Closing Bell - Closing Bell: Irrational Exuberance? 2/8/24

Episode Date: February 8, 2024

Has stocks’ record run gotten too exuberant? Wharton School Professor Jeremy Siegel gives his expert take on where he sees the market headed. Plus, as the S&P 500 hovered close to 5,000 Wells Fargo���s Chris Harvey explained how investors should position their portfolios. And, a rundown of what to watch from Take Two and Affirm results. 

All right. Thanks so much. 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 surging S&P and whether risks to the rally are in fact mounting or much to do about nothing. We'll ask famed market watcher Jeremy Siegel of the Wharton School when he joins us in just a moment. In the meantime, take a look at your scorecard with 60 minutes to go in regulation because it looks like this. Look at the S&P 500. We are lesser, just about three points away now from that 5,000 level. We've been hanging around for much of the day, but looks like we may make a move here in the final stretch. It's energy actually outperforming for a change. And how about the mega caps? They're mostly mixed. Well, there's NVIDIA, so it's still above $700 a share. It's been stealing the show lately above that key level.

And then there is Disney, absolutely ripping today after its earnings report, that stock having its best day in more than two years, up almost 12%. Yields, they're holding steady, too, after a pretty good bond auction within the past couple of hours. It does take us to our talk of the tape, the record run for stocks and whether it has gotten too exuberant or not. Let's ask the Wharton School's Jeremy Siegel. He joins us now. Professor, we may make history as we have this conversation, and if we do, I'm going to break away for a minute. But what do you make of this market? Well, Scott, it's almost amazing. We're a few weeks away from the 15th anniversary of the financial crisis low. We might remember in March of 2009 when the S&P sank down to 666. And now we're within a point or two of 5,015 years later. I mean, that is a 16 percent, over 16 percent annual rate of return for 15 years.

It's really quite quite a marvel. It is. I'll tell you what. I mean, you mentioned 16 percent for an annual rate of return. Professor, since November 1st, when this last leg to 5K started, the Dow's up 17 percent. The S&P is up 19 percent. The Nasdaq's up 23. Even the Russell, which has cooled lately, is up a nice 18 percent. Too much? Too much exuberance or not? Well, sir, we're not going to repeat that.

I think the S&P is going to be much more muted. Don't forget, this year, I think at the very beginning on January 1st, I said about 8%, 10%, 12%. We're up 5% right now. And we're not even halfway through February. I think we got a little more to go, 5% to 8% maybe for the rest of the year. Professor, you're having to change your numbers every time we speak the last time we had a conversation right it's incredible the last time we spoke but a couple of fridays ago i think you said well we could do another eight to ten percent well now the market keeps going up well we could do another

five to eight percent it's remarkable yeah well, Scott, as the market goes up, it'd be sensible for you to tone down your future returns, right? So I think basically that's what I'm doing. I mean, certainly the returns that we're going to see in the next 15 years, I'm not going to be anything like the return. I mean, a 14% after inflation annual return is what we've had last 15 years. That is more than twice the long run historical average. And I've gone back 220 years, so I've got the history there. So you're not going to run at twice the run rate for another decade or so. It doesn't mean stocks aren't a good investment.

Yeah, no, believe me, you've got you've got the seasoning, professor. And that's why we rely on you as often as we do, because you've seen so many different market cycles. There are some who suggest that what we're witnessing now, particularly in the mega caps, could be even worse than what we saw in 1999. That was the note yesterday from somebody at J.P. Morgan and an influential strategist at that. How would you take that on? It's not worse than 1999. And what is interesting is the last 16, 17 percent 15 year run did end at the beginning of 2000 at the end of 1999. But one thing is very, very different. This is important. We had S&P selling at 30 times earnings at the beginning of 2000. And the tech sector even far more than that, 60, 70 times earnings.

And by the way, interest rates were higher than they are today. Today, we're selling at 20 times earnings. Now, that's not cheap, but certainly it is not a situation like 1999 or 2000. Let's take the risks, so to speak, one by one. And it plays right off of this idea of comparisons between now and 99, the concentration of the mega caps and the astronomical gains that we are witnessing too narrow. So for those who say, oh, this rally is just way too narrow and that's a major risk and a weakness in this market. How do you take that on? Let's look at the other side. I think that makes the value stocks and the small stocks, which we will say have just lagged tremendously, that are selling at 15 times earnings, small stocks at 12 times. And I think that's where the best opportunities

are. Now, I'm not saying that, you know, the large has been a crash or anything like that. But, you know, if you're talking about how bad things are concentrated on the top, well, that means there's opportunities on the other side. And that's really where I do think the better gains are going to be over the next three to five years. But, Professor, we're too complacent. This commercial real estate risks. Look at New York Community Bank. There's going to be other issues. Again, I'm bringing you what what the naysayers still say about the quality of this market, the quality of this rally. We're just ignoring too many of those risks that are yet to roost. How do you respond to that?

Well, one of the oldest sayings on Wall Street, stocks climb the wall of worry. If you wait until all the worries are gone and the sky is clear, you've bought at the top, not at the bottom. So, you know, we're persistently in an age of uncertainty and threats all the time. And the stock market has been in that for since its existence. And certainly there could be bear markets that have been bear markets. There will be bear markets. But look at the persistence of long term returns. And today, even at 20 P.E., that's a little bit higher than the historical average.

But that still projects to me a good, you know, seven to eight percent rate of return over the next three to five years. Still much better than the bond market in my calculation. Well, we're too reliant on rate cuts, Professor. Citi today says any disappointment on rate cut timetable or the magnitude is the single biggest macro risk for the equity market. How do you respond to that? I totally disagree. I totally. Listen, this economy is withstanding these rates. That shows you the internal strength of this. By the way, if you tell me, for instance, that the Fed is going to lower, well, I don't think March, but, you know, in May, 50, 60 basis points, I say, oh,

that's bad news. The economy must be faltering badly. I mean, the only good lower is if they really see inflation drop much more than they expected. The other type of lowering, which is probably more probable as a worry, is, my God, the economy is slowing too much. So, you know, at this particular point, I don't see the need for the Fed to lower. I mean, take a look at all the real indicators. They haven't slowed down. Even the advance indicators have not slowed down. When they begin to slow down, and if inflation is under control, which I do think it is,

we're going to have those lowering of rates. But I'm not saying that this bull market at all depends on the rates being lowered in March or really even in May. Well, it definitely depends on there being no more hikes. Right. And there are others and there are others who suggest that that's still a risk to that your strong economy is too hot to handle and has the possibility of being too hot. Therefore, inflation doesn't come down like the Fed thinks and that forces their hand in a way that they don't want to have to move. But so far, the strength is not really translating into higher prices. Look at the sensitive commodity prices, you know, oil,

the Bloomberg index, the Goldman Sachs commodity index. And these are sensitive commodity indexes are usually first to move if there's really going to be inflation. I don't see any movement in those indexes. So, you know, that would be a warning, you know, unemployment claims falling below 200,000. And they're in the sweet spot now between 200 and 240. This is strong, sustainable growth at this point. Yes, it could turn too strong. I do not see that yet. OK, strong, sustainable.

You say those words. I think of NVIDIA. To say it's strong is an understatement. It's above $700. The rise has been meteoric. Incredible since the November, since November 1st, when this last leg to 5K started. The key is whether it's sustainable or not, whether the valuation of that stock specifically has gotten,

in the words of the dean of valuation at NYU Stern, Professor Aswath Damodaran says it's insane. He owns it and says it's insane. What do you say? I don't think it's insane. I don't comment on individual stocks. Yes, it is rich. I do think AI is the real thing. And by the way, AI is going to lower the cost of a makers. So, you know, one can be optimistic about growth, profit, profit margins on many, many companies as a result of AI and NVIDIA. And you don't have to just concentrate on those stocks. Professor, I've sent some balls into your court and you've knocked them all back on my side.

And I respect that. So we're going to open the conversation up. We'll bring in CNBC contributor Stephanie Link of Hightower Advisors and Joe Terranova of Virtus Investment Partners. It's great to have you both with us, of course. Steph, you heard the professor make his case. Do you agree or disagree? Oh, I totally agree. To the point of the market right now trading at 20 times forward, if you exclude the MAG7, you're at 17 times. If you look at energy, industrials, discretionary, and financials, they're trading below 15 times. Some of those sectors, some of those stocks

within those sectors are actually in the single digits, so there definitely is value elsewhere with beyond the MAG7. But the MAG7 are the MAG7, and you wanna have some exposure to them. As you know, I have taken profits in a few, but I am also looking for opportunities and other places within kind of like the AI community,

as well as these other sectors beyond Mag7. And so I'm trying to do a little bit more barbelling this year than I did last year. Themes that I like a lot, you know, housing, cybersecurity, anything tied to the consumer, and then on shoring and aviation. And there are plenty of ideas out there in all those themes that are trading at very attractive multiples. Joe, as I said, we have this volley with the professor, right? I say, hey, it's too narrow. No, no, it's not.

It's too expensive. No, maybe the Mag 7s, you know, the market's 20 times. You look under the surface, it's actually much cheaper than that. Too complacent? No, no, we're not. These are, you know, one-off issues, maybe idiosyncratic, not going to mushroom into bigger deals. Too reliant on rate cuts? No, no. In fact,

we're not. We don't even need them. The economy is good enough. We don't need them yet. It's all good. It feels to me remarkably similar to the 94, 95, 96 experience in the way that markets are reacting to the following conviction. The Federal Reserve winning the fight against inflation. The Federal Reserve stepping back, pivoting, no longer being adversarial, growth being stronger than anticipated, very resilient. I think the response that you're seeing is so analogous to 96. I agree with Stephanie's comments. I agree with the professor's comments. And what I also see is you're able to go out beyond the MAG-7 or the AI-5 and find really strong performance. I've been talking the last several days about momentum coming back once

again. But you could look within sectors that are not technology. You could look in the financials. You could see companies like Apollo Management or Interactive Brokers up double digits year to date. You could look at health care and see Intuitive Surgical or West Pharmaceutical. Scott, you can even look at energy and see Marathon Petroleum doing well year to date or Industrials. You can cherry pick, and I don't mean that in a negative sense to you specifically like that. You can find stocks that have done well outside the MAG-7. You can't find stocks that have done consistently as well as the mag seven no but that's and and the the belief was that coming into this year given where the rally went between november

1st and the end of december you're finally going to get at least a pull up in the laggards to a meaningful degree so tom lee was saying 50 for small caps this year so the the thesis on the market broadening out in 2024 has failed so far year to date absolutely without question but the reason we're sitting here right now looking at s p potentially at 5 000 is because of the innovation surrounding technology scott back back in 2014, NVIDIA was below $4. At that point, the S&P 500 was $2,000. It doubled from when it was $1,000 in February of 1998. It took 16 years to do that. $2,500 in September of 2017, NVIDIA was still below $30. And here we are. It only took six and a half years for the S&P

potentially to double. So it's the innovation of technology that's so real. And the professor's right. The innovation surrounding generative AI is going to impact markets. Look at that chart. The chart is unbelievable if you go from the bottom left to the top right. Professor, as we look at that, there are a lot of charts that look like that. What mechanism has to happen for this rally to really broaden out and be sustainably so? Well, you know, it is possible because of the economy. You know, every week the data suggests we are going to avoid a recession. You would think the small and mid cap stocks, which are the ones selling 12, 15, 16 times earnings, would benefit. Because I always thought that they were very defensive because

the hard landing scenario would crush them more than some of the global tech stocks. But so far, you know, you can't stop momentum in one sector. The only thing that could stop it, of course, is an earnings disappointment. And at this point, at least for those few. Now, listen, some of the bad seven, look what's happened with Tesla. You know, I will fall out and there'll be a new group that will form. No one stays at the top. I mean, I remember IBM, when it controlled 80% of the computer market,

no one could compete with it in the 1960s, 1970s. Now, although it's done well recently, almost an also ran. I would like to ask Joe, if he sees 96, 97, does he see a potential speculative run up 98, 99? That would that would lead me to to worry about how high the market would get. It's a good question, because even Ed Yardeni, who's bullish, has been talking a lot about exuberance. He's been making parallels between these two periods of time. Even Ed Yardeni, who's bullish, has been talking a lot about exuberance. He's been making parallels between these two periods of time.

He doesn't think we've hit a euphoria level yet, but he also worries that we're starting to get a little bit exuberant. To the professor's point, what would you say? So if we, in fact, have price action that exhibits the nature of going parabolic, then I think absolutely you would have to have that rightful concern. We don't have that in some stocks. I don't think you have a power. I don't think you have. You have individually. Yes, you have parabolic moves in individual stocks, in particular in the semiconductor industry and select areas of technology. Yeah, arms at 38 percent today. And, you know, A&D was up 80% in three months. Okay, but how do you define these companies as profitable companies?

I know Stephanie would agree with me on that. When you look at the performance of Broadcom, you're talking about an incredibly profitable company. If you look back to the 97-98 experience, a lot of the parabolic move came in areas of the market that were debt-ridden. I misstated it. Arms up 50 percent today, not 38. Yeah. I apologize. Please carry on. So that to me, that's the distinction is is the balance sheet, the nature of the balance sheet. Mike Santoli has done a phenomenal job talking about these companies and their qualitative nature. And they're almost

defensive in a sense. And the skepticism that remains in the market wants to own that defensive element in the market. So I just think the financial condition of these companies is different than it was in 97, 98. Steph, are we on the cusp of a mini melt up? Is that what this is? Does it get to danger levels at any point? Are you worried about that or not? Well, I am worried about we are a little bit overbought and we have a really big inflation number next week we have to get through. So I wouldn't be surprised to see volatility. But here's the thing. The economy is stronger. And why that's important is because earnings as a result have been stronger than people thought.

We're running at about 5 percent growth for this past quarter for Q. And we're going to do about upper single digits, maybe even double digits for 2024. And it's not just top line. It's also margins. Procter & Gamble is the best example of this story of what I've just said. Four percent organic growth is fine. They had 520 basis point year over year increase in gross margins tied to productivity, tied to pricing, and lower commodity costs, so lower inflation. And we are seeing that and hearing that from other companies as well. But why that's all important is because if earnings are going

higher, stocks follow where earnings are going. And that is why we actually I would be buying if we did see volatility on any weakness. Professor, leave us with some wisdom on how our viewers should view 5000 beyond just a nice, shiny round number, what the real significance of it is and what it means potentially for where we go from here and how, you know, the average investor out there needs to think about the stock market here forward. Yeah, absolutely. I mean, you know, it confirms to me with all the doubts that we've had over the last two years, how, you know, the real earnings have come through and the real stock prices have come through and the doubters have fallen by the wayside. I mean, remember, when we think about 5,000,

it wasn't long ago where we had some very big names telling us that S&P was going down to 3,600. And you remember that, Scott. So I think that stocks for the long run, there's going to be volatility. You know, I don't advise playing the game of being a short-run trader. I know a lot of people do. But I don't think right now the market is overvalued for a long-term investor by any means.

You've given us a good soundbite to finish on, Professor, and I appreciate that. We'll see you soon. Thank you. Professor Jeremy Siegel, the Wharton School of Step. Thank you, Joe. Thanks as well. As we navigate this market hovering really close to S&P 5000, we'll see over the final stretch if, in fact, we get over that gold line today. In the meantime, we send it to Christina Partsenevelos for a look at the biggest names moving into the close.

Christina. And I'm going to focus on retail right now because the holiday season in China really contributing to Ralph Lauren's 14th straight quarter of profit beats. Ralph Lauren is trying to position itself as a luxury brand, similar to LVMH. And the December quarter showed customers were willing to spend money on the cashmere sweaters and Ralph's coffee, which is found in certain flagship stores. Stock up almost 18 percent, hitting a 52-week high today. Sticking with retail, Tapestry can thank Gen Z's for its stock boost today. Its Coach brand is very popular with the younger generation and helped drive Tapestry's record Q2 revenues, offsetting weakness from other brands like Kate Spade and Stuart Weitzman.

Maybe they're geared towards the older population. The company also noting a recovery in China, much like Ralph Lauren, which helped drive the increased outlook. Shares up seven and a half percent. Scott. Christina, thank you. We got within, again, like a half a point from five thousand. We're just getting started here. I almost hate taking a break. I know we got to pay the bills, but you know what's going to happen. know up next positioning your portfolio how about this if we if we hit it in the break you'll probably see me sooner than a few minutes wells fargo chris harvey he is back with us we'll talk to him next All right, welcome back. We got within an eyelash of 5,000 on the S&P during the break, and we're a little more than a point away.

We're going to continue to watch that, obviously. We welcome in Wells Fargo's Chris Harvey. He's the head of equity strategy there. Just give me your thoughts as we watch what this market has been doing. It's exciting, right? So there's a lot going on. The funny thing is everyone is now talking to us about charts. Chart looks good. Charts breaking out. The conversation about valuation just isn't there. The good thing is people are talking about relative growth and relative growth is working. But overall, what I'm seeing is a lot of people are making money, a lot of enthusiasm. Glass is

half full now. That's great. But at some point, we have to seeing is a lot of people are making money, a lot of enthusiasm. Glass is half full now. That's great. But at some point, we have to worry about a pullback. Is it too much? Too much exuberance behind this market? I don't think it's too much exuberance, right? But you're not seeing that participation. I'm sure you've talked about this time and time again.

You think? You think? A little bit. Thanks for watching. And at the end of the day, we're just back into another you know two percent gdp growth which is why growth growth stocks are doing well and while you're not seeing that participation i think that's just going to continue but how long can it last right there are some who suggest that that's one of the reasons why the foundation of the market so to speak

is is starting to crack you get so heavy on the top obviously you you risk sort of coming you know weakening so much at the bottom that the overall market can't withstand that. So I would worry more about the market. We do think at some point you're going to get a pullback, right? And you want to be positioned a certain way. But at the end of the day, until we see credit spreads start to widen out, right, until we see inflation numbers going higher, and until we start to see this buy strength, sell weakness start to turn, you know, things will be OK for now. Once we get through earnings season, the macro starts

to take over. Maybe that's another story. But I wouldn't say the market is built on a house of cards. Right. The economy is fine. Credit spreads are tight. And overall, the fundamentals are. So you'd be over then. Obviously, you'd be overweight U.S. equities. Not overweight U.S. equities because valuation for us isn't great. What we want to do is we want to be positioned. We love the communication space. That's been our top idea coming in. I know, but didn't you just build the case for why valuation is justified?

The valuation that we're seeing, the one thing that we're having trouble with, right, and this started last year. So last year we thought the equity market would be up 10%. We were directionally right, but it was even higher than what we had expected. And why was that? That was what we think it was, is the market is now discounting not 12 months into the future, but 24 months into the future. And it's still doing the same thing. And that's tough for us. We're not too comfortable with market levels right here, right now. We're not comfortable with valuation here, but we're more comfortable being positioned with communication and some defenses, be it health care or utilities.

I'm just looking at every tick because we're we're so close to that level. Are we too reliant on rate cuts? The idea that the Fed is going to cut, it's going to cut multiple times. They may not go in March, but nonetheless, it doesn't matter because the trend has changed. And we all know what the Fed, being your alleged friend, means for equity prices over the course of history. Yes, Scott, there's a lot there. And let me let me see if I can hit this right. Is there too much? No, I don't think it's too much. The problem with the Fed is they can't walk back what they did in December.

Right. They threw blood in the water. Now they're telling the sharks, hey, guys, calm down. You can't do that. Right. Is everything based on lower rates? No. What things are based on is the fact that you've cut off higher rates. The economy's OK. Valuations, while high, are not exuberant. And you can get a situation where you have a lot more m a in the market and if the gop starts gaining in the senate or in some of the senate race in gop you'll start to see a more market-friendly approach and that could get things what's the principal risk beyond valuation at this particular time then because that seems to be the thing that

worries you more than anything else so i think the principal risk is can you get inflation down and if you can't get inflation down or we get a high inflation print, we'll get things repriced. Again, what we're seeing in the marketplace and what scares me is you have this buy strength, sell weakness. That's great. Momentum is the dominant theme at this point in time. But when that turns, when there's a point of inflection, it's sharp. It's very sharp. It's very quick. And it's pretty nasty. So you're worried about the possibility that the Fed's going to surprise, have to surprise and do something they don't want to do, which is potentially hike? Yeah, I don't really say what the Fed's going to do. It's the data. The Fed's going to follow

data. And one of the things that I think, one of the things that worries me is that this Fed pivot, there's a paradox here. Because what you're doing is you brought interest rates down, right? You're giving a shot in the arm to the housing market, which helps the economy, which helps the job market, which makes inflation coming down even harder than it was before. But it is coming down. It is coming down from the most key metrics. It's coming down, but it could be stuck, right? It may be a lot more difficult to bring it down to that 2%. Again, what do they say? We want to have six months of it to be confident. I'm not sure you're going to get six months. And that's the fear, right? You asked me where the fear is. The fear is you can't bring inflation down to the level that you want.

You worried about any of the other things that are out there, commercial real estate, which people have been talking about now for so many months, maybe overstating to some degree about the immediate risks that exist. New York Community Bank obviously happened, so it's front and center yet again. How much should we be watching that? I worry about the CRE, but it's not a major issue. And part of the reason is because you have, it's not, you won't have a clearing event. You'll have this CRE, you'll have this region,

this property, this company. It's much more idiosyncratic than systemic. You find it interesting that we keep bumping right up towards, like yesterday, literally, $49.99.89, and now we're $49.99 point whatever, and we're just trying to bump against this hurdle that, look, the last two years have been dicey, right? We didn't go anywhere for a couple years on the S&P 500, and here we find ourselves heading to this historical level. Right on the edge, and that's why I think the people are talking to us about charts,

and they're saying, look, it's going to break out. Look, we're going to get to 5,000. It's going to go. Look, we get to 5,000, and animal spirits are back. It's an important level for a lot of investors. But for us, valuation is still high. It's really focused on positioning, style, sectors, and that's where you want to make your money. All right. Thank you for being here. Thank you. All right. It's Chris Harvey, Wells Fargo, again, the head of equity strategy. So we'll take another

break. The market behaved, if you will, last time. See what happens in the break this time. But again, if we do hit the level, I promise you we will come back. Up next, we have top technicians. Speaking of the charts that Chris Harvey was speaking of, Jason Hunter. He is back with us today on what he's seeing and what might be next. We're back after this. Still watching for S&P 5K. We're hovering just shy of that record high. Would be the first ever trade above that level on the back of a near 20% rally since the start of November. It's been remarkable. Joining us now to break down the technical setup for stocks from here is J.P. Morgan's Jason Hunter.

Welcome back. It's good to see you. It's good to see you. Thanks for having me back. What are the charts telling you about this move? So, I mean, what we saw into December was a broadening rally where small cap actually outperformed, which was rare for 2023. Since late December and our first set of sell signals had triggered across the array of indices, Russell, Nasdaq, S&P 500, small caps have given up all of their outperformance from the fourth quarter. And we're back to what we had for most of 2023, particularly in the summertime, which is a thin and thinning rally here as the S&P moves higher.

So it's something that's been able to, you know, as we just said, a note, defy gravity here, despite, you know, the lack of market breadth and the repeated attempts for it to try and roll over. But it certainly isn't a broad breadth and broadening rally at this point. In our view, it's something that makes it look like the trend is starting to get long in the tooth and setting up for at least a near-term pullback. But as long as we stay above, let's say we stay around this level, do you still think the path is higher to, what, 51, 5,200? Does that sound reasonable? Yeah, I mean, at this point, and since the market first broke out in the fourth quarter,

let's say when the S&P moved above $4,250 and then $4,400, when it really derailed that bearish momentum that had built through the summer and into the fall, if you just stopped yourself into a trend-following type methodology, yeah, the market's still trending higher. And right now, $4,800 for us, that's where the S&P would have to break to start to turn even the short-term momentum signals back to negative and really run the risk of a broader setback. So sure, for anyone that's in that trend following type methodology, the trend's up until it isn't.

The leadership is thin, but it hasn't broken. If anything, on some of the earnings reports, it's even accelerated to the upside. Our view is that we don't quite reach that 5,100, 5,200 area, that we are going to stall out below that. But we have to respect the momentum in that handful of names. Up until it isn't. I mean, those are the key words. These sell signals, as you cite, can be short-lived and obviously disappear. And you also point out in your note that it's difficult to sell these mega caps as they continue to go up. That's right. And we feel like whenever you see that, that, you know, thinness in the rally where it's focused on growth, these aren't leading cyclical type names that are leading the charge here. It feels like a late cycle environment. The curve's been inverted for a long time.

But if you go back to the late 1990s, that shows you how powerful those late cycle pushes could be. And like I said, it's hard to really step in front of that when you have this type of upside momentum. But the second that turn happens, it could be quick. So at this point, we weren't on the long side of growth in NASDAQ in the fourth quarter. And obviously, we were wrong there. But at this point, that's not something at all that we would chase. And we'd focus more on the Russell. Look, if the Russell breaks above 2,000, 2,100, and you see cyclicals start to lead, we'll have to change our tune on the medium to longer term outlook. But for right now, it still looks like a late cycle environment, and it's gone on longer than we thought it would. It's been a bit painful over

the near term, but it's not something we would chase here by any means. I appreciate it very much. Jason, we'll see you soon. Thank you. That's Jason Hunter, J.P. Morgan, their technical, head of technical strategy there, giving us an idea of what the charts are saying. I appreciate it very much. Jason, we'll see you soon. Thank you. That's Jason Hunter, JP Morgan, their technical, head of technical strategy there, giving us, you know, an idea of what the charts are saying. I've got, you know, Mike Santoli, our senior markets commentators up here, Joe Terranova, of course, as well. You know, Mike, sometimes the inner mechanics of the market and talking about them in too much of a close-in level can be inside baseball. However, I feel like it's important to understand kind of sometimes how the sausage is being made and why we bump up to this level so close, within a tenth of a point or less even, and just can't get over the hump.

I think in the abstract, for one thing, that we're very quiet on the macro. The intermarket stuff, the bond market's not forcing anybody's hand. You've already digested what earnings are to digest. And therefore, it's the stock market at the index level reacting to itself and flows and the clustering of exposures that you might have at a round number. So if 5000 S&P was a really common level to sell call options against, to generate income and say, fine, I get my upside up to there, then you just see a heavy traffic area and you have to get through it. It doesn't mean it's going to be a barrier. It just means it's in an intraday basis when it is mostly about just sort of tactical stuff and trading the intraday flow. I think that's why

it can hesitate there, let's just say. Now, beyond that, it also so happens that we're approaching this landmark, you know, up 22 percent from the intraday low three plus months ago when investor positioning and sentiment arguably are already getting stretched to a point where you would just anticipate a pause, a breather, a pullback anyway. So the question is, you know, would it just be one lunch higher? Jason heard talking about, you know, 5100 looks like a stretch. All of it for weeks. The trend looked like it had a date for like 50 50 ish. That's where the channel was getting you to if it was just trading on technicals. And I think that's why, you know, people maybe don't feel as

if this is an opportunity to jump in aggressively with fresh money, even though it's a bull market and you've got to treat it as such. And therefore, the next pullback is probably not a devastating one. Joe, you're watching this, too. It does speak to really to Mike's point as well about just the markets have changed so much over the years, the decades, the proliferation of futures trading and options trading and the mechanics around all of that and why you could get to $49.99.89 and then you back off. And then you get to $49.99.5, whatever, and you back off. Yeah. So you have the futures market. You have some significant selling every time it looks like we approach that $5,000 level in the S&P.

And also understand the SPY, which is the spider ETF, that's pricing right now at 498 and a half so the $500 strike you're gonna see a lot of open interest at that level so it's look there's something here for everyone there's something for the bet the Bulls to get excited about in the milestone there's a chance for the Bears to reload and say okay you got to 5,000 parties over irrational exuberance time to correct we're in the month of February. We're ignoring the fact that the 10 years at 416, which seemed to be a problem just 30 days ago, today that doesn't seem to matter. But I think ultimately everyone keeps talking about strong technicals, and we have them. And momentum has reawakened for the first time since November of 2021.

But let's remember, the momentum has reawakened because the fundamentals were good. And the fundamentals set the foundation for the technical buyers to come in. Good points made by all. Mike, I'll see. Of course, you're going to stay with me. Joe, thanks for sticking around. I appreciate that. Joe Terranova, as we sit about two points or so away from S&P 5K.

Up next, we'll track the biggest movers into the close. Christina Partsenevelis is standing by with that. Christina. Well, investors are playing catch up with the arm. Trade shares are soaring after the company provided it too can benefit from AI details next. We're less than 15 from the closing bell. No 5K yet on the S&P. We are watching big movers, though, and we do have several today. Christina Partsenevelos with what's behind arms. Major move. Incredible move there. And Kate Rooney is standing by with the latest on PayPal.

Christina, we start with you. Well, Arm, like you said, soaring post-earnings. Investors pretty much realizing that, yes, Arm is an AI play. Recall that Arm designs chips, so it makes money from royalties and licenses. The company said they're not only benefiting from an increase in royalties, but are seeing demand improvements in smartphones, auto, industrial, and data centers. Data centers specifically driven by customers who want more power-efficient systems, and that's something Arm is very good at.

Another Arm winner is SoftBank, which spun off Arm and still owns a little over 90% of the float. The Japanese tech conglomerate also posted a strong December quarter early this morning, helping its shares. It's locked into the Arm float until March 12th, so very, very soon, so expect some volatility after that date. But incredible to know, Scott, that arms free float, a.k.a. the amount for all of us to trade, is less than 10 percent, 10 percent available to the public. Yeah, good report. Thank you, Christina Partsenevelos. All right. Now to Kate Rooney

with more on what's driving PayPal sharply lower today. Kate. Hey, Scott. Yeah, PayPal is the worst performer right now in the S&P. Its forecast is really the big disappointment around earnings. CEO Alex Chris spent the bulk of the earnings call yesterday describing what he called a transition year. PayPal faces a lot more competition. It's seen a slowdown in accounts as well. He says they were conservative on the guide. Analysts are lowering their price targets, though. In the meantime, the average EPS estimate came down 5% today.

Chris told us on air back in January that PayPal would, quote, shock the world with a product suite that later fell flat. The CEO now saying that PayPal needs to, quote, build back a track record of delivering on our commitments. But as Wells Fargo put it today in a note, turning around the Titanic that is PayPal will be no small feat. Scott, back over to you. Yeah, it's been stunning. I think at one point, not that long ago either, this market cap was higher than Bank of America. Just stunning, really.

Kate, thank you. That's Kate Rooney joining us with the latest. We're back in the Market Zone next. All right, we're at the closing bell market zone. CNBC Senior Markets commentator Mike Santoli is still with us to break down the crucial moments of the trading day. Plus, two earnings out in overtime. Steve Kovach watching Take-Two. Kate Rooney back this time watching Affirm.

Mike, I come to you. S&P's a smidge negative. Maybe we'll just have to wait another day. Yeah, you know, weekly closes are the most important anyway, if you're looking at the charts. The market seems to have a bit of a sense of humor, too, because we approached 5,000. Everyone's saying it's too narrow.

It's only a few stocks. Today, the Russell 2000 is up 1.4%. Two out of the last four days, the Russell 2000 has actually been the upside standout. So it's trying to turn around and, you know, essentially gather itself in a broader way. Not really too much consequence just yet around and, you know, essentially gather itself in a broader way. Not really too much consequence just yet, but, you know, we'll see if we get there. Not a lot in terms of news flow moving things. It really is about, you know, can we just have

a little bit of a bid to break us out more decisively above this level? And then it's about, you know, early February. We've come a long way already this year. Are we going to reset? Let's just see if there's more optimism around earnings. I mean, that's obviously one of the stories. Speaking of, Steve Kovac, what should we watch for with Take-Two? Yeah, Take-Two Interactive. That's the Grand Theft Auto company, of course. So there was, you know, lots of optimism in the run-up to the announcement of that Grand Theft Auto game in December.

And it came after the company gave massive guidance for its fiscal 2025 last year. Now, some of the optimism has deflated, especially this week. Moffat Nathanson, for example, downgraded the stock to neutral with a price target of $167. Their theory expectations for GTA 6 could be a bit overblown and also pointed to some recent job cuts throughout the video game industry, though they also note they are a little conflicted about how GTA and maybe it could even outperform. But either way, Moffat Nathanson, along with basically everyone else, agrees this game is going to be the biggest video game launch in history. And as for tonight, what we can expect, this is the December quarter, of course, expecting $1.3 billion or so in sales for the holiday quarter. That would be roughly flat from a year ago.

But, look, pay attention to more hints on when GTA 6 will launch through their guidance on the call, guys. All right, we'll pay attention. Thanks, Scott. Thank you. Steve Kovach. Kay Rooney, Affirm, what should we expect there? Hey, Scott, so expectations are pretty high for Affirm.

It's coming off of a record holiday shopping season for buy now, pay later. This company is not expected to be profitable yet. The street is looking for a 73 cent loss per share. Watch delinquencies, though. It's a key metric for the health of a firm borrowers. And then the company has been able to keep those in track in recent quarters. Also watch revenue, less transaction costs. So that's a measure of unit economics for a firm. Gross merchandise volume, more GMV and then guidance. They have not been giving full year, but you could get some quarterly guidance here. Street's watching for any updates as well on the success of its recently launched debit card. Highly shorted name, though, Scott, so tends to add to some of the volatility.

About 16 percent of the float is sold short at this point. Back over to you. All right. Kate, appreciate that. See you in overtime. Kate Rooney. By the way, stay tuned for a first on CNBC sit-down with the firm's CEO, Max Levchin. That's coming up on Overtime today.

There he is, and you'll see him in just a little bit after those numbers hit. So, Mike, we've got $49.95 and change. What's going to be on your mind over the next 24 hours? You know, a couple of things. One, if you look at industrials, the XLI, and you didn't know what the mega cap growth stocks were doing over the last year, that's a really good-looking chart. Look at it making new highs. So there's nothing really to assail about this part of the market. It's cyclical. It's seizing on a pretty

good economy. The other piece of it, and this really picks up on what a firm might tell us, also PayPal's problems today. If you look more at the core credit names, Morgan Stanley today, downgrades American Express, taking profits, upgrading Discover Financial and Ally, which are basically plays on a consumer soft landing. You want to ask how can the market broaden out? This has to happen in every sector where you say, get out of the quality, defensive, premium, more expensive stock in the group. Go into the ones that will actually do well if we have a decent economy and the Fed cuts

rates. That, to me, encapsulated the bull case for the overall market. If it can work today, you're getting a little bit of outperformance on those more beaten up, cheaper names. Yeah. Let's see also if, you know, hitting the big round number, assuming that we eventually do, just forces people to take another look at the top off their portfolios, too, like we've had some do who visited with us of late. All right. So we're going to go out here. Well, we're like right there.

Yeah, we hit it to close. Look at that. We got it right at the close. I'll see where it settles out, albeit briefly. We did hit 5,000 on the S&P for the first time ever. We'll see if we settle out there. Morgan and John in overtime can pick up the story. Guys, we'll see where this heads from here. You've got some earnings coming up as well. I'll see you all tomorrow.