Closing Bell - Closing Bell: Keep Your Eyes on the Vol 3/14/24

Episode Date: March 14, 2024

This return of volatility has investors wondering if they need to prepare for a pickup, especially with another Fed meeting looming next week. Joe Terranova of Virtus, CNBC’s Steve Liesman and BNY Mellon’s Alicia Levine break down what they think investors need to be watching. Plus, top tech investor Glen Kacher gives us his top 5 names in the AI space and why he says they’re worth watching. And, Chris Hyzy from Merrill and Bank of America Private Bank explains why he is bullish on small caps. 

All right, welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the story for stocks, whether today's inflation report upsets it at all, and how to play the markets in the weeks ahead. We're going to ask our experts over the final stretch, including Light Street's Glenn Kacher. He'll join us in just a little bit, get the rundown on all things tech from Mr. Kacher. In the meantime, your scorecard with 60 minutes to go in regulation looks like this. The momentum trade is once again on its heels today, as names like NVIDIA, Meta, and AMD, among others, facing more selling today. There are those three stocks.

Tesla, it's down again as another firm gets more negative on that name. It is now the worst performing stock in the S&P 500 year to date, losing another 5% today. And it's barely hanging on to 160 as you saw. Tough day for small caps, too, as that hot PPI sent rates up, the Russell lower. It does take us to our talk of the tape, the return of volatility and if investors need to prepare for a pickup in that, especially with another Fed meeting looming next week. Let's ask Joe Terranova of Virtus Investment Partners. He's a CNBC contributor. He's with us here at Post 9. Is that your expectation? I mean, is that is that where we're trending? It's about to get interesting

for a little bit. I think the market's about to get very moody, and that's a dangerous place for investors. Since November, the market has been trading off of a sunny disposition, the personality of the market. Now you get into this environment where it's about the mood. Everyone wants to be a Monday morning armchair economist, which is probably the most dangerous and worst thing you could be doing right now. Think of nothing more exciting than doing that. Yeah, exactly. And I think everyone, everyone within the market, they're looking at all the losers year to date and saying, OK, is it time to pivot in that direction? And I think you've got the playbook so far year to date. The playbook seems to be stick with the winners, stick with the quality, go through the names today that are down so significantly.

You've got Snap down 4 percent. It's down 32 percent you to date. Tesla, of all the mag sevens, down the most, down 4 percent, down 35 percent you to date. You could go through them all. Chewy down 4 percent. ARK, unfortunately, is down 3 percent once again today. That's down 6% on the year. So if you're looking to do something in the market today, if you feel the need that you have to do something, look at commodities. Copper's up 5% month to date. Oil's got the breakout above $80, trading 81. We haven't seen that price since early November. XLE at a level we haven't seen since the end of October. You want to maintain exposure to energy at equal weight or higher. I heard earlier today, though, no, now's the time to go to the Russell.

Go. Absolutely not. Why not? Absolutely not. Why not? Because the long duration trade is under duress again. All you have to do is look at the KRE. KRE is down nine percent year to date, down two and a half percent plus so far today. Long duration on distress. Look at the Russell 2000 index. How much of that index can be defined as quality? Very narrow subset of it. That narrow subset, okay, you could find opportunity there. But if the Federal Reserve is sitting back and waiting, then you as an investor want to do the same thing with those long duration assets. I mean, looking at the Russell, today's down 2%. It's down almost 2.5% on the week. Now, several of the mega caps are up this week.

To your point, is the death of the quality and or mega cap trade greatly exaggerated? Because that's sort of where the narrative's trying to go, that NVIDIA is a sign that the momentum large cap trade is tired and it may be sleeping for a while. So if Nvidia is going to move lower, the market is going to move in that direction as well, just because the halo from Nvidia touches so many place in AI software and in the semiconductors. Yeah, but Apple's up today. Microsoft is up today. Alphabet's up today. Amazon's up today.

What do you mean? Those are large stocks. And that's why the market is down marginally 50 basis points. That's why we don't have a larger decline, 1% to 2%, which has been missing from the market for many months, like we're seeing in the Russell, because you've got the push-pull, okay? You've got the push-pull of Apple, Alphabet,

which had been weak, seeing a little bit of buying activity as a rotation away from NVIDIA and some of the AI halo names. But that's a good thing, though. Good thing, absolutely. Isn't it? So why is the market going to be so, as you say, moody as long as you have what just looks like to be a bit of a rotation? Because I think it's been since November a pretty well-defined, nice walk up the stairs higher and higher. And I think you're at a moment right now where you're really void of any catalyst for the market. Maybe Chairman Powell and the Federal Reserve gives us that next week in a place I don't think investors are looking, which is the balance sheet.

We'll talk about that in a little bit. The balance sheet is going to be very interesting, but you're going to get earnings in April. And I just don't think the degree and magnitude of the advance over the last several months can be continued. Expect, in my opinion, choppy trade. We're going to get the outlook from the Fed next week. Our senior economics reporter Steve Leisman joins us now as we're digesting still. Sometimes it takes a little while to fully digest these economic reports on inflation. So we'll get the outlook. I mean, is there a surprise lurking within that, do you think? And does it even matter? And by the way, the market's hanging in there today on yet another hot inflation report. Yeah, Scott, you tell me about that part. Ask Joe. I mean,

if you look at, for example, let's go back and think about what's happened since the beginning of the year, which is really not that long ago, even though it does feel that way. You go back to look at, for example, the S&P. It has been fairly straight up over that period of time, a pretty decent rally since that period of time. And now let's look at the January 2025 Fed funds contract. That has been up to when that

contracts up. It means less cutting more Fed funds for the end of the year. So so far over time, the market does not seem that exercise. There you go, Scott. So you can see it's 457. Now we were as low as what, three six. So do the math for me. That's almost 200 basis points or a little bit less than that

of cuts were built in. And now it's it's what about 80 or 70 basis points built in. So a lot of cutting has gone away from the mind of the market, but not a lot of the rise in stock. So that's one thing. And I do think what the market believes is that the Fed is going to look through the last couple of months. It has been a trying January and February when it comes to the inflation numbers. I was just looking down at my spreadsheet. I was calculating how much inflation has fallen on a monthly basis, the year-over-year rate, and it's been down about 0.16 on average since inflation started falling in September of 2022. The last couple of months, Scott, I'll tell you what they were. They were 0.09. And then this month, if we did a survey

out there, it's going to be down not even 0.06. So it's not going to be that great a fall. And so the market's going to have to say, you know what? I hope the Fed is still on track to cut. And we think the Fed is still on track to believe that inflation is going to fall despite these last two months of sticky inflation. Show us the June probabilities, because, I mean, they really didn't budge much after CPI. I don't know what they're doing at this very moment. And presumably you do. But I think that's one reason why I say the market by and large is hung in there, because the eyes are on the prize. And the prize is rate cuts, presumably in the summer, in the beginning of the summer,

midsummer, whatever. What can you tell us? So, Scott, if you take a look, I'm lucky to have a great producer who does this stuff. And the probabilities are 60 percent now for June. So, you know, it was 50%. It's down 10 points, which really just tells you, hey, there's a market out there. There's a debate out there as to whether or not June happens. Remember that May contract, which is now at 11%. That was north of 90% at one point in time. So the market has really taken back both the timing of the cuts

and the extent of the cuts this year. And I'm has really taken back the both the timing of the cuts and the extent of the cuts this year. And I'm just really interested. I mean, I think what's happened from what I can tell listening to all of the smart stock guys on our air is that earnings have come up to replace whatever or most of what is thought to have been lost by the Fed cutting rates. And the idea that the Fed is not going to cut, and in part so far, Scott, even though we had that nasty January retail sales report, we got back about half of it in February. Still seems like the consumer spending still feels like unemployment and the job market is OK here. And as long as that remains the case, I think you pick your stocks. You may

not be able to buy the entire index and profit, but you pick your stocks as long as the fundamentals underneath it seem to be holding up. Yes. If you hang with me, let's bring in Alicia Levine of BNY Mellon Wealth Management. And we can show the probabilities again for, you know, the rate cuts beginning. And as I said, the stock market has had its eyes on the prize. The prize is June, July, September, right? We're expecting three rate cuts. As long as we think that's going to happen, we can look through CPI and PPI. Yes. Well, that's what the market's telling you. But the rotation underneath, to Joe's point, is telling you that there are pockets of this market that are totally dependent on cuts. The small caps,

the longer duration names and those non-earners out there. So does that mean those names, those names are really in trouble because that means I can't buy those until they cut, because I've had this debate, if not arguments with people lately, halftime today, as to those who suggest you cannot buy small cap stocks until the Fed actually cuts. The argument thrown back at me was, what, are you going to wait until the news actually happens? Don't you want to get ahead of that? How do you respond? Well, as investors, you have to get ahead of it. But I'd say this about small caps in particular.

You've got 48 percent are non-earners. The debt is floating rate. It's coming due within the next couple of years. And if there's any hint that rate cuts are pushed out, this is the area where you're going to see the most damage so if you look out two years are they okay maybe depends how long your time horizon is but in the end I want to buy earnings increases okay we just had an earnings season I want to buy the stocks that have a moat and I want to buy the companies that have cash flow and I want to buy the companies that don't have to refinance their debt right away and ultimately that is large-cap America. It is not the small-cap index. And by the

way, the S&P, the market cap is 14 times that of the Russell. It's almost impossible to rotate out of the S&P into the Russell and try to get a catch-up trade with all that capital. If not now, when? The big challenge, the big challenge for me is the regional banks. The regional banks are everything. You have a reverse repo facility that's winding down below 500 billion. How far is the Federal Reserve willing to let that go? Are they going to let it go to 100 billion, 150 billion? Are we going to have a liquidity crisis? For me, at the next meeting, the Federal Reserve, more importantly than whether it's going to be June or July, they have to address what they're going to do.

Are they going to begin to taper the maturities they'd allow to securities to mature off the balance sheet? Are they going to say $60 billion Treasuries? No, we're only going to go to $30 billion. They have to address a liquidity problem. I don't want to get into the weeds of the balance sheet right now. What I do want to focus on is why we assume. Sorry, Steve. I'm coming back to you in a minute. I don't want to get into the weeds of the balance sheet right now. What I do want to focus on is why we assume. Sorry, Steve, I'm coming back to you in a minute. I don't want to get into that conversation. I don't want to get into that conversation. You're ready. You know I'm right, Steve. What I do want to get

into is the idea of why whenever we talk about small caps, it's that we write, we go to the regional banks right away. Are you telling me there's no other small cap stocks that can work in this environment? None. It's not saying you have to buy the Russell 2000. No, no, no, no, no, no. You never use the word none. I said at the beginning of the show, it's a very narrow subset of 2000. You look at the Russell 2000 index. Look, everyone always says S&P 600. Looking at it. Okay. S&P 600 is a better index. Why? Because the S&P 600 has more quality, more profitable Russell names. Okay. Yeah. Where's the Russell? Where's the S&P 600 year to date? The Russell 600 is weaker than the Russell 2000 is this week. Okay. This week. So at the heart of the weakness is the stress

in the regional banks. Full stop. All right. Steve Leisman, the last mile, so to speak. I do hear a lot that it's going to be the hardest. And I'm wondering how you think, based on your conversations, reporting and whatever else, your intuition on what you think policymakers are thinking about the last mile, whether they they might be surprised to find it stickier than they expected it to be, or maybe it won't be. What do you think? You know, this is one of those interesting areas, Scott, where theory comes up against practice. Theoretically, there should be no reason why that last percentage point is tougher. There's a potential difference in the source of that disinflation.

For example, a lot of the disinflation we've had so far seems to be supply side. You might have reached a limit to the extent to which you could have inflationary improvement through the supply side. And the rest of the chunk comes from the policy restraint the Fed has put out there. Now, that could mean that you get worse economic outcomes, lower GDP, higher unemployment as a result of that. But you still should achieve that goal of getting that last percentage point. The Fed believes right now, Scott, that it is at a restraining standpoint with its policy, that its policy is dragging or slowing down the economy. One of the questions that I think the Fed has to ask itself is how

much is it willing to give up in terms of economic growth in order to get to that last percentage point? And just one question, maybe if I could to Joe, I think the market trades on two things relative to the Fed. The first is the actual policy rate. That's out there. OK, the Fed is going to be at 538. That's fine. The Fed is going to do X with its balance sheet. By the way, it is going to talk about the balance sheet at the upcoming meeting. But there's a second trade. And that second trade is always, to me, the more interesting. The one that is the extent to which the market is trading on the belief that the Fed is making a mistake.

The way I look at the market and the Fed right now, they seem very well aligned. And it doesn't appear as if there is the Fed mistake trade in any of these numbers, either yields or in stocks right now. Am I missing something, Joe? You're not missing something. And I think that's exactly why, to Scott's point at the top of the show, the market decline in mid caps, in large caps, is not that precipitous. There's enough strength to offset on a day when NVIDIA and the semiconductors and the ALI Halo names are weak. There's enough strength to offset. So I think the market sees exactly what you're speaking towards. And that's where I go back to my comments. With all due respect, I think there's too many people out here trying

to go from each economic data point, trying to figure out the month in which the Federal Reserve is going to deliver the first rate cut. They're going to deliver a rate cut at some point in 2024. That's what you need to know. And to your point, the earnings are good enough that allows us as investors to wait. By the way, the S&P mid cap, the mid caps. OK, so we we seem to only talk about large cap or small cap. You know what the S&P mid cap is up year to date. It's five percent, five percent. So it has competed, if you will, with the Nasdaq, with the S&P 500. And it's far outdone the Russell 2000. But I still hear

Alicia, you suggesting this is like a go big or go home market right now I mean we like mid caps by the way because there are great companies there on their way to large cap and earning right it's the earnings story in the end is are you immune to rates in your business and can you earn through it and so a lot of the mid caps can so it's actually been a fairly good index this year the other interesting thing is what is actually going on with commodities commodities are telling us that fact, the fears of a global slowdown may not actually be happening. Copper's at a high and oil has quietly moved up 10 points in the last couple of months. And so it's telling you that growth is probably better than expected. And with that, you know,

stock markets like earnings and growth. And that can outpower whether it's two cuts or three cuts. That will be more important. Earnings will be much more important than actually how many cuts or when the Fed cuts. And to Joe's point about QT, I know it's in the weeds, but it is very bullish. We're not going there. We're not going there. But in my heart, it's bullish when they start talking about tapering. Don't go there, Steve. Don't do it. No, I'm not going to go there. I want to second your emotion on this.

I'll tell you why. Thank you. If we're having a discussion about the balance sheet and in the weeds of the balance sheet, it's because the Fed screwed up. This should go on in the background. Joe should not have to worry his pretty little head about what the Fed is doing with the balance sheet. Let it go away. The Fed is going to stop sometime this year. Shouldn't be a discussion we have to have. If we do, the Fed messed up. That's right. In other words, viewers,

don't worry. We ain't going there. Don't worry. At least not yet, because we don't have to. Because we don't have to. So lastly to you, Steve, should we expect a reasonably benign meeting next week? Yeah, I think Powell's going to try to keep all the flexibility he can. I think he's going to say maybe a modest victory lap in the sense that I told you guys this was going to be bumpy. I told you guys it was not a straight line. We told you that we needed confidence to get to this place. There's nothing about the last two months that's given us additional confidence. And yet I don't think he's going to give up his general forecast or the general forecast of the Fed that he believes inflation is going to come down. You asked me earlier, is the last mile

harder? One thing that's not going to be harder is if we finally get the housing numbers to come down and the housing numbers we know are in the market into the data. That's easy. That's low hanging fruit. It just hasn't shown up yet. Part of the Fed's upbeat forecast on inflation is that housing data working into the CPI and the PCE. And he didn't seem too concerned about this at all last week on the Hill either, which I think is exactly a note. We already had a look at some of the data. So, Steve, thanks so much. We'll see, obviously, as we head into a very busy week ahead. That's our senior economic supporter, Steve Leisman. Elisa, thank you very much for being here as well. Joe Taranofa. We

stayed on the road as well. We did. We did. Thank you. Let's send it to Christina Partsenevelos now for a look at the biggest names moving into the close. Christina. Well, Robinhood soared to a new 52-week high today after the financial services platform said that its February trading volume surged 41% from the same time last year. Robinhood also reported adding, yes, $6.5 billion in crypto volumes. That's about 86% higher than last year, which earned the company a glowing initiation from Bernstein. Bernstein expects a, quote, monster of a crypto cycle this year and next year. You can see shares are up almost 5%. And tobacco giant Altria said it's planning to sell some of its 10% stake in Anheuser-Busch in Bev.

Trading was briefly suspended in Bud shares this morning as details of the sale emerged. The beer company, though, you could see down almost 6%, 5.5%, let's call it that. And, yeah, I was going to read your line for some reason, but back to you. You can go ahead. If you're so inclined, please be my guest. I don't know why. After trading resumed this afternoon, that was an extra line for me. All right, there you go. I'll see you in a little bit. We're just getting started. Up next, a moment of truth for the momentum trade. Top tech investor Glenn Kacher of Lightstreet is back.

He'll give us his top five names in the AI space and why he says they're worth watching right now. We're live at the New York Stock Exchange. You're watching Closing Bell on CBC. Dow's down 275. All right, we're back in video under pressure again today on Pace Now for its fourth down day. Out of the last five and raising more questions now about the health of the high-flying momentum trade. But is this just a temporary pause before another push higher for tech and the mega caps? Let's ask Lightstreet Capital founder and CIO Glenn Kacher. Welcome back. It's good to see you. Hey, Scott. Thanks. I mean, I'm zeroing in here on your AI5, right? You gave it

that name. It's AMD, it's NVIDIA, Taiwan Semi, Broadcom and Microsoft. It's looking a little dicey over the last handful of days for a lot of these stocks. How concerned might you be about the near term direction for them? Yeah, you know, stocks go up and down, right? And I think over a long period of time, that's how we're invested. That's how we bet. I think the question for investors is, is it 1995 or is it 1999 in terms of where we are in the investment cycle for building out an AI infrastructure? We'd argue it looks, you it looks very much like 1995. We're just at the beginning of this investment cycle. Even though we're seeing massive CapEx, there's way more still in front of us. Valuations are reasonable in these stocks. And those that are trading out

of the semiconductor group at this point in time, we think they're way too early in exiting. I mean, what if it's 95 for the you know, the nascent stages of a new technological revolution as we build out the infrastructure, but some of these stocks started to act like it was 99? Well, I don't think so. When you look at their fundamentals, you know, they're still tremendous way to go. Nvidia has actually gotten cheaper over the last year in terms of multiples. And, you know, you look at the multiples for Broadcom, for TSMC, even AMD, you know, we're comfortable

owning large positions in these companies. I think at the same time, you have to think about investor positioning. The largest investors in the world, those in managing endowments and foundations, have gorged themselves on both venture and private equity to get their technology exposure over the last 15, 20 years. And the reality is there's no semiconductor exposure in those funds. PE and VC don't really invest in the sector. So if you want to invest in semiconductors, if you want to invest in the massive infrastructure build, you've got to own positions in the public semiconductor companies. And those leading AI are the ones that I've put in the AI5. I know you've sort of, you know, you say, well, stocks go up and stocks go down. And of course, that that's true. So I

don't sense great concern in your voice as you say that. But do you think a broader correction in the chip space could be in the offing? Look, a lot of these stocks just went to the moon riding what essentially feels like an NVIDIA halo effect. I'd love for them to come down more. We'll buy more. And so, you know, we're incredibly convicted in our position that that this is the beginning of a tremendous cycle. And so that that only would work to our advantage if the stocks come down. I'm looking at another stock, which I don't know that you own, but I'm sure you have an opinion on, like seemingly everybody does. And it's Tesla, which in front of me today is down 5 percent. Today, it's down 8 percent this week. You know, the chart looks terrible. The stock looks broken. How would you assess it for those who were used to it almost

going in one direction as well? Yeah, that's a great question. We did own Tesla, as I've shared with you in the past. We sold it last year. And, you know, I think we're in a difficult spot for Tesla. If you look at the company, it was at a 55 multiple. Now it's at 50 times earnings, roughly, on street numbers. If you look at the conventional or traditional OEMs, they trade between four and six times earnings. And at this point, when you're seeing all auto sales kind of slow down and the traditional OEMs are pulling back on their money-losing EV operations, investors now look at it and say, hey, maybe these are bargains here in traditional auto OEM land.

And those stocks are doing pretty well. And at the same time, you know, I think the long term is still very interesting for EVs. I think the long term we're going to see an EV S curve in terms of replacing traditional ICE cars in the long term. But in the short term, the view or the tide is going out essentially on favorability for EV stocks. And with a multiple differential of base almost 10x for Tesla versus traditional OEMs, that's a huge gap and i think at this point in time we expect to see tesla's multiple continue to continue to fall i love this line that you gave to our producers because it speaks to how we began our program today and we've been having these debates you say arguing about large versus small caps is a distraction what do do you mean? Well, we invest based on fundamentals and based on

what the valuations or multiples are that are being paid for those fundamentals and trying to anticipate kind of what's going to happen. And I think in our view, if the best companies in the world happen for us to invest in happen to be large very large cap stocks it doesn't matter to me we're gonna continue to invest invest in those companies and worrying about what your market cap makeup is in your that that's in your portfolio to me is a waste of time but you are you suggesting it's too hard right now to analyze stocks with market caps that are that small? There's not enough liquidity typically in a lot of small cap stocks. So you

run into issues there. We don't have you don't have that problem in big cap stocks. But really what I'm arguing is we want to go where the fundamentals are best and where stocks are that we where we like the fundamentals and they're not fully appreciated it doesn't matter to me what the multiple cap what the market cap is all right it's good to catch up with you as always glenn thank you appreciate it we'll see you soon sure thank you very much that's glenn kacher from light street coming up trading today's data stocks are slipping after this morning's inflation report hotter than expected ppi as you know by now yields are up mary Bank of America private bank Chris Heisey, he is back. He's going to tell us the parts of the market he'd buy right now and where

he thinks the rally's fate really lies. He'll do that when Closing Bell comes right back. Welcome back. Stocks are selling off as we head towards the close today. It's a tough day and a very tough one for the Russell 2000. That's leading the decline and all of that coming after that hotter than expected inflation report. Down two and a half percent today. That's the Russell 2000. You see it there. Chris Heisey of Maryland Bank of America, private bank with me now. Joe Terranova, of course, of Virtus is here because we're having a conversation about small caps and the Russell a little bit earlier. Joe's a CNBC contributor, as you know.

Chris, it's good to see you again. I appreciate you being here. So what should I make of the Russell when I've heard from more than one person in the last 34 and a half minutes say no way, no way for the Russell right now? You say otherwise? Well, I say it depends on what your time frame is. I mean, if you're starting now and you're way underweight, small caps, and you're thinking out at least 12, 18 months, yeah, I think it's a great opportunity. And I think it's going to take some time.

And, you know, just listening to some of the programs before, it's pretty obvious that they have some pressure points in them. The small, mid-sized bank exposure, we know that story there. The fact that the Fed hasn't cut rates yet, we know all that. But, you know, stocks are a discounting mechanism. And what we find in small caps is if you take a look at the individual constituents, that's a much better way to think about investing in them. If you're just going to own the index, it's a little bit more difficult. But when you say the implication you make when you say that stocks are a discounting mechanism is that you get the anticipation of an event happening. Therefore, you're supposed to buy something or for that matter, sell something before the actual event occurs. I raised that

issue earlier to where they still say, no, it's too early. What if rates remain where they are for a period of time? Who cares if they're going to cut rates? The fact of the matter is this sector is just too challenged right now in a higher rate environment. Certainly overall, just at the top of the index, a higher rate environment, balance sheets aren't as good, not a lot of companies growing, but that's at the full aggregate level. If you think about where the Fed has told us they're going to go, even if they delayed a month or two months or whatever, the rate-cutting cycle tends to benefit the lower-quality areas. If you find lower-quality, higher beta with actual earnings and good value, that's where we're looking at in small caps.

Just saying small relative to large I don't think tells the full story. That's fair. And I think most people would agree with you. But Joe, you know, the premise, again, stocks are a discounting mechanism. Start to look forward, go where the puck is eventually going, buy these now, selectively, but nonetheless, buy them now,ively but nonetheless buy them now don't wait i'm still not at the point where i have enough confidence to buy companies that are reliant on debt and companies that i can define as not profitable 40 of the russell 2000 index is not profitable and i and i understand that chris is saying don't buy the index. I agree with that. I think looking at the index itself is so detrimental to investors because the composition of it, Scott, is so remarkably

different. Just look at the collective weighting of technology and communication services. For the Russell 2000, you're talking about 16% versus 38% for the S&P. The exposure in real estate is half in the S&P 500 what it is in the Russell 2000. So here's where quality absolutely needs to be applied. And in fact, the concentration concept of the MAG7, I'd apply that to the Russell as well. Own a few small stocks in the Russell where you can find quality. In the last five years, the quality factor is up 67 percent. The growth factor is up 40 percent. The momentum factor is up 45 percent. Find a few companies. I'll give you two names. MCORP, EME, that's Exposure to Infrastructure Spending, and Simpson Manufacturing, ticker symbol SSD.

Russell 2000 companies, industrial-oriented, quality companies. Chris, what are we supposed to do with large-cap tech? Because this plays into the conversation of whether we're in the midst of or the beginning stages of some kind of meaningful rotation, where we need to start looking outside of those large cap quality and momentum names which have done so well? Yeah, first of all, I think Joe just nailed the story on how to think about small caps in general. But just taking a look at technology in the large cap side, you hit all three things, momentum, quality, and cash rich. So you put those three things together. And the fact that the technology sector actually is the reason why earnings growth is in the S&P 500. And it was the exact opposite in 2022. What we're noticing right now is the beat in the technology names this last

earnings quarter was right in line with the S&P. So what does that tell you for next quarter? Not sure yet. But if it happens again and there's other areas that have a little bit higher beats to them, that's where the rotation that just started getting going becomes a little wider. And it's going to take time. It's not just going from one side of the boat to the next. So what I would say is, as you see MAG7 go to Fabulous 4 four that means the other parts of the market are receiving some of that money and you're just starting to see it pick up in industrials financials selectively in health care some big box areas in retailing and i think that's very

healthy it doesn't mean be short or under benchmark in my opinion technology it just simply means there's wider participation. All right. We're going to leave it there. Chris, I appreciate it very much. That's Chris Heisey. Joe, thanks for sticking around. Joe Ternova coming up next behind the Tesla turbulence. That stock sinking to start the year. Now the worst performing S&P stock year to date. So we're going to tell you what's dragging that name lower after the break. Closing bell is coming right back. All right. Welcome back. Tesla stock is sinking to start the year, down another 5% today. Phil LeBeau here with what's behind this drop

and what seems to be a parade of negative commentary almost every week, Phil. Yeah, and Scott, I'm not sure when it ends. You have shares of Tesla now trading close to their 52-week low. They were about 160, I want to say, back in July of last year. And they have continued to slide over the last couple of weeks because of questions about the demand for electric vehicles, not just here in the United States, but worldwide. Barclays out with a note today. This is not a surprise that they use this term. And EV winter, I've heard other people use this term as well. The key of the message here being demand is

going to continue to suffer with markets still facing demand pressures, according to Dan Levy, the analyst. We believe a reset in EV penetration expectations is necessary. How much are they bringing it down? They were expecting EV global penetration of 25, 21 percent this year, bringing it down to 19 percent. Look, EV sales have been hurt by a couple of things. The biggest one being pricing. There's just not enough models that are coming in at an affordable price. The average transaction price, according to Cox Automotive last month, $52,314. Yes, that was down 12% year over year, but you're still looking at the average EV starting or selling for over $52,000. And they are no longer ahead of the hybrids in terms of sales. This is also according to Cox. You've got EVs at 7% last

year. There you see hybrids, ICE models at 84%. Take a look at shares of Tesla. I'm not sure what the catalyst is to say, here's a bottom here, Scott, because the EV demand is not going to improve anytime soon. We don't have a major event coming up from Tesla. And when you look at the other EV stocks, there's little here that makes you say, yeah, I think we've built a bottom. Look at Fisker. I mean, well, we don't even have Fisker up here right now. They're on the verge of potentially filing for bankruptcy.

Rivian under pressure, Lucid, we've talked about the issues there, and even BYD. Yes, BYD is continuing to grow, as is Tesla, but the growth is not expected to be as strong as we've seen in the past. It's like the backfiring a bit of the price cuts at Tesla, which, you know, Musk had been repeatedly doing to try and spur more demand. He's worried about market share in China. The flip side, according to some notes that were out this week, is that that affects the cachet of the brand, number one. But also, then you have disgruntled buyers who are like, well, I paid thousands of dollars more than what they're now going for. So it's like this storm of events around a stock that continues to drive lower. Right. And we're not going to have a new model from Tesla. I mean, a brand new model.

Are they going to make modifications on the Model 3 and the Model Y, the S and the X? Sure, but we're not talking about a brand new model. Maybe next year, you know, with this lower priced model that is expected, the Model 2, but that's not guaranteed. And so you have a void here. And it makes you wonder how many people who are in the EV market are saying, you know what, I don't like what's out there right now, whether it's Tesla or any of the other EV companies,

I don't like them at this price point. I want to see them come down much more. That is what I think is going to really need to be the catalyst. All right, good insight, Phil. Thank you, Phil LeBeau. Still ahead, we're setting you up for Adobe earnings in overtime. Don't forget about that stock.

It's up more than 70% over the past year. It has had a tough start to 2024. So we're going to tell you what's going on and what's really at stake when we come back. Well, the rally in NVIDIA is stalling again today. But while that stock slips, there is one market strategist who says there's another tech play getting ready to rip. You can head to CNBC.com slash ProPick or scan the QR code on the screen right now to find out which stock could be set to break out. Coming up, Ulta and Adobe are among the big names reporting in OT. We're going to tell you what to watch for when the numbers hit the tape.

We'll do it next. We're now in the Closing Bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, we are watching two earnings reports in overtime. Courtney Reagan on Ulta. Christina Partsenevelos on Adobe. That's going to be closely watched for sure. Mike, beginning with you.

A little volatile as we head towards the end. We've paired some of those losses off, at least from the Dow. We have definitely a negative breath day. This is one of those times the rotational magic that's been in place for a while faltered a little bit here. The rise in yields were just bumping up against on the 10 year that three month range. It's getting noticed. I wouldn't say we've kind of jumped the rails at all here. We're still less than 1% off the highs, but we were set up, we've been talking about this, based on elevated sentiment and positioning and this idea that everybody thought the macro was going to stay

quiet. I don't think it's gotten loud, but you've had to notice a couple of hotter inflation reports. You do have some anxiety ahead of expiration and the Fed next week. And really all we're talking about is will this develop into a purely routine type of broad pullback, you know, which could even just go another couple percent and be done with. 430 gets your attention on the 10-year. There's no doubt about that. Courtney Reagan, we're going to have our attention on earnings. Alta for one coming in OT. Yeah, Scott, you know, the beauty boom expected to continue to fuel Ulta. Expectations are for earnings to be at $7.53 a share on revenues of $3.529 billion. Comps expected to come in up more than 2%.

Canaccord Genuity reiterating its buy, upping its price target for Ulta ahead of results, citing the continued strength of beauty overall, and then calling Ulta a one-stop shop for all things beauty, from masks to even some luxury products for consumers. UBS and Deutsche Bank, though, also upping price targets on Ulta ahead of these results. Ulta shares have added 14 percent since it last reported about three months ago, well better than the retail ETF, the XRT, and the S&P 500. So we'll see what happens. Of course, you know, sometimes it can be a sell on the news, even when the results are strong.

Back over to you. All right, Court, appreciate that very much. Christina Partsinoval is watching Adobe, which is going to report an OT as well. Stock that just hasn't done anything this year, hasn't gotten the AI lift that others have. Yeah, especially when you compare it to other software names. And there's caution just continuing around this name.

The stock is down, what, 5% this month alone, underperforming the IGF software ETF because investors are worried. Less about near-term, but more about long-term positioning, especially with OpenAI's new text-to-video generator, Sora, which they believe could encroach on Adobe's turf. But many Wall Street analysts right now think the sell-off makes for a nice setup into earnings,

which is just in the next 10 minutes or so, especially with buy-side numbers ahead of street estimates for net new digital media annual reoccurring revenue. Say that five times fast. In other words, $440 million for Q1, and expectations are in line for guidance for the second quarter. This, according to Morgan Stanley, on the earnings call, what are we expecting? We'll be looking for updates for its creative cloud pricing and any capital return possibly from that failed Figma acquisition, which occurred in mid-December. Adobe also has a summit at the end of the month with expected new product announcements maybe on March 26

to calm some of those AI fears that OpenAI will be stealing its market share. And of course, don't miss an exclusive interview with Adobe's CEO that's on in the next hour on Closing Bill Overtime. Scott. Oh, good. Always like to hear from Shantanu, so we'll look forward to that.

Christina, thanks so much. Christina Partsanovalos. Mike, I'll turn to you. I mean, Adobe writes down 5% year to date, where names like CRM are up 15 and Microsoft's up 13. They've stolen a little of the software AI thunder. They have. Also, ServiceNow had been weak for a bit, too.

So it hasn't been across the board, you know, tide lifting all boats in software specifically, although the move in Microsoft is interesting today, hitting a new all-time high, really showing that when the market plays defense, it wants Microsoft for the most part. But it also had been going sideways for weeks. So, you know, maybe that's a model in the best case scenario for how the overall market can try to digest this rally. We'll see. I mean, I do think equal weight S&P down more than 1%. It's definitely one of those days where the rates effect is mostly about market breadth and not necessarily about the headline S&P 500.

Interesting that Apple and Alphabet continue to largely trade together. It's like a pair trade. If NVIDIA and Meta are lower, it's an Alphabet and Apple higher. Yeah, they're sort of mechanical dispersion type trades where you basically sort of recast these companies as laggard slash under owned compared to the others. We'll see if that, you know, lasts a while longer. I mean, it does make some sense given the fact that you are having people just come off the accelerator on the momentum trade and other things getting picked up. Obviously, the tougher scenario would be if something just gets, you know,

knocked loose. If you start to have really the gears slipping in this market where nothing benefits on a given day and people just want out, if they start to rethink the Fed path or rethink the soft landing, that may be hanging out there somewhere. But for now, it hasn't really been that at all. Well, because we've all but written off the idea that the 10-year, for example, is going to go to 450. Exactly. Like 425 was a line we were watching. Okay, now it's bumping up against 430, but it's never going to go back to 450. We'll watch them overnight. That's the hope. Yes. That would kick you back to before the December Fed moving. All right. That's Mike Santoli. We'll see you tomorrow in OT with Morgan and Scott.