Closing Bell - Closing Bell: Market Rally Losing Steam? 12/23/24

Episode Date: December 23, 2024

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

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break out begins with questions about the rally, whether it is running out of steam as the year comes to a close. We'll ask our experts that very question over this final stretch. In the meantime, there's your scorecard with 60 minutes to go in regulation. It's been a pretty uneven day for stocks today. The market's still focused on the path for interest rates. They are a touch higher today. Thus, we're mixed. NASDAQ leading, NVIDIA, Meta, Alphabet, Tesla. They're all green today. Otherwise, a pretty even split for the sectors.

It does take us to our talk of the tape. Is there less reason to be bullish this market? Let's ask Chris Harvey. He is head of equity strategy at Wells Fargo Securities back at Post 9. It's good to see you. Good to see you, too. How would you answer that question? Less reason to be bullish?

No, I think in the short term you're a little less bullish. The Fed didn't quite cancel Christmas, but they did cancel the Santa Rally. But if you look at it, you still have the same things in place. You have a stronger economy, you have good fundamentals. The Fed is going to ease next year. M&A activity is going to start to come up, and we're having a looser regulatory environment. So it's all still there. It's just in the short term you have a little bit of volatility and that happens. All right, let's take this piece by piece because the Santa Claus rally

is technically supposed to start tomorrow, go into the first few days of the year. But you're suggesting you don't think we're going to get it? No, I think our price target is still around a little bit higher than $5,800. We're slightly above that. I think that's about right. $5,800. $5,800. Yeah, $5,800. I'm sorry. No, no, no. That's fine. You said 58. I'm just making sure I heard you right. Yep, yep.

And so why would you rally the market right here right now? One of the things that you actually have is you have refundings or you have auctions, right, that are pushing up yields. That's going to weigh on equities. You had the Fed say what they said. And a lot of hedge funds have gone home for the holidays. So there's not much reason to get excited. That's fine for next year because next year maybe we start with a pretty good pop out of the gate. You think the Fed's a big risk next year?

I don't think it's a big risk. I think it surprised a lot of equity people. I think people were a little bit too aggressive, a little bit too bullish. But I think the Fed will continue to cut rates at a moderate pace. They're going to normalize rates, which is what they're saying. And that's fine. As long as we have the Fed easing, which they said they're going to do, I think that's a good thing, right? Because again, the backdrop is pretty supportive. The macro is pretty supportive. You have economy that's stronger than expected. You have fundamentals that are still improving. Valuation is high, but you're paying for growth and you're getting double digit or we think you're going to get double digit growth next year. It's funny, the bond market essentially pulled the Fed to it. Yeah. The stock market may have

been a little over its skis. Right. The bond market wasn't because interest rates had moved up substantially from the cut in September to now. Scott, that's a great point, right? Because this is not our first rodeo. One of the things we keep saying to ourselves is, what is the Fed watching? And it does appear to be that the Fed is watching the market, then the market does influence the Fed. Because we had a 50 basis point cut back in September. What's the difference between now and then?

Well, where were two years at that point in time? They were 150 basis points lower than where Fed funds were. Where are Fed funds in two years? They're almost on top of each other at this point in time. So I think the Fed really does pay attention to the market or the bond market per se, and that does have a pretty good influence on it. I mean, I remember when I was sitting at Jeffrey Gundlach's office doing that Fed meeting in September live in LA and they do the super cut.

Right. And rates go up. Yeah. And it was like, oh, that's that's an interesting move. Maybe something to keep an eye on. Yep. And here we are where we are now. People are making a whole bunch of predictions for the new year. You know, there were some out today from Apollo's Torsten Slocke, who says of this conversation we're having 40 percent chance inflation picks up 40 percent chance inflation picks up. 40% chance the Fed raises rates. 40% chance the 10-year goes above 5. Let's just say, let's say we don't think we're going to hike, okay? But if the 10-year goes 2 or above 5, we got a problem in the stock market? We will have a problem for a short period of time, right? So it depends on how it gets there. If it's a short move higher, similar to what we had in the summer of 23, then the market will trade off. But then I think it'll get back on its horse and move higher.

If he's right, and I don't think he's right, if inflation does go sustainably higher, then yes, we have a little bit of a problem. If that helps earnings, OK, some of the stocks will do better. Some of the stocks will do worse. One of the things that you're seeing over the last couple of weeks is your more levered companies are really having a difficult time your smaller cap names your more levered companies and those are the ones that aren't bouncing today your growth names are balancing your higher risk names and those are the ones that will i think will perform better in that kind of environment you are looking for a more balanced market suggesting a broadening that That's right. Does more inflation, higher rates, fewer cuts, in part, upset that story? Because as we're witnessing now, you introduce uncertainty of

any kind into the market. It doesn't necessarily tank the market. It just sends people parading to the mega caps. Yeah. So our reason for being more balanced is really predicated on regulation beginning to ease. If regulation begins to ease, that's a big positive for cost. That's a big positive for business. That's a big positive for the economy. The economy does better, the average stock will do better. These other reasons, will they be influential? Yes, but at the end of the day, it's really predicated on a change in regulation.

Okay, I got you. So you've got deregulation, you have good fundamentals as the backdrop, and then you have robust earnings, at least enough to carry the market, even if you don't get multiple expansion? That's right. You don't need, we're not predicting multiple expansion. What we're saying is,

hey, we're going to get double digit growth in EPS, the market's going to go up with growth, and that's what you should expect next year and that's a pretty rational that's a pretty reasonable uh expectation multiple expansion from here that's a tough one in my opinion you're having thoughts about you know the next leg of the ai trade right and and how you're trying to process what that might look like right what is it so there's a lot of if you look at gronk if you look at some of the things that meta is doing they're really building some massive clusters bigger than than a lot of what you're seeing out the marketplace if that causes a stepwise function

in process well it will cause a stepwise function of processing but a stepwise function in those llms then we're going to have an arms race on our hands. Because the belief is that, you know, 300, not 300, 30,000, 50,000 GPUs clustered together, you know, that's top in the end. If you look at Gronk and some of the others that are pushing the envelope at 10,000, and if it works and it does cause a stepwise function, suddenly people are going to start throwing more and more money at this. Now we're going to start throwing more and more capacity at the situation, and that's going to be an arms race. What do you see as the biggest risks to your story?

The biggest risk to our story, what we worry about is when growth starts to accelerate, that people start reflecting that in their views. Right now, the average economist is saying that GDP for next year is 2%. When we get to 2.5, and I think we'll get to 2.5, when people start reflecting that in their model, then we can start talking about some downside and some sustained downside. Wait, wait. You mean people get too bullish? Well, they start recognizing that the economy is as strong as we think it's going to be.

Now it's in the marketplace. Now we have to look forward. And probably in the second half is when we start to worry about the economy slowing down. But right now, it's still accelerating. People are still thinking it's at 2%. It's much higher than that. Once we get to that level, now we've reset everything. And we have to start worrying about, and what you would expect at that point in time,

is equity prices going higher, risk product being well well bid euphoria getting a little out of control animal spirits getting a little away from us exactly exactly and then you start to say okay now i need to be a little bit more defensive now i have to start taking profits but really not until then right are there other things that are going to cause volatility whether it's the fed whether it's tariffs whether it's's something from from the administration? Sure. But what we really worry about is that resetting of expectations. But for the meantime, we may be a little bit volatile and a little bit messy for a little bit. But then we sort of realize all that's coming from D.C. tax cuts, deregulation, stronger economic growth, decent enough earnings. Now,

we're good. Yeah, that we're actually in a pretty good spot. We're going to price it as we're in a pretty good spot. This is the first. I don't think people really understand or appreciate what the regulatory environment is going to look like in six months. Well, tell that to the banks. I mean, those stocks have been ripping, right? Well, they have been ripping. They pulled back a little bit. But I do think the banks, which is one of our top ideas for next year, they're going to have EPS growth. We're going to see upward EPS revisions and you're going to have upward multiple revisions. That's something that we haven't seen in years. Private equity names rallying for the last few months on the expectation of more deals. Right. More deals. Right. So merger ARB has been a very difficult

spot to be. Merger ARB probably bounces back next year. We'll see more deals. With more deals, you have more IPOs. With more IPOs, you have more trading. The capital market business improves and it builds upon itself. That's why the exchange stocks have been doing pretty well, too. Exactly. Anticipation of all that. Let's broaden the conversation now and bring in Bryn Talkington of Requisite Capital Management, Malcolm Etheridge of Capital Area Planning Group. Great to have both of you contributors with us. Bryn, you first. You've heard the view. Mr. Harvey, you agree? I agree with a lot of what you have to say. I think this deregulation, you have to

think about this, could really be this a multiplier effect to so many parts of the economy because, you know, we do have this fourth branch of government, these federal agencies that take from Congress the laws that they pass and then interpret them. And I think there's so many industries that have been laden with bureaucracy. I think that can really help animal spirits that are already in existence. But that deregulation to me is this multiplier in the economy. But I think if we get some wins there, that's going to be a really strong, I'll say, tailwind to potentially U.S. GDP. And so it feels like, you know, going into at least the first six or seven months of the year, if the administration

can get some wins and get some wind behind it back, I think it's going to benefit equal weight. I think it's going to benefit energy, materials, which really have suffered this year. And so I'm thinking you can get a rally that's that where the market the market cap stocks go higher. But these other stocks start to participate in a more meaningful way, which they really haven't done this year. So, Malcolm, even like tariffs and trade wars, I understand that those are potential negatives. But, you know, Bryn's suggestion here is that there's going to be enough good to offset whatever bad, if you characterize that as bad.

I'm thinking of in terms of how the market would take those. Is that true? Is that what you believe? Yeah, at one place I hear overlap, at least between Bryn and Chris, that I also echo is probably deregulation when it comes to financials, right?

So when we talk about all the other industries that have been laden with bureaucracy, I would say financials, banking specifically, has probably been hit the hardest. And I think that even if a lot of the deregulation that we're excited about the potential of and maybe even some of the tariffs that we see as being unnecessarily harsh back to the U.S. do actually go into effect and have some of the tariffs that we see as being unnecessarily harsh back to the U.S. do actually go into effect and have some of the negative effects that we're afraid of. I think something as simple as bringing down the corporate tax rate, which has obviously been a proposal on the table for a while, that's going to immediately impact banks more than a lot of

the other sectors because they don't have any of the places to hide out like health care, for example, or tech. Obviously, there's no R&D expenses to tuck away. And so something as simple as just a meaningful corporate tax cut, again, is going to be another catalyst in a wind at the backs of the bigger financials, for sure. Chris, there was a suggestion earlier this morning on the morning show that I was doing with Sarah Eisen that the markets and investors are too fixated on tariffs and anything negative like that. You could still get 15 to 20 percent next year return in the S&P, if not even more,

if a lot of the other things, more important things, like deregulation, like tax cuts, like better economic growth, like stronger earnings actually fall into place. And the tariff thing we're not exactly sure we i think can make an educated assumption that there will be some but maybe not to the degree and the scope and breadth that has been talked about i think that's all fair right i think part of what we're doing is we're speculating on speculation right the thing that i kind of come home to is that it does appear that with our allies,

you're really, you're using tariffs, so the administration, the incoming administration is using it as a cudgel, they're using it as something to bring people to the table. I do think that tariffs between U.S. and China will happen, right? But at the end of the day, if you look at the U.S. economy, the U.S. economy is not driven, it's not an export driven economy it's a service driven economy the consumers still okay and you're right if we're going to have a

lighter regulation environment if we are going to start talking about tariffs if we do shrink the government these are all really good things that will will supersede or overpower any sort of tariff issue and again we don't know when tariffs will come in and to the degree that they will come in. But it doesn't look like they're going to be very aggressive. Sounds, Bryn, like you agree. Yeah, I mean, absolutely. I think that when you listen to Trump and all of his other officials talk about tariffs,

there's definitely another side to that. With Mexico, it's getting the drugs out, it's immigration. And so I think that this is more of a stick. And I think, once again, the China tariffs that Trump instilled back in his first presidency, Biden kept that through. And so I think that, I think I agree with Chris that there's speculation on the speculation, but ultimately, I think this deregulation and having this growing economy where more people are included is really going to be the narrative. I think that puts a really positive tailwind to the economy, you know, writ large next year. Malcolm, you look at what's what's worked lately, obviously, and it's been the

Nasdaq. I mean, we're having a 30 percent year for the Nasdaq. And over the last month, it's the only of the majors that is higher, up near 4 percent. Everything else is red over the last month. It just shows you where the money has been going. The problem, some say, is that those stocks aren't cheap and that their earnings growth just can't sustain at current levels, even with the multiple having expanded by the magnitude that it has. So how do I justify that trade continuing to work to the magnitude that it has. So how do I justify that trade continuing to work to the degree that it has? Well, I will see your concern there and I'll raise you one. I agree with everything you just said. That is a concern going into 2025. But I also think that as we look at the slate of IPOs that we all are agreeing are likely to come

in 2025 and probably pushing into 2026. In order for investors, both on the retail side and as institutional investors to participate in that, they've got to raise cash from somewhere. And it's more likely to be the larger, more dominant MAG7 names that are widely owned by just about everybody at this point. Those names are going to have to be sold off in order for those investors to raise cash to participate in those IPOs in a meaningful way. And so even if earnings growth continues at the rate that it has, and we do continue to see positive revenues for a lot of these larger tech names, I wouldn't be surprised to see the share prices still suffer as investors are trying to come up with the cash to get into those big blockbuster

IPOs. As I was asking Malcolm that question, my peripheral vision caught Harvey like, I'm not sure I agree with Wagner on that. Do you have any of those concerns about elevated multiples, especially at the highest end of the cap space in the market? There are elevated multiples, no doubt about it. But what we're observing, what we're seeing is momentum. We've talked about momentum all year long, right? And what you're seeing is the effects of momentum. People have made a lot of money buying strength, avoiding weakness, or buying strength, selling weakness. And that continues to work. And so what you should expect is people to continue to do that. They're going to keep pushing their chips in. They're going to keep pushing their chips in.

They're going to keep playing momentum until it stops working. And that's exactly what you're seeing, or I think that's exactly what you're seeing with the NASDAQ and with some of these higher price. Would I recommend that? I think momentum will continue to work, but we want to start being a little bit more conservative on our valuations. I mean, one of the predictions from Thorsten Slocke over at Apollo, Brandon, I read a list from earlier, is that NVIDIA disappoints. 90% probability, he puts, that NVIDIA will disappoint. And if, in fact, that happens, I wonder what you think the fallout would be more broadly. Well, I think, I thought it was a great report,

but I think when he said they're going to disappoint expectations, it's not like they're going to misnumber. Well, it's all about it. It's always all about expectations. Yeah. But I think that's a little bit nebulous at this point. I think that NVIDIA, you know, I own it, but I also sell calls against it. And selling calls against it the last few months has been great because the stock really hasn't done anything. And I think that right now the stock is digesting. I think NVIDIA is going to continue to put up record earnings next year. Now, where are expectations in Q2 and Q3? I don't know.

Do those come down? They could. But I think NVIDIA's had two banner back-to-back years. It's digesting and consolidating. But I think as these hyperscalers are what, going to spend $50 billion this year in CapEx, I think that's going to continue to be strong. I still think NVIDIA, and then the market's now saying Broadcom, are really the two semi-names you still want to own going into 2025. Let's see, Malcolm, you don't think that these hyperscaler names are going to be as dominant next year as they were this. I think we've laid out a number of scenarios which potentially would question that. Well, to Bryn's point, I think the company and the stock are two completely separate things, right?

NVIDIA is sold out well into the future by 10 years or what have you. Any chip that they can make, there is a willing buyer on the other side of it. And just about at any price, NVIDIA decides they want you to pay for it. But the difference is the expectations by Wall Street now, the expectations by investors are that companies are going to just continue to beat and raise and beat and raise and beat and raise. And I think that we've already seen a growing skepticism, dare I say, from NVIDIA shareholders, which is part of the reason that the stock has been trading sideways for a little bit now to Burns Point. So I just think that in tech, specifically mega cap tech in next year going

forward, I think that investors' expectations are just weighing so heavily on these names that any earnings growth that we're seeing them be able to show at these quarterly reports are not going to be meaningful enough because investors are going to be looking over on the other side of the fence at other companies that are still delivering double digit growth quarter by quarter. All right. Last question. Chris Harvey, and maybe I'll get a Bryn reaction. Then you'll understand why in a minute. Bitcoin, 92,600. One of your predictions is that Coinbase is going to be added to the S&P 500 in the first quarter of 2025. Why did you pick that out? So what we're seeing is the institutionalization of cryptocurrencies, the acceptance of it, right? And as a result, we think you're going to start to see that reflected in the broader market,

broader market being the S&P 500. Wherever we look, you are seeing cryptocurrencies being more accepted, more institutionalized, whether it's in ETFs, whether it's in people's personal portfolios. We always say that if you're less than 40 years old, you speculate on cryptocurrency. If you're more than 40, it's gold, right? That number looks like it's starting to move up as well. But to answer your question, it's really just because we're seeing the acceptance of it and the broadening out of it. And at some point, we'll see it in the S&P 500, we think, in the first half of next year.

Bryn, is Bitcoin and crypto just getting started here? Well, it's selling off a little bit right now, but I think if you look out in the bigger picture. Yeah, yeah. I think if you look out five and 10 years, I think that, you know, Bitcoin could be much higher. I do think, though, that people forget how volatile this asset. I mean, this this Bitcoin could easily go to sixty five thousand before it goes to 150. And I think that I've talked about this, the leverage underneath the cryptocurrency gets quite large and you need that to consistently wash out. And I think that will remain the narrative that it's a highly volatile asset class. People get over their skis, but longer term, it looks like it's going to continue to go higher.

We will leave it there. All right, everybody. Thank you. Brendan Malcolm, we'll see you soon. Chris, thanks for coming by Post 9. Thank you. This is Chris Harvey. Let's send it to Pippa Stevens now for the biggest names moving into the close. Hi, Pippa. Hey, Scott. Shares of MicroStrategy falling 7% today on the first day of its inclusion in the Nasdaq 100. The Bitcoin proxy announced today that it bought more than 5,000 Bitcoin at $106,000 each funded through a stock sale. Bitcoin traded around $93,000 this afternoon. Meantime, Nordstrom is in the red after it agreed to a $6.25 billion buyout from the

founding Nordstrom family and a Mexican retailer. Common shareholders will receive $24.25 in cash for each share, and the deal is expected to close in the first half of 2025. And Walmart is the biggest laggard on the Dow today after the Consumer Financial Protection Bureau sued the retail giant over its payment of delivery drivers, alleging that Walmart and scheduling platform Branch Messenger forced delivery drivers into costly deposit accounts to receive payment. Walmart called the lawsuit, quote, rushed and riddled with factual errors. In a statement to CNBC, those shares down 2 percent. Scott. All right, Pippa, thank you. Pippa Stevens,

we are just getting started. Up next, the high net worth playbook from one of the top firms in this year's CNBC financial advisor rankings. Chief Strategist Mary Lago of Ferguson Wellman shares her strategy for what sectors you need to be in this market and where she finds the best opportunity in the alternative space. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. Stocks mixed to start this short and trading week. Our next guest manages money for high net worth clients and is still constructive heading into the new year. Let's bring in Mary Lago. She's chief wealth strategist at Ferguson Wellman.

Welcome back. Nice to see you. Thank you so much for having me. So you're pretty constructive on the markets at this particular time. We are. We recognize that valuations are a little stretched, but we remain very constructive on domestic large caps. Looking at 25 times forward earnings, we know they can look a little expensive. But if we look over the last couple of years, the earnings and even more so the stock prices have certainly rewarded investors that have stayed the course. Stay the course with mega caps and things like that. Is that what you're alluding to? I'm referring to large cap equities in general, but certainly mega caps have rewarded even more so. And we expect if we look forward to earnings for 2025, mega cap earnings are expected to grow over 20 percent next year.

Broader market at 15 percent. So we've got some strong earnings projections ahead and we're still leaning into that. Where are you looking to get more positive that maybe others are missing? I'm sorry. Where why do you think we're more positive than others? Where I'm sorry. Where within the market are you looking to get more positive? Where some others may be missing, things that just didn't perform that well. There's a healthy skepticism around certain sectors. What do you like that some others may not?

Yeah, well, I would certainly say there's some things we're watching. We still remain fairly positive in technology. We think technology is really at the forefront of some of these changes right now, reshaping industries. So while there's a lot of fear in that space, and we've heard some of the commentary earlier today, we remain very positive in the tech space. Certainly industrials, they're benefiting from some of that carryover effect with data centers and other points. So we remain positive there. Real estate certainly has been tough, and we're a little bit underweight in real estate, but looking to be more constructive as we're seeing some body clearing prices in that space. No appetite to invest in international stocks to stay U.S., generally speaking. We have remained underweight international

and there's certainly pressure there. Right. They look at very inexpensive from a P.E. ratio perspective, but cheap isn't a catalyst. And what we're looking for is some indication that earnings are going to improve internationally before we want to step up that. And we're even more underweight emerging markets. Why overweight consumer staples, which I see in the notes, is one of your calls here? Yeah, it's really a little bit of a hedge, if you will. We recognize we're overweight some of the more cyclical, higher beta sectors such as the tech and industrials. And so in a way, it's not our base case, but it's a little bit of a hedge against any weakness that we can see. You have a bit of a contrarian take on a couple of hot areas of the market. Number one is you say you've trimmed your alternatives exposure. I haven't had anybody come on and say,

I've trimmed my alternatives exposure. I'm leaning into my alternatives exposure. I don't have enough. Why are you trimming here? Well, part of the reason we're trimming is to make way for fixed income. We believe that bonds have earned their way back into portfolios.

You know, we've seen the yields on the ag at 5%. We really added to alternatives over the last five years as a placeholder for bonds in the sense that interest rates were low. We knew they were going to be rising. We didn't want to get hit with that headwind on our fixed income side. So we used alternatives in the form of some real estate, some private credit, some real assets to try to hedge some of that risk in fixed income. And now as fixed income yields are looking better, we needed a source of funds to add back into normalize or stabilize what would be our more normal allocation towards bonds. I haven't had anybody in the same light, speaking of alternatives, come on and suggest that private credit isn't a good place to be. And I haven't had anybody suggest that private credit is nearing good place to be. And I haven't had anybody suggest that private credit is nearing an end in any way. In fact, they suggest continually

that we're only in the early innings, but that's an area that you're likely to trim as well. You think there are too many dollars there? Yeah, that's exactly our concern. We're seeing a tremendous amount of inflow into that space. And we recognize from the broader perspective, right, banks want to strengthen their balance sheet. They're being more conservative. There's the need for credit. Private credit is filling that gap. But we've

seen so many dollars rushing into that space that we think that that could force some compromises in terms of quality. And so we we it's not that we think that there's an imminent problem in that space, but there's illiquidity constraints and we'd rather be out a little early than a little late. What kind of returns, lastly, do you think we're going to get next year out of the stock market broadly? Yeah, probably looking at again, if we look at broad earnings at 15 times, if we stay the same, we'd say we'd have 15 percent earnings. But that's not what we expect. We expect that we've already been paid for a lot of the profitability that are the earnings that companies are going to show next year. And so our expectations are more for five to 10 percent growth on the S&P. Wow. So so reasonably muted returns, not that 10 percent is anything to sneeze at. It just certainly certainly feels like it would be a disappointment

relative to the last couple of years we've had. It does coming off of that, doesn't it? Yeah, I mean, 5 percent sounds a little like it would be a disappointment. It's certainly relative to expectations of tax cuts and deregulation and stronger economic growth, right? And we also recognize that there's policy risk going into next year as well. So we believe that companies will continue to perform, that they're going to meet those earnings expectations, but that there's likely going to be some softening around price to earnings ratios. And we don't expect that earnings expansion next year, which has fed a lot of the last couple of years of returns in the S&P. Mary, we'll talk to you soon. Good to welcome you to our

program. Mary Lago joining us. Coming up, betting on the bull case. Citi's head of equity trading strategy, Stuart Kaiser, is back. He'll tell us why he sees stocks bouncing back from last week's volatility. It's next. Is there still time for an end of year rally in stocks? Let's ask Citi's head of equity trading strategy, Stuart Kaiser. He is back at post nine. Welcome back. You think, I mean, are we still going to have a Santa Claus rally, which is technically, as Pazani was telling me earlier, supposed to start tomorrow?

Yeah, I mean, I think we're kind of set up for that at this point. You had a little bit of a positioning destruction last week, which probably helped kind of rebase things a bit. I think if you take the Fed at face value, which is kind of a flattening out unemployment rate, inflation still on a downtrend, getting a couple insurance cuts in there, that's all kind of net positive for equity. So I think your path of least resistance is to the upside. It still is like we're not upset too much by what Powell said last week or the fact that we did have a hawkish cut and felt like decidedly so. Yeah, not too upset. I think really what happened there is the Fed kind of confirmed what was a bullish growth outlook. They sprinkled in a little additional inflation risk.

And I think that additional inflation risk is what you traded last week. That kind of worked against what was very long positioning. We think that positioning dynamic has kind of worked itself out. So now we're back to the situation where if we get a nice payrolls report to start next year, I think equities will respond really well. OK, so then if we do have some kind of upset, let's just say between now and the end of the year and then into the early part of 25, you'd be a buyer. That's what this sounds like. Yeah. We're a buyer with the one contingency that that employment report on the 10th of January is an extremely important event. But yeah, I think if you got a couple percent pullback here, I think you are a buyer of that dip

and then you're kind of read and react to the data as it comes in. When you say, you know, that data point is critical. I mean, how are you gaming that out? What makes it so critically important? I think what makes it important is the Fed is telling you we think the unemployment rate is going to stabilize around these levels. And that's why we're able to kind of reduce the number of cuts we're going to do, you know, next year. If you get an upside surprise in that employment data, that's equity negative, full stop, because your growth data is weakening. But that probably then puts the Fed in play to do more cuts later in the year. So we do think it kind of plays into a key part of their economic projection. I mean, that would introduce just more risk of being forced to do more cuts, potentially at a time where we're thinking we may get

reinflation from some of the policies in D.C. and the new administration. No, I agree with you. I think there's a case to be made that in the first half of next year, the Fed could be in a really uncomfortable spot, right, where you have unemployment rate rising, the government efficiency kind of trying to stop federal hiring, which has been a big part of the jobs growth. And then you get tariffs, which kind of push inflation a little bit higher. So there is a scenario there where the Fed kind of gets caught between a rock and a hard place, without a doubt. What does the market look like, do you think, next year? We're ending in a place that's made people a little bit uncomfortable, right?

We're back top heavy. How does next year look? Look, I think risk-reward is tough going into next year in the sense you have a very high EPS growth forecast. You have very extended valuations. So to your point, any bad news is going to kind of not be welcomed and actually punished pretty severely. That said, if the unemployment rate flattens out and you generate that earnings growth, then equity should kind of be up a modest number. You wouldn't expect it to be 20 percent plus. I think, you know, let's call it earnings growth is mid-teens. You're probably playing for something in the 10 to 15

percent range. Best case, worst case, you know, you have something that looks like 2018, let's say, where you kind of had underlying decent data, but you had a couple of really big pullbacks because of the risk environment you were living in. But what does the makeup of that look like? I mean, if rates, let's say, remain elevated, you get fewer cuts and maybe it's partly on the jobs report. The broadening story is built on strong economy and rates coming down. Anything that upsets that throws all that out of whack. Yeah, no, I agree with you 100 percent. I mean, if you if you believe we're going back to the hire for longer narrative, that was the first half of 2024. Right. And what did well then? Your large cap, your growth, your kind of safer stocks. Right. What started to cause the rotation? To your point, during the summer, we actually got a broadening out of EPS growth. The 493 actually generated positive EPS,

and we got a nice rally in broadening out. So next year, the earnings are set up for broadening. The question is, do we realize that? So that's going to be the ultimate test, I think, for next year is do we get the broadening out of EPS that we started in 3Q? Does that follow through into 2025? Would that be the way that you would invest in the market? You would maybe take a little bit off of the idea that mega caps are going to have this outperformance yet again and then play for the broadening that we're debating here? Yeah. To me, your core position right now should still be in that hire for longer sort of situation because that's what the Fed is telling you is going to happen. And I think that needs to be your base case. So I still think you have some discretionary telecom services and tech as a core

position. And then, yeah, do you want to sprinkle around some broadening? Yes. The trouble with that broadening trade, I think you alluded to it, is if you get weak economic data, that broadening trade just falls apart immediately. So you need to be kind of very careful about how you broaden out. Otherwise, you kind of open yourself up to a big risk. So I think your core position is call it large cap growth as a core position. And then you're kind of sprinkling on some risk, you know, some risk in that broadening story. But I think you need to be very careful with that risk, in my opinion. OK, we'll leave it there, Stuart. Thank you. Thank you, Stuart Kaiser, joining us here as we do have all three of the major averages are now green. We are tracking the biggest movers into the close today, and Pippa Stevens is standing by once again with that.

Tell us what you see. Well, two automakers are driving towards a possible merger. We've got the names to watch coming up next. We're about 15 from the bell back to Pippa Stevens now for the stocks that she is watching. Hi, Pippa. Hey, Scott. Honda and Nissan both higher after the pair jointly announced they'd enter merger talks. If combined, the company would be the world's third largest automaker by sales. Honda's CEO said the companies needed greater scale to compete in the development of new technologies in electric vehicles and intelligent driving. In the meantime, Xerox on pace for its best day since January after announcing its acquisition of printer maker Lexmark International for $1.5 billion. Xerox's revenue has fallen for five straight quarters, and the Lexmark deal will provide necessary scale to better compete.

And Eli Lilly shares on the rise after the FDA approved its weight loss drug Zepbound to treat moderate to severe sleep apnea in adults with obesity. The approval could pave the way for ZepBound to be more broadly covered by insurance plans. Sleep apnea treatment companies, ResMed, and Inspire Medical Systems, both falling on the news. Scott? All right, Pippa, thank you. Pippa Stevens still ahead. Chips and dip, the semis underperforming the past few months. Is there more pain ahead, or could a rebound be in the cards? We are back on the bell right after this. We're now in the closing bell market zone. CNBC senior markets commentator Mike Santoli is here

to break down these crucial moments of this trading day. Plus, Sima Modi on the pivotal year ahead for chip makers and Apple hitting a record high again today. Steve Kovac will join us with that. Mike, I'll turn to you. And we have a pretty decent end of day move here, which was an otherwise sort of ho-hum day. Yeah, market did build a little bit of strength throughout the day. Market breadth is still not impressive, but it's better than it was at the start of the session. Obviously, you have that bounce in semis. But aside from that, other year to date winners that are just getting kind of walked up into

the end of the year, I think big picture, it's good to have kind of a calm, kind of low key end of the year, if that's what we're in for. We had the fever break on that sell-off middle of last week. It felt like we really did clean up positioning. The thing I'm still watching, though, is Treasury yields. There's not a lot of give there. The 10-year back at the upper end of its range, pushing 4.6 again.

Now, this somewhat could be a matter of, look, selling your losers. Bonds were losers this year, but also illiquidity among banks and dealers at the end of the year. So maybe it's getting exaggerated. The yields are at levels where it should attract some buyers. They look overbought, but we have to see that that happens soon. Yeah. I mean, you've got a pickup in almost all of the sectors today. I mean, staples and materials are still in the red, but tech is leading, comm services, no big surprises. We still debate whether, you know, Mike, this broadening is going to work, at least in the early part of 25. Yes. And I think it really is an active debate. I think that there's no way to settle it that easily. Yields have a lot to say about that. The cyclical

parts of this market have not really been able to absorb that move in yields as it's coming at a time when it's not as if the economy's off to the races. I think we had a collision of really excited economic expectations for next year, kind of encountering not so great or just OK current data. And then the question of whether the Fed is going to start to restrain its cutting path again. I don't think any of it is really kind of fatal to the bull case, but it is a rethink. Yeah. All right. Good stuff, Mike. Thank you. We'll see it coming up soon. Seema, tell us about the chips. Yeah, a strong day for SEMI, Scott. Just take a look at Broadcom up another 6 percent today.

It started the month at $160 and change and now trading at around $232. With that said, it's still underperforming software stocks in the second half of the year. Bank of America analyst Vivek Arya says this rotation into AI software names, that could challenge chip stocks in early 2025. He also lists it as one of the wildcards going into next year, in addition to tariffs and new restrictions put on China. But Scott, let's compare price to earnings ratios for software versus chip. Salesforce, for example, evaluation of 31 times forward earnings, getting closer to NVIDIA and Broadcom. And then we're watching, of course, the government, any appointments there, President-elect Trump appointing Sriram Krishnan, a former Andreessen Horowitz partner to a senior AI policy advisory role.

He's seen as supportive of AI and onshoring of chip production. So we'll see how that plays out for companies like Intel, which is expected to make progress on its Arizona plan. And, of course, Taiwan Semi, which is expected to ramp volumes of its AI chips in mid-2025, Scott. Semi, you've been watching, too, you know, over the last week, these incredible moves in Broadcom. You know, as that stock really, really picks up, right, it was up like 40 percent in some three days. And here, as I look at it again, I know you were talking about it. It's up another almost five and a half, six percent. So it's not just NVIDIA's game here. I know you were talking about it. It's up another almost five and a half, six percent.

So it's not just NVIDIA's game here. This stock is considered the second best by some analysts way to play this big AI boom. Yeah. And there's companies like AMD that have tried to compete with NVIDIA, but they have found it to be incredibly tough. But then you have Broadcom, which is saying, all right, we can't do it alone. So we're going to partner with the big hyperscalers like an Apple and OpenAI and Microsoft and Amazon will help them develop their in-house chips. And that strategy seems to be paying off that epic guide from CEO Hawk Tan of Broadcom. That's really playing into their guidance and why I think seems like more investors are getting more bullish on this name going forward, Scott. All right, Seema, thank you. That's Seema Modi. Let's pivot to Apple.

Steve Kovac, which is hitting yet another new high, getting ever closer to $4 trillion in market cap, was like 3.8 something earlier today. Yeah, maybe not going to hit it by the end of the year, but I feel like I come on just about every day now this month, Scott, saying that there's a new intraday high for Apple, even though there's not a ton of news driving Apple stock. Today, for example, though, we did get some bullish commentary from who else?

Wedbush's Dan Ives on iPhone sales getting a lift from artificial intelligence. But we really won't know how well that thesis is playing out until early next year when we get Apple's report for the December quarter earnings wrapping up here in a few weeks. And then we had this report from Bloomberg that came out yesterday morning, a facial recognition doorbell in the works over at Apple. By the way, that's not the only smart home gizmo that's going on over there. Ming-Ching Kuo from TF International Securities said in the fall Apple is also working on a connected security camera for their home. Unclear how serious Apple is about those jobs or those products. But more important there is Apple has expected a new push into the smart home

as soon as this spring. Apple has been playing in that space for almost six years now. Bloomberg reporting Apple is expected to launch a new tablet for controlling smart home appliances. That could come probably in March or so. This is a new kind of iPad that you stick to your wall and has limited functionality for controlling smart home appliances in your home. But look, still need the iPhone business cranking again over at Apple. Also expecting a new iPhone SE, the cheaper model of the iPhone, in early 2025 as well. Couldn't come soon enough for Apple, Scott. Well, you just underscore the biggest issue we're going to be watching for next year. That's upgrade cycle, right?

First and foremost. Yeah, that's exactly it. And whether or not this thesis plays out, that Apple intelligence, which now is pretty much launched, at least most of the features that have been talked about, especially the chat GPT integration that came out just a couple of weeks ago, whether or not that really is driving iPhone upgrades. I will note most analysts for the December quarter, you know, it's pretty lackluster, these estimates that they're showing and not really returning to the growth that Apple

is known for with the iPhone business. Services is doing super well, though, growing at double digit percentage points for the last several quarters there, Scott. Yeah. All right, Steve. Thank you. It's Steve Kovac. Interesting moves in the markets today. Bond yields higher. Ten-year near 460. It's at 458 now, but that's not stopping this late-day pickup as we look at some of the bigger movers beyond the apples of the world. It is NVIDIA having a good day. Many of the mega cap stocks as well, and even a pickup in names like Morgan Stanley, J.P. Morgan, Citi, and Goldman Sachs.