Closing Bell - Closing Bell: Is the Trend Your Friend? 7/1/24

Episode Date: July 1, 2024

Should investors’ strategy shift as the market takes the turn into the second half? Solus’ Dan Greenhaus maps out his forecast for the next few months. Plus, Former Fed Vice Chair Rich Clarida breaks down his rate cut forecast and where the rally could be heading from here. And, EV makers Tesla, Nio and Li Auto popped in today’s session. We tell you what’s driving those moves higher. 

This make or break hour begins with a new month, a new quarter and a half, but a familiar push-pull between tech and treasuries. A few giants of the Nasdaq pushing higher to support the main indexes. You see there the S&P 500 up about a seventh of a percent. Nasdaq is the leader, up almost two thirds of a percent. Yet a majority of stocks continue to struggle. They've been held in check in part by the 10-year Treasury yield rising to about a three-week high, pushing the 4.5% threshold just a little while ago, now at 4.48%. Apple, the biggest upside contributor to the S&P 500 and the Nasdaq on the day, both those indexes, as we said, posting modest gains after big first halves. Small caps remain a drag. The Russell 2000,

it is stuck just above that 2000 level, down more than three quarters of a percent on the day. That all takes us to our talk of the tape. Should investors' strategy shift as the market takes the turn into the second half, with the S&P up more than 14% year to date? Or are the prevailing trends the ones to keep playing? Let's ask Dan Greenhouse, chief strategist that sold us alternative asset management. Dan, good to see you here. Thank you, sir. So, you know, the probabilities say you got a strong first half. You have this nice upward trend in the market. Seasonally, things look OK. You usually have upside follow through. But, you know, the complications come in the details. So how are you thinking about whether the first half pulled forward gains or really just reflect a continuing dynamic?

No, I think continuing is probably the right way to put it. Obviously, this is an extenuation, an extending of the rally that began late last year. And to the point of the question that we posed at the outset, I just I don't know why anything is going to be different. Now, mind you, I came into the year arguing for a broadening out of the rally, which has not happened. As we know, obviously, the market concentration, at least from a contribution standpoint, has been quite narrow. Although there are other themes that have played out. You've seen this in the AI story, which has caught fire, so to speak, not the chips, but the data center build out and the power side of things has really caught fire. But it's still a largely concentrated market. But in terms of what terms so to speak, not the chips, but the data center build out and the power side of things has really caught fire.

But it's still a largely concentrated market. But in terms of what turns it, I think the one thing that I've been talking about and I think remains true is if you start to see rates come down over the next six or nine months, is that sort of the contributing factor to a broadening out of the story? Or is the AI, I don't know the right way to put it, or is the AI story, it will just be simple, just too powerful for everything else? Sure. And I guess, you know, there's no kind of law of nature that says it has to be one or the other. But recently, it really has been almost one or the other on a day-to-day basis. I think we're working on the

ninth straight trading session today where the S&P won't move half a percent. Yeah, it's been quite a fun time. And yet you have, you know, the majority of stocks are lower today. You have this really static index and then you have, you know, whatever the market has to do below the surface to keep it that way. I guess the other thing I've been wondering about is in March of this year, we really did see a broadening out. And at the end of the first quarter, you were able to say we made a record high. Historically, strong first quarters mean, you know, a strong rest of the year. All the things I just said about the strong first half. And yet, April, you got a lot of downside chop. You actually had to go through what qualified

as a pullback this year, five or six percent. And it was with yields going up. So, I mean, what's your sort of diagnosis of the case in terms of why, after a pretty good PCE inflation number Friday and, you know, a lot of downside on the economic surprise index, we're sitting here with yields higher? And listen, I'm in the digestion camp in the sense that we had a real strong rally, 15 percent for the headline index, 4 or 5 percent for the equal weight to start the year. I wouldn't be surprised if we tread water for much of this month into the Fed meeting where you get some clarity on how they're thinking about things. To your point about the PCE, I mean, you have had a softening of the

economic data, which everyone's quite well aware. Some of the jobs numbers have at least returned to normal, if not started to worsen, like jobless claims. The ISM today, construction spending today were not booming. And so the economic data has come in at the same time that the inflation rate has moderated. And again, as we saw on Friday, the Fed's preferred measure of inflation is about two and a half percent year over year, give or take. That's pretty good for government work. And so at the end of this month, they're going to provide some clarity on how they're thinking about things in that environment. And from an investor standpoint, that's going to be pretty important, obviously, in determining when they cut rates. And if that point I alluded to earlier about a broadening outcomes to pass, I will say about rates backing up here.

I mean, the proximate cause to which everyone's attributing this is the idea that apparently President Trump is now a greater probability of winning and he's going to be more fiscally irresponsible. Listen, my one pushback on this is like the supply story is so onerously bad for the next couple of years and going to be worse over the next 10 years. At a baseline, you're going to accumulate somewhere around $22 trillion of additional debt. That's probably going to be closer to $27 or $28 trillion. I don't know that one man or one woman coming into the presidency is going to do much, much worse than that, although I guess we're going to find out. Well, no, maybe not. Although I think if the market's reacting to anything, it's on the revenue side, which is, OK, if the tax cuts are going to stay in place. But, you know, also it's like straddling the end of a quarter and you don't know what the

dynamics were in terms of rebalancing into bonds and out. But I do think, if nothing else, it does underscore that it's been pretty easy to exacerbate those supply concerns. For sure. You know, the market's been pretty good at talking itself into, oh, no, we might not be able to absorb all the supply. For brief periods of time. But I will say, and I'm sure you agree, over the last 40 years, how many times have we heard this can't be, this can't be, this can't be, and yet it always is. I don't know that this time is any different in that respect. I mean, there's the number of conversations I have with counterparties across the street, with investors in our fund

worrying about the debt. And you see this in any number of the Treasury notes that get written. I just, again, you've got 22, probably 27 trillion in additional debt expected. It's just so large. I'm always reminded of that one that one famous phrase, oh, the bank, a million dollars. The bank, you know what I'm saying? Yeah, yeah, yeah. There's no it's the bank's problem. There's no there's no right way to rationalize 30 trillion dollars in debt. No, it's not. But we're also not pricing the next 20 years today. And there are going to potentially be Fed rate cuts and maybe the economy softens up and there's still going to be a need for duration. Sure. But what would change that about not pricing it today is if the issuance starts to change, if the auction data starts to change, which I assume it will not in the short

term, but probably over the next six to nine months, some of those auction sizes, which are already large relative to recent history, are going to start to get larger. And I just wonder if in the short term, the market's going to have to digest those headlines. I imagine they will. Sure. Let's bring in Charles Schwab's Kevin Gordon and Wells Fargo's Samir Samana into the conversation. It's good to have you both.

And, Kevin, love to get you to weigh in on this whole market concentration story. I know you're focused on it. And I always like to get some clarity as to why various people think we should be concerned of it. What are the risks of it? Is it just sort of this is not the way a healthy market behaves? Or is it something else of a kind of mechanical vulnerability in the market? Well, you know, I think a lot of times folks will point to, you know, particularly those who are a little bit more bearish, will point to some metric like, you know, the top 10

stocks in the S&P and how much of the percentage they make up of the index and market cap terms. That in and of itself, I don't think is the problem. And I don't think that should be villainized. I think it's, you know, what performance looks like under the surface. So yes, you're always going to have a large contribution to the index when you have a large stock, whether it's Nvidia or Apple or Microsoft, that's just the index map. But what you really have to pay attention to more so, I would argue, was whether there is waning participation in the average stock world or down the cap spectrum. That started to take hold a little bit as you were discussing earlier with Dan. Over the past few months, there has been a little bit

more chop for the equilated S&P. The cap weighted S&P has continued to grind higher. You know, even over the past year, you've had less than 20% of the members in the S&P that have outperformed the index. You know, you can go on and on with the percentage of members above their 50-day or 200-day moving averages that has sort of, you know, taken the stair-step pattern down so far in the first half of the year. But I don't think it's yet at this alarming level where you started to see in the back half of 2021, where you did start to see more of a dramatic move lower, especially in the percentage of stocks that were in an uptrend. So I think that's actually probably the key for the second half of the year is if you can keep that above two-thirds

of members in the S&P or in the NASDAQ that are above their 200-day moving average, I think that would still be a relatively healthy setup as we go through the softer patch of economic data, as you get through, you know, a little bit more to a little bit more clarity for where the Fed is going and what the actual timing of rate cuts looks like. Right. Yeah. It seems as if you can make the argument that it's the majority of the market kind of resting to wait and see. And Samir, you know, I know that you've sort of favored quality in various ways of defining that in terms of trying to, you know, find where there might be outperformance in this market. On some level, it feels as if the market is willing to

capitalize quality at a pretty high level when you look at the stocks that are leading in terms of their earnings momentum, their balance sheet strength. Is that something that encourages you or worries you? You know, we came into the year thinking that there would be an economic slowdown. And I think it'd be fair to say that if you listen to a lot of consumer oriented companies, that it's here. Right. I mean, you can call it bifurcated. You can call it starting at the lower rungs, whatever you want to call it. But clearly, the consumer is slowing. Right. And with it being 70 percent of the economy, it's just going to be very difficult for preponderance of stocks to do well. So it doesn't surprise me at all that large caps have outperformed. It doesn't surprise me at all that people have kind of flocked to growth, which seems to have kind of decoupled from the economic cycle.

And, you know, I think for the most part, it probably continues into the second half until you see something give, right? Either I think you have to see a more pronounced economic slowdown and then some early cycle dynamics kick in, or I think we continue to muddle through, in which case I think people keep kind of pulling onto those life rafts where they can show growth, you know, despite the economy's low. Although I guess, Samir, if you were really grabbing onto life rafts, you would think that there'd be more of a bid for outright defensive type stocks where, you know, in a bad economy, those are the only ones that seem to hold up.

It's not quite clear that that's what's happening right now. Well, again, I go back a little bit to AI kind of having carved a little bit of its own secular cycle, which I think a lot of people are viewing as maybe a little bit immune to the economic cycle. Now, to your point, I mean, if things slow down and multiples get cut in half, even though people keep spending on AI, absolutely. I could argue that, you know, growth stocks are a lot more vulnerable than some of the defensive areas. It's one of the reasons we like health care. It's one of the reasons we've kind of tried to find some of these one-offs like industrials, energy materials, where you've got some durable demand, you've got really cheap valuations, and they're maybe built already for that coming slowdown, I would argue that those high mega cap growth stocks probably aren't to that good point.

You know, Dan, one of the more provocative things people would say is that we're mid-cycle or the market's behaving as if we're mid-cycle. And that doesn't mean you have many, many years to go. But in other words, we've been thinking late cycle because of the yield curve or whatever else for a while. And yet the market maybe isn't quite there. Yeah. Listen, I think you could make a case that we're mid-cycle. And although I will say you were a mid-cycle and you did have a mid-cycle slowdown in the 90s, people said we were mid-cycle and we were not in the 2000s. And that ended up being very, very late cycle. I think it's very hard to tell and ascertain. And there's ways that we do this, but it's very

hard to ascertain with any seriousness that you are, quote-unquote, mid or late cycle. A lot depends on how you define it. I'll just piggyback on what Samir had to say about the AI thing. I sort of don't agree that AI has, quote-unquote, decoupled from the economic cycle. I mean, it has in a number of respects, but it hasn't. And I think a better way to put it is that it's largely independent of the economic cycle right now. There's this just this gold rush, so to speak, to build out the data center, the cool, the data center, the transportation of the data center, the chips, et cetera, et cetera. And I think you're seeing the AI sausage get made here. And I don't know that it's appropriate to overlay that onto the economy. Now, obviously, if there's a broader and more sustained and steeper economic

slowdown, some of those CapEx budgets will be reduced, sure. But I don't know that I would link them in the sense that, well, the reason we're spending so much is because the economy is so broad. And I'm not sure Samir said that, but still. No, exactly. It's absolutely catalyzed a lot of real world spending that in theory has some kind of multiplier effects. Kevin, I guess the more practically or tactically, what are the implications of this environment for you looking into the rest of the year, whether the market is giving us some rebalancing opportunities or some, you know, neglected areas that look like they seem like better bets? Yeah, well, you know, neglected areas that look like they seem like better bets? Yeah, well, you know, similar to what Dan was saying at the beginning in terms of the broadening out and how much of it is to be believed, how much of it has been reversed.

I mean, year to date, and especially over the past few months, yeah, some of that has been dialed back a bit. But I still think if you look over, you know, you zoom out a bit and you look at the longer term trend, whether you want to take it since the October low of last year or, you know, even since the October low of 22, clearly since the 22 low, yeah, it took a while for the rest of the market to catch up. But even since the October low of last year, you know, things are still pretty healthy in terms of broad-based sector gain. Energy is really the only one that's been lagging a lot. So we still think that, you know, with the disjointed nature

of the cycle, and you're all talking about, you know, mid-cycle, late cycle, where are we? You really just have to look to sort of pick which data point you want to focus on. And that will tell you where we're at in its own cycle, because things like housing, yeah, there are certain parts of housing that look late cycle if you look at home sales. But if you look at home prices, you're not necessarily late cycle. Vice versa, you look at something like services, it's still relatively resilient. So I think that the fact that you're still going through, you know, a rolling recovery in certain sectors, albeit choppy, especially with what we saw in ISM this morning for manufacturing, the fact that that's still in place, I think still argues for the rest

of the market to sort of catch its breath and keep up. And from a factor perspective, I think it's a little bit better or easier to invest that way, especially as we turn the page to the second half, because where rates still are and the fact that you want to be looking for companies, in our opinion, companies and industries that still have relatively high cash balances where they're earning a lot more on that. They don't owe a lot on debt. They're still having, you know, so they still have a relatively high interest coverage ratio in addition to strong profit margins and revenue that's expanding. That's probably a better way to approach this because of the disjointed nature of the cycle. Samir, is there a level of, let's say, 10-year treasury yields or corporate bond yields that would more concern you at this point? It feels as if we keep getting tested every few months about how high yields can go

and the economy and the market can hang in there. But is that a key swing factor for you looking out the next six months? I mean, you've got to keep it in mind, right? I mean, it seems like any time we push up kind of to those upper fours on the 10-year and you could argue that 30 years even higher, it seems to at least give the market some pause. Now, again, I think we've entered kind of this phase where people are playing kind of the greater full dairy where they're paying ever higher multiples for some of these larger cap growth names. So I don't know if it'll have an impact at the index level, but I think probably the most interesting thing about today is, as you mentioned, small caps are underperforming so badly. So rates are absolutely having an impact. Look at housing, look at small caps, look at housing

related stocks. So I think at least for a moment in time, I mean, it's pretty easy in terms of what to do, right? You take your gains that you had thus far this year on large caps, even though we like them, and you rotate them into fixed income, right? Try to immunize your portfolio, especially on the longer end when the market gives you those opportunities. And then I think it's okay to spread a few chips kind of back into the areas like smalls and EM, just to make sure that if there are inflection points in the latter half of the year, you don't get caught off sides. Yeah. So just to bring this back to the broadening out trade that we started with,

I think the larger question that all of us who look at markets from a top-down perspective, even partially, have to consider is whether or not this is telling us something. Is there something else going on in the market that the 493, so to speak, is telling us that the 7 or not? And I think that's ultimately what you need to sort of focus on and come down on. I personally think the answer is not. I think it's actually particularly interesting. If I told you the the coming into this cycle, so to speak, the Fed would raise rates 500 plus basis points. And the 493 or the equal weight index would put together an average year. I think most people would say,

I'll take that. And yet here we are, and everyone's, not surprisingly, lamenting an average year gain and wondering why it's not worse or what it's telling us. I don't know that it's telling us anything. I think, again, in the context of this huge increase in interest rates, I think an average year is a pretty darn good outcome. That is true, although we almost never get an average year in a given calendar year. No, that's right. We also never get an average year. Yeah, usually it's kind of a lumpy thing for sure. Dan, Kevin, Samir, appreciate it.

Thanks for the time today, guys. All right, let's send it over to Pippa Stevens for a look at the biggest names moving into the close. Hi, Pippa. Hey, Michael. Boeing is higher after announcing its buying back its struggling fuselage maker Spirit Aerosystems in a $4.7 billion all-stock deal

after first expressing interest in the company back in March. Now, Boeing says the move will improve safety and quality control. Analysts add Jeffries noting that while the deal will likely dilute Boeing's earnings in 2026, the benefits of reintegrating Spirit are, quote, priceless. Insurers of Snowflake are climbing, headed for the best day since February after Goldman Sachs added the data company to its America's conviction list. The firm saying Snowflake is at an attractive entry point and believes the company's new CEO is likely to accelerate product development, which could boost top line growth and free cash flow margins.

The stock up 5 percent. Mike. Pippa, thanks. I'll talk to you again soon. We are just getting started here. Up next, former Federal Reserve Vice Chair Richard Clarida is back. He's breaking down his rate cut forecast and where he thinks this rally could be heading in the second half. That's after this quick break. We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Stocks are green across the board to start the

second half of the year. Investors looking ahead to a key economic data over the next few weeks to determine how the Fed might or might not move at the June meeting, probably got some friendlier inflation numbers. It seems like the market grew more comfortable with the idea that perhaps things were developing according to the Fed's hopes and expectations. Where do you think that leaves the Fed with regard to how it sets the stage for any move it might make this year? Thank you. Yes, we did get some good news, really confirming what we saw in the CPI report. We got some good news on the PCE index, which is the Fed's preferred index. And importantly, the three month average on that is now down below three. It had gotten up north of four a couple of months ago, and it's now annualized at running at about two seven. So that that's good news. I don't think the Fed will have enough new information to do anything at the July

meeting at the end of the month. And the other thing to keep in mind about the inflation outlook is that when you look at the year over year comparison, which is what the Fed looks at in terms of policy, those comps start to get more difficult in the fall. So our view remains that the pound Fed does appear to want to get one cut in this year. But most likely, if we got that, it would be late in the year, say at the December meeting. It could get interesting if we continue to get better than expected inflation data. It could make September a live meeting. But right now we're sticking to our view that there'll be one cut later this year.

So at this point, you would think that perhaps the market's getting a little bit too aggressive in terms of pricing a likelihood of a cut in September? Well, right now there's not 100% chance of that. It has moved up and that makes sense. And certainly, you know, we'll get reports for we'll get reports at the end of July, at the end of August, and we'll get a CPI in September. So there's a scenario where you get enough good inflation data, in particular, if the economic data continue to move in the direction of a slowdown, that it could make September a live meeting. But right now, I think the pricing is broadly fair. You know, just looking at the Fed's stated framework, obviously, as you know, in terms of where Fed funds radar is relative to PCE inflation, they believe that that means policy is pretty restrictive right now. They've always said they

were going to be likely starting to ease before the actual inflation target was met. The current run rate year over year of PCE is kind of where they thought it might be at year end. So a lot of that stuff builds toward at least the room for a cut. Now, this other line has become a little more commonly repeated, I think, which is, you know, Powell wanting to make sure that when they do ease for the first time, it could potentially be the beginning of multiple cuts. In other words, they don't want to just sneak one in. Is that relevant? Well, I think it is relevant. Yes. I mean, certainly both through the communication and history of the Fed, we tend to get rate cutting cycles.

And although sometimes, for example, in the 90s, there were only really several cuts, and so that's certainly feasible, but both the SEP projections, which we now have, the dots, which we didn't have 25 years ago, and their comments indicate that from their point of view, if they're going to be cutting, they want to be cutting in expectation that that inflation is down to two percent. And certainly if they were concerned that that wasn't

the case, it would make them hesitant, I think, to even get that one cut. And I agree with you. What's your read on the current market action in treasuries? You obviously have the yield curve steepening here for a couple of days, especially today, you know, the 10 year up 11 basis points, the two year up only five or so. You know, this sort of idea out there that there's more focus on supply or the fiscal position or maybe inflation expectations. I think all those are relevant. You know, one of our core core investment themes in our recent secular forum is we don't think an inverted yield curve is the new normal. We think the curve will re-steepen. We think largely as the front end comes down. But yeah, an inverted curve is not normal and it will at

some point begin to re-steepen. And obviously, the bond market, you know, the further out you go from the front end of the curve, the more other factors, including fiscal policy and global developments, become relevant for rates. You know, the 10 year has really been in a range now for for some time. And we think it will stay in that range, but it will rise and fall, you know, as information comes in. We're going to hear from Chair Powell tomorrow, actually, at the ECB forum, along with Christine Lagarde and other central bankers. Do you think that the fact that the ECB has cut and other central banks have moved in that direction has much of an influence on how Powell's thinking about things? No, no, not in that way. I mean, each of those individuals who I had the pleasure of working with closely is going to run policy based upon what they need to do for Europe, the U.S. or or or the U.K.

But central bankers do communicate at forums like this and and in Basel, Switzerland at the BIS. So I think they're aware of their colleagues reaction reaction functions and outlook. But no, on the specific question of, is U.S. policy going to be influenced by the fact that the ECB is already cut? I don't think that's the case. Yeah, certainly there is precedent for them kind of going in different directions at times. Rich, appreciate the time today.

Thanks so much, Rich Clare. Thank you. From PIMCUP. All right, up next, your second half setup. Top technician John Kolovic is revealing the key levels he's watching in the second half and how he's playing the momentum trade right now. He joins me here at Post 9 right after this break. Welcome back.

The S&P and NasdaQ both trading just below record highs. The S&P losing a little ground in the last little while after posting double-digit gains in the first half of the year. But can stocks stage another leg higher from here? Joining us now with the technical setup is John Kolovas. He's Chief Technical Market Strategist at Macro Risk Advisors here at Post9. John, good to see you. Good to see you again, Mike. So with regard to the S&P 500, you say nothing to complain about, not really doing anything wrong.

It doesn't sound like a resounding bull case, but why do you treat the move that way? Okay, look, I'm a trend follower, right? So Sears to higher highs and higher lows, that's how I have to operate it. I've got to view it in that regard. So moving average in the right position, there's no discernible patterns in place. I can complain that it's overbought. Sure, in RSI, that got pretty extended. But overall, that chart is fine.

You know, did it just come out of a base? And I could say we're going to go up another 30% from here. No, but it's in a well-established uptrend. So nothing to fight at this point outright, even if it doesn't look spring-loaded. You know, you were flagging just exactly how extreme the upside in semis was last time we spoke. And obviously, that's come off the boil. How are you thinking about that? Yeah, similar. So what I did since then, I did a study, took a look at other transformative technology companies. I went back to 1900 for that. And a chart that I brought today was of RCA Corp. And what I found there that

it did exceed its long-term moving average. Like in the 20s and 30s? Yes, like in the 20s and 30s. Radio Corporation of in the 20s and 30s. Radio Corporation of America. Right, right, right. And what it did was it exceeded its 200-day moving average three different times in the 1920s. The first two times, yeah, it got shaken out pretty aggressively. But there was that third time in March of 1928 when it hit it, it went up another 400% since then. So the way I'm looking at things is if we view the like, the NVIDIAs of the world as transformative technology, I even did this exercise with GM as well, same idea.

Pull back, but it's a viable pullback. And I kind of framed this, you know, to everybody else that maybe it's overbought for a reason. So that's the way. So with NVIDIA having, you know, had this double-digit pullback, you feel like it's, I guess the question is, how deep might those become? Yeah, and that's true. I mean, on average, like the example I brought last time, semiconductors on average could be 20%. We already got 16-ish already on NVIDIA. My guess is maybe we're two-thirds of the way there in terms of price, but probably only halfway there in terms of time. So my guess is it's going to have to muddle along

for a little bit before it goes up, up, and away again. But again, be a trend follower. Mindful of your levels. These moving averages will goes up, up, and away again. But again, be a trend follower. Mindful of your levels. These moving averages will trail up with price, and that will give you your exit point. So I can't sit here and guess. An example I gave you last time was, imagine if I got bearish in 1998 and totally missed out on the whole bubble.

You know, you'd get tapped on your shoulder, and you'd be out of a job. If you look at other kind of intermarket things, I mean, a lot of people have been saying, look, credit looks fine. The cyclical parts of the market still holding up. Is any of that changing? Yeah, it's that starting to change. So I think we have to start looking at the macro again. We just saw since since the debate, nominal yields are ripping higher. Oil's up 15 percent

in 18 days. That's that's pretty impressive. But my cross-asset volatility work, my macro uncertainty indicator starting to tick up. And what has really caught my eye is that credit spreads are starting to poke up. See, the Fed has hiked aggressively, but financial conditions have been relatively loose. But credit default swap spreads are starting to push up. And the work that I've done is that when the momentum, when it's a buy signal on CDXs, it's a risk-off environment. So that brings me to the conclusion of maintaining the allocation I currently have, which is low beta, high quality stocks. But if that would persist, because it does look like a base on the chart, that could be something that actually derails everything. It takes my cautious view off the table into something more long or lasting. And so when it comes translating it into,

let's say, S&P terms, in terms of if we did get some kind of a pullback, what threshold is there for where it's like more than routine? More than routine. We're looking at somewhere around 5,300-ish. We break underneath there. Then we start looking like we're topping. But really, that April low, that April low, that is it. You can't be outright scared to death about the markets until you break that level.

Until then, it could just be a consolidation. It could just be a prolonged range. But I think it's premature to be outright bearish above the April lows. All right. We got a few percent. Yeah, I got plenty of room for that. All right, John, great to see you. Thanks very much.

Appreciate it. All right, up next, we are tracking the biggest moves as we head into the close. Pippa is standing by with those. Hi, Pippa. Hey, Mike. We're seeing choppy waters for one group of travel stocks. All the details coming up next. Coming up on 20 minutes until the closing bell, the S&P trying to hold above the flat line.

Let's get back to Pippa Stevens for a look at the key stocks to watch. Hey, Mike, Hurricane Beryl is roaring through the Windward Islands and taking a bite out of cruise stocks. Carnival, Norwegian and Royal Caribbean all lower after the storm made landfall in Granada this morning. Royal Caribbean saying they are making adjustments to some of their sailings. And Madison Square Garden on the move following news that the Boston Celtics majority ownership is putting the team up for sale as sports franchise valuations soar. MSG's controlling shareholder is the Dolan family, which owns the Knicks and the Rangers, and could be why the stock moved higher on the news. Mike? Yeah, Pippa, hope springs eternal among Knicks and Rangers fans and investors.

Thank you very much. Still ahead, shares of EV makers Tesla, NIO, and Lee Auto all charging higher. We'll tell you what's driving those moves this afternoon. Closing bell. We'll be right back. Welcome back. Shares of Amazon continuing to surge higher. The newly minted $2 trillion company is investing heavily in its AI future, planning to spend more than $100 billion over the next decade on data centers.

CNBC's John Ford spoke with Amazon Web Services CEO Matt Garman in his first interview since taking the job. Here's what he had to say about the future of generative AI. That open AI moment did galvanize companies to think about, okay, if the world is going to change, which it's going to, and I firmly believe that generative AI is going to completely transform every single industry out there in some way, shape, or form. And some of them vary materially. And so kind of delivering three more percentage points of margin is not going to help them if their revenue is going down. And so I think people pretty quickly shifted to how do I innovate and how do I grow? And as soon as you get past, you know, I put a chat bot on my website that was useful and was able to answer a couple of questions and was pretty cool. You get to,

okay, I need to use my own enterprise data to go deliver some actual value. You can get more of that interview coming up in the next hour on Closing Bell Overtime. Keeping an eye on shares of Paramount, and when are we not, off the lows of the day on news the company is looking for a streaming partner, and Warner Brothers' discovery could be in the running. Alex Sherman broke the story, joins us now with more details. Hi, Alex. Hey, Mike. Yeah, look, the idea of pushing these two companies together may ring familiar to some people. That's because Warner Brothers Discovery actually looked into preliminary talks to merge the two companies earlier this year.

They put pencils down on that deal, said it didn't really make sense. Investors didn't really like it. So step two, chapter two to this story may be that Paramount Plus and Max could come together in some sort of joint venture. Paramount Global's leadership actually publicly stated their desire to move forward with a deal with someone, whether that be a tech partner or a legacy media provider that already owns a streaming service in a employee town hall last week. The news today that I'm reporting is that there is interest from Warner Brothers Discovery in Paramount Plus in that Paramount content to match it with the content they already own in their Mac service

that would theoretically give consumers a more robust streaming offering. So we have this potential combination or, you know, joint venture, as well as the various media companies perhaps teaming up for this sports distribution deal in streaming. It feels as if just everybody feels as if they have to scramble for scale. It's obviously, you know, the main thing for the players that are not, let's say, in the top two. Yeah, Mike, a couple of things going on here I think that are not let's say in the top two yeah like a couple things going on here i think that are important number one a joint venture like this would actually take off theoretically paramount plus from the balance sheet of paramount global so paramount plus has been losing hundreds of millions billions of dollars every year that may be good news for

paramount global shareholders if this thing becomes a joint venture and is no longer on the books for Paramount Global. But really, in a bigger sense, it speaks to what you just said, that there is a re-rationalization of streaming assets going on. So all of these things have been launched or they're about to be launched, like the sports service, and all the legacy media companies are kind of thinking, you know what, we've got to do this better. We've got to have more scale, more partners, better monetization of our content, new bundles, new packages, because what we've been doing has been losing us a lot of money. Maybe we're finally at the break even point. Now is the point that we can make this business into a real money making business for the next 5, 10, 20 years. Yeah,

as many of them sort of plateaued on subs and I guess, you know, reducing churn and cutting costs and all the rest of it kind of works on paper. We'll see, Alex, how it goes. Appreciate you bringing it to us. All right. Up next, a volatile day for Chewy. That stock pulling back from its earlier roaring kiddie fueled rally. We'll hear from an analyst with how he's navigating that name after this break. That and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. UBS Global Wealth Management's Julie Fox is here to break down these crucial moments of the trading day and share her second half playbook.

Plus, Oppenheimer's Rupesh Parikh digs into Chewy's latest wild swings and fill the boat with the latest on what's moving the electric auto stocks. Welcome to you all. And Julie, we have this year where obviously great gains, almost 15 percent for the S&P, only a 5 percent pullback along the way, yet a lot of complaints that it's just all been big growth over everything else and maybe the economic message of the market isn't that strong. How would you be advising investors to navigate the second half? I think right now the market's trying to tie up a few loose ends. How does inflation and job growth look over the next few months? How will the Fed react? How are earnings fair over the next few quarters? E, earning season begins in mid-July again,

and how the political uncertainty of the presidential election may affect markets. Now, ultimately, we don't think any of these factors will cause sustained moves lower in the market. But we also don't see the broader market rising too much further from current levels. Our year-end S&P 500 target is 5,500. We're very close to that level now. But again, we're up 15 percent so far this year. So I think the bottom line is we think upside's muted for stocks this year, although there can always be volatility. The economic data reports, the jobs data, the inflation data, that's going to be key for markets. And it's important to stay invested.

If it's important to stay invested, look, if you're an index investor in the big cap, you know, S&P 500, you should be pretty happy. But you suggest maybe the index doesn't have a ton of upside. So within the market, where would you be looking to emphasize? I think there's really three key sectors right now that we're focused on. The first is tech. We remain constructive on technology stocks, even with the run the sector has had over the past year. Valuations for tech stocks are high and higher than their long-term average. But many of these companies are very profitable. They're on a firm foundation.

And many of them will get bigger as AI is developed and serves more use cases. So I think tech is an important part of a portfolio. We also believe that the AI investment case remains intact. And then we like industrials. Those should benefit from resilient economic growth, improving manufacturing sentiment and the tailwinds from the re-industrialization of the U.S. economy. And then lastly, small caps. I think while there's a lot of Federal Reserve uncertainty, we think the Fed's next move will be a rate cut starting in September. And rate cuts tend to benefit small cap stocks as those stocks are more reliant on debt. They're lower cost of capital. That helps profitability with the small cap stocks. Yeah, that has been, you know, kind of

a big albatross on that group. We'll see if the path to Fed rate cuts changes that at all. Julie, thank you very much for the time today. Now, Chewy giving up earlier gains today. The stock had rallied in pre-market trading after an SEC filing revealed meme stock trader known as Roaring Kitty had taken a stake. Rupesh Parikh of Oppenheimer is here to discuss the company and the stock's prospects. Rupesh, great to have you here. Now, the stock has held on to some of the gains that seemed to be accumulating when there was speculation about this stake right here. But the company itself has been trying to kind of prove it has a durable growth story. How are you thinking about the valuation right now and what the company has to do to kind of, I guess,

justify it? Yeah, so I think valuation right here in the mid-20s, it's very fairly valued. So prior to some of the speculation out there on Roaring Kitty, the stock is trading in the low 20s. So as we look at the outlook for Chewy, we think it's very mixed. So if you look at the pet food industry right now, you're still seeing a difficult discretionary backdrop. So given that you haven't really had the household adoptions in recent years following the pandemic, you've seen some challenges in those hard good categories. So I think discretionary is still a headwind for Chewy. And then for the pet food industry historically, food inflation is a big part of the growth. And right now you're actually seeing no inflation out there in pet food or even deflation in the latest reading.

So I think those are really two of the bigger headwinds out there. Challenges in discretionary and then the lack of inflation within the category. And Rupesh, has Chewy sort of proven the business model at this point beyond just the cyclical pricing issues? Yeah, they have. So if you look at their profitability, gross margins are now in the high 20s. They have an EBITDA margin of 4% plus, and they think they can get to 10% plus over time. I think where Chewy is really differentiated out there is really on the health care side. So they've done a great job with their pharmaceutical business. And now they've opened up these clinics in select markets. I was actually able to visit one in April in Florida at their grand opening. And I think

they've done a great job with their clinic business. So I think that could hold potential longer term. So this is a great business model. I think it's really just lapping the pandemic headwinds with the pull forward and all the pet household adoptions and really the lack of inflation out there. I think, you know, if I look at you over the next few years, eventually I think they will get closer to high single digits, you know, top line algorithm. But right now you're more in that low to mid single digit. And that's one of the key reasons why we're sidelined with the name. I know the company's done some buybacks, but, you know, somewhat offset by new share issuance. I guess the question is, in terms of really getting to sustainable free cash flow, are they close? Yeah, they're already there. Yeah. I mean, they already generate positive free cash flow. You

know, they announced that 500 million share buyback program on top of what they bought from B.C. partners. So, yeah, this, you know, they generate a lot of cash and they're very profitable. It really is getting back to top line algorithm that they laid out their annual say in December. I think that's what the market's waiting for. And the other challenge is just driving positive net ads and customers. And, you know, they've been losing customers in recent quarters. So the market is looking for them to get back to positive net ads. I know it's hard to predict, but do we know if, you know, pet adoption trends are going to turn in their favor anytime soon?

Yeah, so on their last call, Chewy highlighted that they were seeing green shoots in their business. So it seems like we're probably at the low point. Maybe we're starting to see, you know, maybe some modest rebound. So, you know, I think it's not going to get worse from here. The question is how strong of a rebound we see in pet household adoptions. But, yeah, you know, there are green shoots out there based on what Chewy and some of my other tech companies are saying out there. All right, Rupesh, really appreciate you running through it with us. Thanks for the time today. Phil, we got Tesla up close to 6% on the

day among some of the other EV makers. What's behind that? Well, the Chinese EV makers spurred everything early this morning. You're talking about Li, Xpeng, NIO. Look at the sales results that they had in the month of June or in the second quarter. Nice percentage gains here. Now, some of this is admittedly off our lower bases. But even when you take a look at BYD, now look at all these stocks for the last month and also factor in BYD. BYD's June EV sales, global EV sales up 13 percent. Now, admittedly, there are some questions about whether or not there are price cuts that are going to be cutting in to margins in China. But those numbers have people saying, hmm, what will we get from Tesla tomorrow? The street is not expecting much.

The estimate is for deliveries of 4000 to 436,000 vehicles. That would be a decline of about 6.5% compared to the second quarter of last year, Mike. But what many people are looking at is this momentum that seems to be building in terms of EV demand, at least right now in China. Yeah, that would be a big, I guess, a turn and a tailwind, Phil. In terms of the future quarters, what's now on paper for Tesla in terms of deliveries? Well, for the full year, the estimates now come down to about 1.82 million. Last year, they delivered 1.81 million, essentially flat. So we know that they've struggled to success of down quarters. We'll see what we get with these numbers tomorrow.

All right, Phil, thanks a lot. See where that goes. You have the S&P 500 set to go out with a gain of about one quarter of 1% after hovering around the flat line, although even as two stocks are down for everyone that is up on the New York Stock Exchange. That's going to do it for Closing Bell. We'll send it to overtime with Morgan and John.