, and you have some details for us about Meta as well, right? That's right. Earlier today, Meta announcing it's looking to

get 5% of its employees its lowest performers with the goal of backfilling those roles this year. CEO Mark Zuckerberg saying in a memo, quote, I've decided to raise the bar on performance management and move out low performers faster. The company says it expects to reach 10 percent of what they call non-regrettable attrition by the end of the current performance cycle and will, quote, provide generous severance. Meta shares ending the day down nearly 3 percent. Shares were down before that news and Snap shares are also off today, nearly 7%. Pinterest shares down about 3%. Now, these three stocks seem to be responding to rumors that Elon Musk could buy TikTok's U.S. operations, despite TikTok telling CNBC,

we can't be expected to comment on pure fiction. T Cowan saying that reports even of a prospect of TikTok remaining a platform in the U.S. is seen as negative for its rivals. Scott? All right, Julia, appreciate you. Thank you, Julia Borsten. All right, Cora, tell us about Signet. Worst day in nearly five years. Yeah, I mean, far from a sparkling holiday for Signet Jewelers.

Shares obviously tumbling here. The parent of Zales, Jared Kaye, and others preannounced holiday quarter results falling short of forecast and analyst projections. Shoppers ended up buying more of the lower-priced gifts than the retailer expected, so it led Signet to lower its sales and adjusted guidance for the quarter. Comparable sales down 2 percent and the 10 weeks ending January 11th with disappointing sales on peak holiday spending days. Now, Cigna has a new CEO as of November 4th, J.K. Semantic, and he spoke to investors at the ICR conference in Florida last hour about the missteps in the quarter, particularly missing in what he calls fashion and bold jewelry.

Scott. All right. Pretty nasty day. Down more than 20 percent. Courtney Reagan, thank you very much. Well, we've got a little bit of a pickup into the close here. Looks like the Dow is going to finish with a nice gain of better than 225 points. The Russell will be green. S&P is going to fight it out right to the very last moment. NASDAQ, however, will be on the losing side.

Does it for us? I'll see you tomorrow. We'll see you tomorrow. We'll see you tomorrow.