Closing Bell - Closing Bell: Is the Rally on Borrowed Time? 7/10/23

Episode Date: July 10, 2023

As earnings season gets underway and the Fed apparently intent on raising interest rates a couple more times – at least… what’s next for the rally? Dan Greenhaus of Solus Alternative Asset Management and Nicole Webb of Wealth Enhancement Group give their takes. Plus, Goldman Sachs’ Elizabeth Burton is weighing the risk-reward going into the second half. And, Leslie Picker breaks down the Fed’s new push to tighten rules and raise capital requirements on some banks. 

Guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner. This Make or Break Hour begins with the countdown to critical data and earnings and all of it with some questioning the real strength of this rally. Dan Greenhouse, you might have just seen him. He'll weigh in on that in just a moment. He was getting settled. In the meantime, your scorecard was 60 minutes to go in regulation. Tough to get much going for stocks broadly today as interest rates remain elevated. Take a look. They were higher. They're mostly lower, but nonetheless, the 10-year is a good place to start. It's at 4%. The two-year highest since 07.

So we're watching that because it's keeping a lid on tech today. Microsoft, Apple, Alphabet, and Amazon, they've dragged that sector. There is a rebalance too, and that's having a role. Mike Santoli is going to talk about that later on in the show. It does bring us to our talk of the tape. Whether this rally

is on borrowed time or not, as earnings season gets underway on Friday and with the Fed apparently intent on raising interest rates a couple more times, at least, let's ask Dan Greenhouse, chief strategist and economist for Solus Alternative Asset Management here at Post 9, as you clearly saw a moment ago. Welcome. Nice to see you. Thank you, sir. So you say, I'm looking at the notes, too many people are dismissing how concentrated the rally is. And I'm like, really? I mean, everybody's talking about how concentrated the rally is. What I'm referring to is the bullish argument that not only seven stocks are going up, which is undoubtedly true. Lots of stocks are going up. No one is saying lately.

Sure. There's certainly been a catch up with the small and mid cap indices. We know that. My point is that the argument on the part of the bulls is it's not just seven stocks going up. And my point, since I haven't been on a while, so I haven't been able to rant about anything in quite some time, let's go is no one's saying it's just those stocks, but they are disproportionately going up to a larger and faster degree than everyone else they account for a disproportionate share of the games there's nothing new there but i find something wrong there no i don't matter no i also simultaneously don't think it's necessarily a problem for the market what i find is the argument being put forth that it's not just that it is it is a nonsense argument to say it's it's not just seven stocks going up we agree with that well it's primarily been the magnificence they are doing the bulk of the work from a index weighting standpoint. We know

that. And they are also up meaningfully more. So like the median stock and the top decile is up like nine percent or something. Everyone else, give or take, is up called four or five percent. So there's much more work being done by the larger stocks. And I just don't like the argument being put forth that that's not something to which we should pay attention. The argument aside, do you feel better or worse about the market making the turn for the second half because that has been the case for the first half? Unquestionably better. I spent most of last year quite bearish. I spent most of this year less bearish. I don't want to say I've been bullish, but I think certainly when you see the type of action, the technicals in the market, it was hard not to get a little less bearish. I don't want to say I've been bullish, but I think certainly when you see the type of action, the technicals in the market, it was hard not to get a little less bearish, if not bullish.

And then on the back of that, you have the improving economic landscape and earnings possibilities in the back half of the year. When you put it all together, you should certainly have been at a minimum less bearish, if not bullish. So are you more bullish today than you have been in, say, 18 months? Well, yes, but a lot of that was done last year. When the S&P is down 27 percent top to bottom, when you have the worst year in our lifetimes for investment grade bonds, et cetera, et cetera. By definition, you should probably be getting a little more bearish if you're not in an 08 type crisis, which nobody and I don't think we are. But at the same time, I don't like the idea that price action dictates forward expectations, meaning you've had a good run here and we shouldn't dismiss it. But

at the same time, you are still dealing with much of the same types of things that we've been worried about for the last 12 months, except now you're starting to see some of it happen. That's the slowing in the labor market. It's the deterioration, the slow deterioration of the consumer. General Mills told us the other day that they're starting to see a reduction in price elasticities, meaning people are getting a little concerned about price increases. So you're starting to see some of these things break through. And to be intellectually honest, the fact that it might be coming later than originally thought doesn't dismiss the fact that they are still happening. I mean, do you think the risk reward is better or worse than for stocks? Right now, I think you should probably be staying long.

If you have been long, you should probably stay long. If you don't feel like you've been long enough. And again, I'm not speaking to what Solus is doing or not doing, but I think on balance, the technicals in the market are telling you. If you're not speaking to it, who is? Well, we're a hedge fund. I can't, there's all sorts of restrictions on what I can. But listen, the technicals in the market matter.

They help guide the turn, and I think they help guide you now. But again, the problem that you run into is, unlike six months ago, you do have those sort of under-the-headline cracks, if you will, to which everybody should be paying very close attention. Do you think there's going to be a catch-up trade in the second half from the things that lagged in the first that led people to suggest what got you all worked up? I don't know if I was worked up, but yeah, but yes, you said you're going to go on a rant. So I mean, one goes on a rant when they're worked up. Well, there's more

of that rant to come. Well, it'll be it'll be online only. But yes, I think, again, the bias for right now is probably to the upside. I think the other thing that bothers me is everybody keeps talking as if the decline in inflation is going to continue ad infinitum. OK, we're going to be at 3 percent headline as if core at 5 percent isn't a thing for some of these people. But the decline that we've seen in inflation is going to continue through year end. And I'm not positive that's the case. And I think sometimes you'd be more bullish than you just said. You're you're like leaning bullish. For me, ultimately, the thing that matters is not,

well, EPS came in at three, minus three, and it should have been nine or something like that. You need to see the labor market crack to get really, for lack of a better word, systemically bullish on a sustained and meaningful additional drop in equities. But maybe that's the misnomer about this whole thing is that the labor market doesn't need to crack like the Fed thinks it needs to crack, or at least thought that it needs to crack, that the economy can stay strong enough.

The labor market can stay strong enough. Inflation is coming down faster than people thought. It's not going to be as sticky as some still think it will be. That's the bullish case. That's the bullish case. I would agree with that. But but at the same time, the think is different from you and me than it is for them. Meaning, I might think that the Fed doesn't have to, quote unquote, crack the labor market. They still think they do. To get that last, we've talked about this indefinitely for a year now, I'm not the only one, to get that last one or two percent out of the inflation register, out of the inflation price. They feel they need to weaken the labor market more than it has. Thus far, the bulk of the work is being done on the job opening side of things.

That was the bullish case from the start. My argument from the beginning has been the idea that these 12 people in a room are going to exactly balance the economy's supply and demand fundamentals has historically been extremely unlikely and remains so today. Well, let's see what they do, not what they say. We've got CPI this week, PPI, and the rest, all before you get the next Fed meeting, where it feels likely that they're going to raise at least once more. But really, who cares what they say?

Let's see what the data shows for an alleged data dependent Fed and what they do. Why do you say alleged? Well, I mean, because because inflation is coming down so much, just a lot faster than even they thought. And despite that fact, they still talk like it's it's barely budging. Yeah, I would agree that the reason I ask you why you say alleged is, I mean, the pause, agree or disagree, is to gather more information. And whether we think that they are looking at the right things or not, or if we reweighted CPI with private sector rents or whatever would be more correct. That aside, the pause— They're going to get that information in a month?

No, but the pause gives them an extra month's worth of data. And again, to repeat something everybody says, which is entirely true, one more hike or two more hikes is much less important than when ultimately they begin to cut rates on the other side of this. That's much more consequential for, I think, the risk landscape than one more hike or two more hikes. So let's bring in Nicole Webb of Wealth Enhancement Group, who's here with us. That's good to see you. Good to see you. Welcome. So what is your take based on what you just heard? Yeah, I think it's an interesting moment in time. And we were having a bit of a

conversation to this offline, which is when you see cyclical and credit sensitive sectors like housing and auto with a bit of a popped recovery, what I would actually wager is that the Fed is more having a conversation around how do we move the supply of money through the system to regain efficiencies, both in labor and pricing. And so to bring back stability in labor when you've had structural deficiency and changes where we're just not seeing as many available workers, that's not a problem the Fed can necessarily fix. We're seeing some of those lower level jobs replaced by technology. That's where we're seeing actually the increases to labor supply. Those aren't the laborers that we need. We're seeing resilience in sectors like hospitality and leisure. So none of this speaks to an imminent recession, which continues for us our bull case narrative.

But you say in your notes that this is not the day to put cash to work. It is not the day to put cash to work. It is not the day to put cash to work. And I agree with that. And I think this is also, though, where we all have to be held accountable to a degree for the way in which we talk about periods of time. Because if you were an investor who was invested last year, your experience year to date of 2023 is very different. And so if you're long, stay long. If you're short, then I don't think this is the moment in time to deploy cash. Now, when it comes to the tech rally and the NASDAQ and

the validity of that, I see a lot of rationale for it. And I see the expectation for earnings growth in 2024. So I would say that there's room in pullbacks that are to some degree likely inevitable as we continue to get data that reports as bad data and we tend to see rates start to move a bit higher in the next quarter. All of this to say, you have to be really mindful of where you're deploying cash today. And I wouldn't just say I'm going to broadly buy the S&P 500 today. Erica Clower, by the way, of Jenison Associates is with us, too. So, Erica, is the risk reward better as we head into the second half or not? So, you know, at Genesyn, really what we focus on is where there's earnings upside

surprise. And there are several different sectors within technology where we have seen meaningful upward revisions in numbers. Clearly, there is an AI craze and there's a priority amongst enterprises to deploy generative AI wherever possible. And we're seeing that meaningfully lift earnings per share estimates for a lot of our holdings. That is positive. With regards to the cost that you mentioned, I do think that it's a tale of two cities. On one hand, a lot of technology companies are talking about costs coming down of everything from shipping to input costs. But the labor is remaining stubbornly high. You think tech is too far ahead of itself or not at this moment, given the gains that we've seen in the first half of the year?

You think all is that justified? You run a technology fund. So maybe you're predisposed to think that it is. But I'd love to hear the answer. You know, we're we're pretty constructive about the opportunities for technology just because we've seen such meaningful upward earnings revisions in a lot of our holdings here at Genesyn. Obviously, people know about NVIDIA, but we're seeing that from other companies like Broadcom. And this really leads us to have confidence that our holdings will continue to outperform. And it's not just generative AI. It's things like electric vehicles, autonomous vehicles. These are all areas that are showing very, very good signs of growth,

much better than what had initially been anticipated at the beginning of the year. So how, Dan, do you assess the tech trade here? On a day, by the way, when we were talking about rising rates, can tech withstand that? Now you're going to have a rebalance of the Nasdaq as well. So that's playing a role today, too, which we'll get into a little bit more specifically later on. But what about tech after the gains that we've seen? Yeah, listen, I think you're left with one of two different one of two arguments. The first is tech has had, some of the big names have had an enormous rally, largely based on, in some cases, reality, but in most cases, the hope for future investment within

the AI sphere, so to speak. At the same time, I think there are a lot of names in the tech space. And again, I offer the same caveat every time that Solus is not particularly a large tech investor. But it appears to me that there are a lot of names in the space and a couple of different verticals that are likely to benefit from a meaningful and sustained regime change in how companies allocate capital. That's cybersecurity, that's cloud, et cetera, et cetera.

And you can't, the Royal U shouldn't look at some of those names that are likely to benefit over a three to five to seven year time horizon in the same way from a value perspective, obviously, that we look at some other names in the market. And I think it's easy for a lot of people, and they do it, to dismiss some of the valuations in the space when in reality, this tailwind is likely to persist for, I don't know, five to ten years. And so I think there's a lot to like in the space, again, on a cyclical and a secular basis. Now, even if tech, you know, has a moment where it pulls back, most of what I've read today from different research desks is that it's a buying opportunity,

that any dip's going to be bought. Is that how you see it as well? Absolutely. And I think, you know, the other application that I don't think we speak to enough is, you know, businesses that will see more demand as a result of AI generative activity. And so when I think of, as a simple example, the Danaher's of the world, the picks and shovels of the pharmaceutical industry, you know, we saw a lot of volume growth during COVID and I can make a strong argument for applications of AI will lead us directionally to warrant more consumption of those manufactured products broadly across industry. And so when it comes to AI, I also am a big believer in the applications of VR and AR on a go-forward basis, and the ability to aggregate humans in a way that we just don't have the ability to do today, and travel continues to be cumbersome and slow. So, Erica, NVIDIA, which I think you guys own, where's the bar as we head into earnings season for these companies, especially one like NVIDIA,

which has had just a hyperbolic stock move, how high has the bar gotten? Have you guys taken any profits at all in your NVIDIA holding? We're long-term believers in NVIDIA. We've been there since 2016, and we continue to be very strong supporters of NVIDIA. We still think that there's a lot of upside there, not only because of their participation in generative AI, and we do expect near-term upside to numbers based on demand from that end market. But the other thing to really keep in mind is that they're really at the forefront of

autonomous driving as well. They do all of the training for autonomous vehicles around the world in the data center. And so there are really several different vectors to drive their growth over the next three to five years. So when we look out over the long term, we're still seeing a pretty big difference between what we think they're going to earn. We think we're quite ahead of where the street is with what they're projecting that NVIDIA will earn. Yeah. I meant parabolic, obviously, given the move in the stock. How would you answer that question as we approach earnings season? Is better than feared going to be good enough as someone like Mike Wilson and Morgan Stanley, who's been more negative than most for longer than most,

suggests that the the hourglass is sort of running out of sand on that whole deal that better than feels not good enough anymore. What do you think? I don't know if it's the truth is when you go back and you do the work. I don't mean this about Mike. I just mean in general, the single biggest determinant of how equities, the single biggest macro input to how equities perform during earnings season is not the beat rate. It's how you performed going into earnings season. And so if you have a particularly strong run-up into earnings season, you're much more likely to trade sideways or down than if you have a weak performance in earnings season. Well, that's not good for tech then, is it? Well, I'd have to think more about what it pertains for any particular sector. No, but you just defined

the potential issue for a group of stocks that has run up a lot into earnings. That would certainly complicate the picture. Listen, it's a derivation of the confidence argument. Obviously, if you're particularly excited about the sector and you run up into it, you're pricing in some of the eventual beat. Like, for instance, the S&P's, the consensus now looks for a 9% earnings drop. I may end up eating my words, but I think you're going to be much more likely to have an earnings drop of, call it, 3% to 4% than 9%. I think, in general, the season will go much better, and some of that will have already been priced in. So if that's the case, Nicole, is that good enough?

Is better than feared good enough? I think no matter what, we're going to see the harvesting of gains in a lot of these mega tech companies as we go through the summer months. And we're going to see the conversation take place around, what is the risk reward premium for staying put when I have the ability now in short duration assets on the fixed income side to capture an, X risk-free rate on top of captured gains. And so I just think we're going to see a restructuring of portfolios in the coming months because I do believe it's not going to be good enough and that this run-up into earnings season is going to be to some degree problematic unless we get forward guidance that we can expect such earnings growth

on a go-forward basis. You know, the other point, though, is that there's, for us, this bull case, the stay-long scenario, in tandem with the I-wouldn't-put-money-into-the-market-now, is that it is going to be choppy. That beneath these top seven names, you're probably within a trading range until we have clarity on the direction of the Fed. And for us, we have a hard time believing that they are going to push rates into demand destruction territory. So when we get inflation near kind of a 3 percent target, for us, we call their bluff on saying we're going to push

it for those next 50 basis. Right. So you don't you don't but you don't think we have enough clarity at this point to at least know we're much closer to the end of the road? All right, so we get another hike, maybe two. That's not enough clarity at this point? I don't think it is if we continue to look at parts of the labor market where you're seeing wage growth and instability and having, for lack of better words, a consumer that is so ready to spend money freely. And so if we're trying to push money through the system, regain price stability, and we have this expectation of where earnings likely going to go in the future,

we cannot continue to have costs rising and expect growth at the same time. And so we have to find equilibrium. There has to be balance there. And I don't believe that we see the real broadening of the market away from technology until we have more of that stability. All right. We'll leave it there. Guys, thank you very much.

Appreciate having everybody. Nicole, Dan Greenhouse, thank you. Erica, thanks. We'll talk to you soon. Let's get to our Twitter question of the day. We want to know what's more important to the rally right now, interest rates, earnings, or inflation data. You can head to at CNBC closing bell on Twitter to vote. We got the results coming up a little later on in the hour. One in which we are just getting started, though.

Up next, the risk reward debate continues. Goldman Sachs' Elizabeth Burton is breaking down her second half playbook, flagging what she says could be the best bets for your portfolio. That is coming up next. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. All right. Welcome back. About 35 minutes left in the trading day. Let's get a check on some top stocks to watch as we head towards the close. Christina Partsenevelos is here with that. Christina. Well, I want to start with Fisker shares.

They're surging higher as the EV maker plans to offer three hundred and340 million in convertible debt with the potential to actually double that amount. You can see shares are up 13.5% right now. This is all in an attempt to use these proceeds from raising that debt for an additional battery pack line and other future products. Market likes it and it's driving the stock higher. Meanwhile, Ralph Lauren shares are hitting a new 52-week high as the fashion brand enters into a five-year revolving credit facility of up to $750 million with JPMorgan Chase. The company also announcing it will be returning to New York Fashion Week. This is just after a four-year hiatus. The retailer, keep in mind, has recently cut back on its presence in lower-end department stores, all in an attempt to be considered a high- end brand again. Scott. All right, Christina, thank you. We'll talk to you soon. Stocks are in the green across the board now. The Dow rebounding from last week's slide. And my next

guest says she's staying cautious when it comes to equities, saying the risk reward going into the second half is not that great. Let's bring in Elizabeth Burton of Goldman Sachs. Welcome. It's nice to see you. Hi, Scott. Nice to have you on the program. So why isn't it so great right now? So I don't think we're saying the underweight equities overall necessarily. You don't want to change your portfolio. But the risk reward, particularly for U.S. stocks, looks a little bit fat and flat from here through the end of the year. Yeah. What leads you to believe that? Is it in part just because we've had such a big first half that we've kind of done a year's worth of gains in six months?

It's mostly earnings driven. These next couple of weeks will be interesting to see what was going to come out of the second half of the year. But we only see slight increases from here through the rest of the year. We see margin compression happening. So it'll be interesting to see what we hear on the consumer front from AI, from credit over these next couple of weeks. This is like the great debate right now is to what degree do earnings have to be good enough for investors to say, OK, that's fine.

They were better than feared. And there's commentary on the street, which I already referenced in earlier conversations, that that's not good enough anymore. That got us here. Now it matters that they really need to be good. Do you ascribe to that or what's your thought there? I think what's important to think about in that question is there are alternatives now, right? So yes, earnings need to be material if you can also allocate to cash and earn a pretty healthy risk-free return. You've also got the bond market to contend with and you've got alternatives coming back. If you Googled hedge funds in 2017 to 2021 in your filter, you'd see comments like hedge funds are dead. You don't see those anymore.

There are more opportunities in the market to be long and short in different parts of different asset classes. So we've talked about the competition for equities for some time now. You still think that exists. I guess what's the level of conversation that you're hearing from big allocators of capital, hedge funds and other institutions when it comes to that? Do they still see competition elsewhere that just provides enough reward with less risk? Competition in terms of where else to look in the equity market? Yeah. Competition from asset classes. Competition in terms of asset classes. Why bother taking the bigger risk in equities when I can take, you know, less risk with cash equivalents, money markets and, you know,

treasuries and things like that? Right. Well, I think for pension funds specifically, they have to stay invested in equities in order to achieve their six and a half to seven and a half percent long term returns. But how can they do that in a way that might decrease their risk? Well, it's difficult to lower the beta or the market risk of that portfolio, particularly when we're in a growth-sensitive environment. So one of the ways you can do that

is through long and short trading hedge fund strategies or looking in equities in other parts of the market. So private markets, moving to active management, or looking out of the U.S. where you get less exposure to some of these well-performing but large big tech names. Would you still be overweight bonds relative to stocks or no? Right now, we believe you should be underweight bonds in general or underweight high yield, I should say, and neutral on bonds in general or underweight high yield I should say and neutral on bonds in general underweight maybe US equities but there's opportunities to look abroad look elsewhere neutral in general in

activities you want to be tactical but but where you can be overweight would be commodities in cash and I like to think of the overweight in cash which is typically difficult for some of our larger investors as sort of being able to catch a rebound so that you know know, when someone's free and open, you can get another shot on gold, particularly when that's paying you to do so right now. Now, commodities is an interesting play. Tell me why you like that. I mean, if if there are serious questions about China's recovery, if there are maybe not serious questions, but enough questions about the strength of our own economy. Sure. Why are commodities a good play?

Well, not all commodities are created equal to your point. So China specifically, if you think about if there is the possibility that this reopening is going to continue, it's just been slow in that transition. Then we should see an upside case for commodities. You could also play with cash in that perspective if you think that might not be a good place to look for right now. But in general, they're diversifying to your portfolio. It's been a tough year for them. But as you try to eke out incremental return, you want to look for things that are uncorrelated with the majority of your risk drivers in your portfolio, like a commodity supply. Which commodities play specifically? Are you able to

get that granular in what you like best and what you don't? I think you can look to some price appreciation in certain industrials. So potentially aluminum might be one place to look or copper might be some place to look. Well, see, that's the thing. I mean, copper comes to mind when I talk about, you know, strength of not only our own economy, but China specifically. That's true. So there are a lot of pros and cons to playing that market. And you've got to weigh the risks just like you would any other investment. So you're right. There

are risks to copper, particularly out of some of the regulations and news coming. Good to have you here. Welcome to our program. Elizabeth Burton of Goldman Sachs joining us up next. A capital crackdown. Looks like the Fed could be shaking up the capital requirements on the banks. We've got the details and what it means for that sector if you're invested in it. We'll do that just ahead. Plus, the new Chipotle, Wall Street initiating coverage on Kava. Investors cheering that call. We've got the details ahead.

Closing bell. We'll be right back. All right, developing story. Welcome back to Closing Bell. Shares of Carl Icahn's IEP surging today after the billionaire investor reached new terms with lenders regarding his personal margin loans. The loans were one of the key issues Hindenburg Research cited in its short report on IEP a couple of months ago, saying the terms could be a risk factor for IEP investors. The Wall Street Journal broke today's story and says months of negotiations ended this past weekend. The new agreement includes higher collateral and disconnects the loans from IEP

share price, potentially easing concerns about asset sales. IEP stock has fallen roughly 30% since the Hindenburg short report, including that move higher today. Mr. Icahn not commenting when I reached him earlier today. Meantime, the Fed unveiling its new push to tighten rules and raise capital requirements on some banks. Leslie Picker here with those details. Les? Hey, Scott. Yeah, the revamped capital standards stem from a speech that Vice Chair for Supervision Michael Barr gave at the Bipartisan Policy Center in Washington earlier today.

The recommendation for enhanced capital rules apply to banks with $100 billion or more in assets. That's a lower threshold than the current $700 billion. Barr says that the proposal is equivalent to requiring the largest banks to hold an additional two percentage points of capital. He says the expanded scope is appropriate because, quote, the risk of contagion implies that we need a greater degree of resilience for these firms than we previously thought. A nod going back to the March and April events where we saw some turmoil in the mid-sized banking sector. Now, notably, Barr is proposing that firms with 100 billion or more in assets account for unrealized losses and gains, and they're available for sale securities when calculating regulatory

capital. So if you recall, this was an issue with Silicon Valley Bank because they realized losses from their AFS portfolio without having the capital to back it up, which the Fed says triggered that run on the bank. The proposed rules would also standardize much of the risk functions rather than having firms rely on their own internal estimates. Barr says that the comment period and there will be a slow implementation as well. So it could be years before we see these new rules actually in place, Scott. And as I look at the stocks today, shall we be looking more towards those more regional banks, the midsize ones that you referenced, rather than the larger ones for any kind of stock reaction? Because when I look at the larger ones, they're certainly not negative on this news.

Yeah, you're spot on, Scott. So there was some uncertainty in that kind of window between $100 billion in assets and $250 billion in assets as to whether more stringent capital rules would apply to that subsector of banks. So because this speech indicated that anything above $100 billion would be applicable for some of these tighter capital requirements, there's still a lot of uncertainty with regard to his comments, but that made it clear that that $100 billion and more would indeed be required to be subject to some of these regulations as well. Gotcha. Leslie, thank you. Leslie Picker, following the money. Up next, we're tracking the biggest movers as we head into the close. Cristina Partinovalos is back with that. Christina. Ooh, the crypto winter could be over and that means soaring Bitcoin and a big warning sign

for agricultural stocks. I'll explain all of that right after this break. Got 20 to go before the closing bell. Christina Partinevalos standing by with the stock she's watching. Christina. Shares of agricultural science firm FMC are down about 10% after the company slashed its guidance because of, quote, abrupt and unprecedented drop in volume from customers. FMC sells ingredients for insecticides and other plant health products to dealers, and then the dealers send that or sell it to farmers. And so that revenue warning right now is dragging down fertilizer names as well, like Mosaic, CF Industries and Corteva, which you can see is down five, almost five and a half percent right now. Switching gears completely, $120,000. That's the

level Standard Chartered sees Bitcoin hitting in less than two years, suggesting the crypto winter is over. The bank predicts that the cryptocurrency, which is really just hovering above $30,000 right now, could jump to $50,000 by the end of this year and could encourage Bitcoin miners to hoard supply, driving prices even further. And that is why you are seeing Riot up 8.5%, Marathon up almost 8% right now. Scott.

All right, Christina, thank you very much. Christina Partsenevalos. Last chance to weigh in on our Twitter question. We ask, what is more important to the rally right now. Scott. All right, Christina, thank you very much. Christina Parts and Nevelos. Last chance to weigh in on our Twitter question. We ask, what is more important to the rally right now? Interest rates, earnings or inflation data? Head to at CNBC closing bell on Twitter. The results after the break. The results now of our Twitter question, we ask, what's more important to the rally right now? Interest rates, earnings or inflation data. Inflation data, the winner, 40 percent of the vote. Earnings, though, second place, 35. Up next, DraftKings. That stock soaring today, up nearly 15 percent over the past month. We'll tell you what's driving

that momentum and how to play the rest of the gaming space just ahead. That and much more when we take you inside the Market Zone. All right, we're now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Phil LeBeau shares the latest numbers on the state of the used car market. Christina Partinevalos delivering Wall Street's takeaways on Kava and Contessa Brewer on the stealth rally in DraftKings. Mike, begin with you. Markets hanging in pretty well today. Rates were higher almost across the board.

Now they're lower almost across the board, but we do have the 10-year sitting right at 4%. Yes, steady. And I would argue that the entire market's in a stealth rally today. It's actually a very strong day. The equal weighted S&P is up three quarters of a percent. Two stocks up for every one that's down. Industrials discretionary outperforming.

The small caps are up 1.4%. The reason the S&P and the Nasdaq 100 are stuck is because of a mechanical shift that's coming likely to the Nasdaq 100. It was announced late Friday, where the largest six stocks in the NASDAQ 100 are going to have their weightings reduced in the index because of a rule that prevents over concentration. So it was announced late Friday,

and basically any stock that's more than 4.5% weighting in the NASDAQ 100, and that's those six I mentioned, and Meta's right on the cusp of it, is basically going to have some of their weight taken out and distributed among the rest of the Nasdaq 100. So the equal weighted Nasdaq 100 is up like a percent and a half today. The point is not that that's the only thing that matters today, but in a day when there's not a whole lot else pushing prices around, this is enough and also enough of a reminder

of just how heavily this whole market and aggregate has bet on this group there more than 25 percent of the S&P but they were about 48 percent of the Nasdaq 100 and that triggers this rule that says they have to do a special so-called rebalancing later this month yeah so it gives you an idea of the run that they've had and even so the stocks themselves are really not down 1 to 2 percent. Nobody knows exactly how much is coming out of it. I mean, let's take 100. The QQQ is a big fund, 200 billion dollars, but it's not big at all relative to the size of those market caps. So it just really shows you it's it's just sort of skimming a little bit off the top of the biggest, most successful stocks

of this year. All right, Phil, inflation data, it's critical, and many are hanging on these used car numbers that came out that are pretty good. Yeah, it's encouraging if you're expecting inflation to come down. This comes to us from Cox Automotive. They track this through the Mannheim Used Vehicle Index every single month. And what they found in June is a decline compared to May of 4.2 percent. But look at that decline year over year, 10.3 percent this June compared to May of 4.2%. But look at that decline year over year, 10.3% this June compared to June of last year. The retail inventory did tick down a little bit

to 45 days supply. So it's still a relatively tight market. As you take a look at the auto dealer stocks, we're showing you what they've done this year. Keep in mind that the demand for used vehicles is actually ticking up a little bit. So there's a combination of things going on here, Scott. You've got a little greater demand happening for used vehicles,

and you also have greater supply of new vehicles. So people who are in the market to buy a car, whether it's new or used, they've got more options out there. And that's reflected in what we're seeing with these used prices in June coming down more than 4%. Well, because you couldn't get used vehicles before, right? And if you could, they were super expensive. Right. And you had no choice but to pay up. The number of people I know who said, I don't want to buy a car at this price, but I got to buy a car, so I'm going to do it. That has changed. There are still people who are in the market who feel like they got to buy a car, so I'm going to do it. That has changed. There are still people who are in the market who feel like they have to buy a car for a variety of reasons, but they've

got more choices now. Yeah, good stuff, Phil. Appreciate that. Phil LeBeau to Christina Partinevalos, Wall Street. I don't know. You would call it a love affair with Kava because it's done great as they initiate on it today. You do have a couple of buys, a few overweights, and then a couple of neutrals thrown in as well based on valuation. Yeah, and I'll go through it all. And you have a lot of puns, too. The stock, though, has doubled since its IPO in June. And analysts, like you said, agree there's a lot more room to grow for this name. Morgan Stanley even saying Cava would become the next Chipotle in the coming decades. The Mediterranean chain, though, sees potential for more than 1,000 restaurants in the next decade.

So that's coming from the company itself. But Jefferies thinks they could hit 7,000 in North America. All of the analyst notes that I looked did highlight the significant potential for expansion. There is some caution, though, on this high-flying stock. Baird acknowledges the current valuation is pretty high and says it's a leader, though, in a Mediterranean fast casual, which is why their price target is 50 bucks more on the high end compared to others. And then Citi says it may take a few years for free cash flow to be positive. And given the weaker consumer spending environment, they're staying on the sidelines with a neutral rating. So

a few are letting the stock marinate for now, Scott. I figured you were going to go there. I know I had to. I stole that from JP Morgan, so I won't take credit for that line. That's all right. Okay. Mike Santoli, you got a take here? Yeah. I mean, specialty retail and then restaurants on top of it are where you can have these young, fast-growing concepts get people pretty excited. So the big picture play is fast casual gaining share over other types of dining, Mediterranean theme, taking, you know, share away from other stuff. And you have lots of runway. I don't think it's egregiously expensive.

I mean, in the 2021 class of IPOs, you would look at this and say, well, you know, six times next year's estimated sales. That doesn't look so bad because we were trading everything at 10 times. But it is roughly where where Chipotle got to at the peak recently on a much larger base. So I think it's got conceptual room to run, and therefore people are going to latch on to the story. It's got some time to prove that they're wrong. All right, Christina, thank you for that. Contessa Brewer, what's been going on in DraftKings? Apparently, we haven't noticed it enough. You know what? It's up 8% on the day, and now it's hit levels it hasn't seen since December 2021. It's got a lot of bullish options activity and above-average options volume. A handful of analysts last week raised their price target on DraftKings. Consensus estimates for second

quarter revenue and earnings, Scott, are moving higher. And Deutsche Bank analyst Carlo Santorelli estimates that DraftKings is grabbing more market share and has now achieved about 31 percent of the national market share in sports betting. Number two behind FanDuel, but grabbing it at a faster pace. And then in iGaming, it's overtaken BetMGM as the nation's market share leader, thanks in part to its acquisition of Golden Nugget Online. There you're seeing the shares for the day. I should mention year to date up more than 150 percent. This is a stock that has a lot of people chattering on Twitter and I guess threads and Reddit. Everywhere else. Wherever they're chatting

online. Wherever they're chatting or wherever they're gaming. What's the road look like right now to profitability? Can you bring us up to date? I know I probably ask you that a lot and maybe for good reason. And maybe the picture changes, too, because DraftKings has said by fourth quarter. But Jeffrey's analyst is out with a note estimating that they could be at the break-even point for EBITDA, which is the important metric in gaming this quarter. When they announce earnings this quarter, we may see it this quarter because they're not spending so much anymore on acquiring customers. And where they've gone into these new states and are still spending, they're grabbing market share faster than some of

their competitors. And so some of those costs have come down. Also, they've got a lot of innovative products, Scott. Like these parlays are very profitable for the sportsbooks. One more note, it's not just DraftKings up today. You've got MGM, Wynn, Las Vegas Sands, Penn. Everybody's on fire today in the gaming space. All right, Mike. Yeah, I mean, all of that coming along with the fact that there is a little bit of a squeeze happening in some of the areas

of the market with the growth of your stocks. You're seeing things like the ARK Complex up two to three percent, big shareholder of, you know, of DraftKings. You see C3 AI up well more than the market. So my point is there's this general current of we're willing to believe again or maybe we're just going to start to squeeze people who have been betting against some of the more crowded shorts. DraftKings is less crowded than it used to be. But I just think that's another dynamic going on. As I mentioned before, you have some money coming out of the very large caps for kind of mechanical reasons, and it's finding its way elsewhere.

Yeah, Contessa, thank you very much for that. Speaking of ARK, Meta is bucking the trend today. Yes. It is higher by 1%. Maybe it's a threads lift of sorts, but also learning that Cathie Wood was a new buyer of Meta in a few days gone by. Yes. It is interesting. I do think that it probably is more of a kind of a threads halo effect, not so much that it's going to be material financially anytime soon, but just that it was a small flex of the breadth of the other platforms of Instagram. And you had some people out there saying, you know, eight billion in revenue potentially out of threads in a couple of years. That would be close to twice what Twitter ever did. So just a general sense

out there that in addition to all the other reasons people have decided to love meta this year, including the fact that it's got price momentum, the margins look good, it's not as expensive as it was near the highs, it's regained half the old losses back, that you do have a little bit of this growth kicker that honestly three weeks ago nobody anticipated putting into their numbers. Are we going to be back to this conversation that I know, and I love your take on it, of long duration assets and the risk of higher interest rates? I don't think it really is. That's the main fulcrum of this discussion right now. I think the real key when it comes to where yields are and where real yields are is,

is it going to choke off the economy, the real economy, not this sort of mathematical relationship where it's very academic, like discounting back long distance cash flows to the present. Obviously, it matters ultimately. But right now, I think that the big Nasdaq stocks are trading off of how defensible their franchises are, how predictable their profitability is, the AI energy and the who knows effect of where that can take them down the road. To me, the yield story is, is it really going to restrain the economy in a way that earnings are not set up to handle?

Where I think you would agree is it's a longer duration, more of an effect on higher valuation when it comes to tech and growth. That's the academic argument. It doesn't necessarily play out that much in the short term but absolutely and i think that if it were all just about we know what this company is going to earn over the next 30 years what are we willing to pay for it now yeah rates are what matters for that calculation but to me that's not the way we trade day to day it looks like we're going to go out close to the highs, close to the down, near 200, to the upside. S&P trying to get nine points today, a fifth of a percent. Does it for us.

I'll see you tomorrow. Let's send it into OC with Morgan and John.