Closing Bell - Closing Bell: Market Rotation Builds Momentum & Trump Officially Becomes Republican Nominee 7/15/24

Episode Date: July 15, 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.

All right. Thank you, Kelly. Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with new highs and another burst of rotation towards smaller and more cyclical stocks as Wall Street gains conviction around retreating inflation, a soft economic landing and the policy mix into and beyond the presidential election. We'll discuss all that with our experts, including BlackRock's Rick Reeder in just a moment. Here's a look at your scorecard, though, with 60 minutes to go in regulation. The major indexes, they are well off their earlier highs. The S&P at one point was up nearly 1 percent, now up almost half a percent. You see the Dow in record territory as well, almost at 4,300. And then the Nasdaq participating today to the upside, too. The real action, though, remains in the Russell 2000 small cap.

It is up close to 2% now, up basically 7% or 8% in the three trading sessions since we got that benign CPI reading last Thursday. Bank stocks also extending last week's gains. This is part of these laggards catching up to the big cap growth indexes. You see Goldman after earnings today up more than 2 percent, as is J.P. Morgan. Wells Fargo up one and a half percent. Take a look at Treasury yields. Not dramatic moves right now, but the yield curve is steepening just a bit.

Ten-year Treasury yield at 423 as the two-year drops to 445. Now, that takes us to our talk of the tape. Do markets have it right in these assertive moves to price in an easier Fed, better earnings and a friendly friendlier policy backdrop? Let's ask Rick Reeder. He's BlackRock's CIO of Global Fixed Income and head of its global allocation team. Rick, good to see you. Thanks for having me. Appreciate it. So take us back to, you know, I guess let's start with the CPI report. And then, you know, of course, that we had the bond market move in this rotation in stocks. And then, of course, the events over the weekend, people feel like we have a fix, perhaps on the probabilities for November. But where does that leave you in terms of are we on

this path to a soft landing and and what's the next move for the Fed? So there's a lot there. I would say first thing I'd say was a CPI report was an indication of we are moving to a place where inflation is coming down. And I think Chair Powell said it today on the interview. We are at a place that is much more like 2019, much closer to normalcy. You're getting a bunch of the readings. Core PCE is coming down, still around 2.6. But if you look at the three-month, six-month moving average, you get pretty comfortable with inflation is durably lower.

So I think that is real. Second thing, growth is moderating. You know, I know I said it on the show last time, I'll say it again. I don't believe people are not hard landing like this can accelerate. Service economy doesn't really go into deeper sessions. I think we're slowing. You know, we've got real GDP this year at around one and a half, just under one and a half. That seems about right to me with inflation is normalizing. And I think you can pull it all back and say, OK, if we're in normal condition with the trend moving more towards moderation, the five and three ice funds rates, not the right funds rate. And I think what Chair Powell said today, they've gotten the confidence over the last three months,

have gotten the confidence that we are closer to normalcy. We're not overheating. They could start cutting rates. Will they cut in July or this month? You know, I think the odds are low. It's not impossible. You've gotten some data that would allow you to do it. I would do it. But my sense is he's probably going to listen to the committee. You know, he was pretty clear today about I'm not telling you where we're leaning.

And I think it's also, Chair Powell is very much, he listens to consensus. He likes to build consensus. He's going to talk with the group, and I think they'll set up for a September cut. And then, you know, I guess what are the stakes involved, whether it's July, September 2 or 3? Is it just about the direction we're moving, or do you think the economy and the markets kind of need the cuts either sooner or later or just more of them? So, first of all, for us, it's a big deal because there are trades, expressions you could have on July versus September. So you end up looking at those things.

For the broad economy, moving 25 base points, there is no impact. The trend is real. And the trend, in my senses, the market today is pricing, and we're pricing in almost seven cuts through the end of next year. Markets have done an awful lot to price it in. My sense is you get a little less than that if all else being equal. But we're going to learn a lot, as you said, post-November. We're going to learn a lot about inflation. We're going to learn a lot about trade. And so those things are going to be clear. But right now, rates market is pricing in

an awful lot of cuts. And I would say most of the return on fixed income is clipping coupon, is actually generating income versus, gosh, we're going to get a big rates move from here. Yeah. And I guess if you look at the the equity move as well, I mean, it's a little bit complicated in terms of discerning what exactly we're reacting to. Obviously, the relationship was stretched, right? You had Magnificent Seven over everything else for so long. So there was room for this catch up trade. And then you get yields going lower. We think we're getting a Fed rate cut. That playbook gets kicked in. And then, of course, if in fact the market's right and there's a higher probability of either Republican sweep or just another President Trump administration, does all that make sense as you line it up? So, first of all, I think the technicals drive the markets more than people realize. I think there's not enough stocks for sale that you get these concentrations, particularly in the areas where you think there's real earnings growth.

And they buy back, those magnificent seven buy back a huge amount of stocks. So the technicals, part of what we've argued on the show before, if you create those sort of earnings with 18%, 90% return on equity that builds book value of stocks, plus the equity buyback, that's a pretty darn good technical. I think that technical is still in place today. Until you change the earnings paradigm and the rate paradigm is going to be pretty consistent, my sense is we keep grinding higher. The thing that's amazing to me is equity volatility is so low. And day to day, you get moves like today, like Friday, like Thursday.

We get 50 point moves in the S&P 500. So one of the gifts, I noticed on the show last time, is just buy. You can use call options. You can use call spreads. You can stay long equities with some real protection because of how cheap volatility is. Right. No, I mean, there's no doubt that the market itself has been on this very tight footing just because not just, I guess, the big cap stocks are keeping volatility low,

but people don't want out of the market. They're kind of rotating around within it. That being said, I guess the question tactically is whether we've kind of pulled forward a little bit of the benefits here. A lot of people talking about how earnings growth has to broaden out from here. It probably does. I mean, you're going to see some deceleration in MAG7 earnings. And can that happen in this one and a half percent real GDP economy that you're expecting? So we spent a lot of time the last three days looking at small caps, looking at cyclicals and saying, gosh,

where could we go? Because the technicals and the crowding has been so prolific around some of this small set of stocks. But I'll tell you, it's hard finding a lot of companies that say, industries, sectors, companies, you'd say, whew, let's get long that because we think they're going to start to, in a slowing economy, going to do well. There are some places I think energy is reasonable. I think the free cash flow generation off energy is reasonable.

I think some of the financials, some are pricing a high multiple, but there are a couple of financials that we think make some sense. We were adding to a couple today. And then, you know, look in some of the industrials, there's some value, but it's pretty hard. The trend, the intermediate to long-term trend is the companies that have the data that build the competitive moat and that will pivot off of AI and technology will continue to grow. Is there a tactical trade because of the crowding? I think there's a tactical trade. The question is, how big do you want to play in that? And I will argue the options are a beautiful way today because of all, even in that space, the vol is pretty darn low. Yeah, for sure. I mean,

one thing I've been trying to compare and contrast is if you expect, let's say, as the prevailing view seems to be, OK, we can count on the tax cuts maybe to stay in place. Maybe it'll be less regulation if, in fact, there's a change in administration. That's all well and good. The last time we got that. I'm sorry. Let's get to some breaking news before we get to that point. I think Eamon Javers is here with us. Hey, Mike, that's right. Former President Donald Trump just moments ago announcing via his Truth Social social media app that he had selected J.D. Vance, a senator from Ohio, as his vice presidential running mate. The former president saying, after lengthy deliberation and thought and considering the

tremendous talents of many others, I have decided that the person best suited to assume the position of vice president of the United States is Senator J.D. Vance of the great state of Ohio. J.D. honorably served our country in the Marine Corps, graduated from Ohio State University in two years, and is a Yale Law School graduate where he was editor of the Yale Law Journal. So this is an important decision. Vice Presidents don't tend to sway elections one way or the other, but it's always an important indication of what the president of the United States and the candidates for president of the United States want.

In this case, by selecting J.D. Vance, former President Trump is not selecting somebody who will do coalition building, bringing in a group of voters who he doesn't necessarily have access to into his coalition. This is a presidential nominee who already has a coalition. He already has solid control of the party. He's already doing very well in the national polls. So in selecting J.D. Vance, he's looking at somebody who is more complementary to him than somebody who brings in an additional group of supporters that he doesn't have access to on his own.

J.D. Vance, just 39 years old, obviously an author of that book, widely well-received Hillbilly Elegy, and now the nominee of the Republican Party as of this week for vice president of the United States. Mike, back over to you. Yeah, Eamon, as you suggest, this isn't really about, you know, geography and swing state calculus or anything like that necessarily. But in terms of it being complimentary, what is what's the tone? What's the likely kind of mission of this vice presidential candidate? Well, I think the former president is going to want somebody who can go out there and campaign hard in states that he can't reach

or in areas where he can't get to on any given week, right? So it just doubles the power of the campaign by having those two traveling campaign planes out there at any given moment. J.D. Vance's pick here will be scrutinized by folks on the left, of course, because in the wake of that assassination attempt on Saturday against the former president. J.D. Vance took to social media and posted some very critical remarks about Democrats. And there's been some thought that the former president would try to moderate his tone, come up with a unifying tone this week here in Milwaukee.

The selection of J.D. Vance is the selection of somebody who has gone from staunch Trump critic to absolute staunch Trump advocate, somebody who defends the Trump campaign in every situation. And so that's what he's getting here. Somebody's going to hit the campaign trail and hit it hard. All right, Eamon, from the Republican National Convention, we'll be back to you soon. Thanks very much. And Rick, just to pick up where I was heading with this idea of, let's say that there's this policy mix you expect into next year and beyond of lower taxes and less regulation. Last time, in 2016-17, when we were pricing that in, it was, we were sitting in a low nominal GDP economy,

and it seemed like that was what you needed to kind of get the economy at a higher metabolism. Sort of at a different starting place here. I mean how does that filter into whatever you're thinking? So there are a couple of big things. First of all, when you think about regulation you think about a lower level of regulation. Part of why we're talking about energy and some other areas. There's something that's really important. You know there's a long discussion about tariffs and how much tariffs and how much does that bolster higher levels of inflation. My sense is that if you're running for president, if you're elected president, you don't want to see inflation spike higher immediately. So there are probably some areas,

whether it's energy, agriculture, that you would start to, and deregulation generally, you'd say, gosh, these are places where I can reduce friction and try and alleviate some of that embedded inflation that comes through deglobalization and lower trade. And let's just, just to button it up in terms of the yield curve stuff, made an allusion to that. There's been this conventional wisdom that you should see it steepen, whether it's because of, you know, pricing in higher deficits and lower tax revenue, or just because of maybe higher inflation expectations or higher growth. How is it set up right now and what's the message of the yield curve right now?

So, first of all, I think for the last two years, three years, people talk about the inverted curve, recession, hard lending coming. I think you could write all that off. You have such a different economic condition than we've had historically, the way banks manage their asset liability mix, who borrows versus who doesn't. The drivers of CapEx don't borrow to do it. So the yield curve doesn't matter as much. I think what it's telling you, there's not a lot of supply, actually, of long bonds. We're going to get more supply because of the dynamic around deficits. In the interim, the Fed's keeping the rate high. I think what's going to happen is the curve's going to steepen. I think most people think the curve's going to steepen. The question is, is it going to steepen by the front end coming down?

I think that's right. And this is part of why the forwards are pricing this in already. And this is part of thinking about it from afar versus being in the middle of the markets. The forwards are what matters. And you're pricing in the nature of a front end that's going to come down, which I think is right. And that's, by the way, part of why the equity market is comfortable with rates is because the anticipation that we're going to follow the forward curve and rates will come down. And when we've spoken in the past, you sort of said you were finding good value in where

like the five-year type of area. Is that still the case or where does it go from here? 100% the case. In fact, the front end of the curve, to the point we're pricing in seven cuts, why would you be in the front end? We've already priced that in. The long end of the yield curve, why do I need that volatility? Look at days like today. Why do I need the volatility of the long end where it doesn't get you the yield? Three-year to five-year, maybe go out to six, seven years. That belly of the yield curve where the forwards can still move, that's the lever of where interest rates could move.

And by the way, you're not going to lose that much money just staying. In fact, I don't think you'll lose any staying in those assets that clip yield. You know, we've run the convexity of it. It's incredibly powerful. Just stay in these assets this year. Most fixed income after today will be flattish for the year. But if you're staying in income producing assets, you can still throw off a really nice yield and not worry about interest rates. They're not going to go higher. We don't think they're going to go higher. But even if they do marginally, you've got enough income and carry in that three to five year part that you'll do. You'll do fine. Yeah. And they act as a cushion against whatever else. I guess. Rick, always great to talk to you. Thanks so much. Thanks for having me. Appreciate it. All right. Let's bring in

Shannon Sikosha of NB Private Wealth and Kevin Gordon of Charles Schwab. Shannon, of course, a CNBC contributor, broadened out this conversation a little bit. And Kevin, let's start with you, but turn to the equity market dynamics recently. It's as if the months and months of complaint that this rally was too narrow and we needed to see breadth come around. The market said, okay, we'll give it to you all at once

in the last few days. So where does that leave you with regard to whether this is sustainable? Yeah, you know, it's interesting because the kinds of breadth divergences that have been widely advertised, we've talked about them a lot over the past few months, especially if you take it back to late March, they don't tend to get resolved by the average stock or the rest of the market catching up to the index level. There's typically a little bit more of a convergence. But of course, courtesy of the move last week from small caps and deeper cyclicals, it's been resolved in a

nicer way. So I do think that it gives the market a little bit more runway. But I think what's probably coming more into focus now in terms of where the downside risks lie is, and much in keeping with what Rick was talking about in terms of inflation, coming back to something that looks a little bit more normal. It's definitely not normal in absolute terms, but relative to where we've been, it's normalizing. But I think that we're sort of removing inflation as the main risk now in terms of an upside surprise and turning higher and introducing the labor market now more as something to focus on. And, you know, rightfully so. The Fed has been focusing on that. We know that they're now viewing both parts of their mandate in focus, in balance.

And I think that's probably the right way to think about it from an equity market perspective. Shannon, as a fundamental stock picker, you're trying to figure out corporate earnings name by name. I would imagine that this might be setting up as a more rewarding environment. But how are you viewing it so far in terms of whether the market looks like it can sustain in this way for a while. Rewarding would be great, for sure. But Mike, I would caution, I mean, a lot of the language that we're hearing over the last couple of days, it sounds a lot like November and December of last year, where we were staring down the barrel of six to seven rate cuts, where we had really felt like some of the volatility around Treasury yields had

dissipated. And so I think, you know, we're really looking at this as an opportunity for us to capture that earnings growth in the second half of the year. And if you look at the comps for sectors outside of technology, you know, those earnings revisions have been pretty positive. And so from our perspective, Rick was mentioning this before, trying to find those pockets, whether it's energy, industrials, financials, materials, health care,

where you anticipate that that second half of the year, you're going to yield that earnings growth. It's not that we need earnings growth in those other sectors to even start to look like the 7 to 10 names that have really run over the last 18 months. It's that delta is starting to compress a little bit. And so that's where the opportunity is, I think, for those who are looking for the broadening out trade to persist. And Kevin, I mean, I guess the other piece of this is, you know, we're getting this rotation and so far it's been painless, right?

I mean, the big cap indexes have not given much back in terms of their gains for the year. And in fact, have come into this week looking maybe even a little bit stretched on the S&P 500 level. And it's not as if people have been kind of out of the market and expecting bad things as we get into this period. So I just wonder how that fits into your tactical view here. Yeah, I mean, that's really, I think, the right way to think about it. You know, often when you pit the mega caps versus the rest of the market, it's often thought of in this way that, you know, it's a zero-sum game where only one group can do well at the expense of the other. But we know in the case of a bull

market that looks relatively healthy, which, you know, we're starting to see better signs of health and improvement. But, you know, in typical bull markets, it's sort of a rising tide that lifts everything together. So I think, yeah, there's still more of the catch-up trade to do for deeper cyclicals or even to some extent defensives. I think that's one of the reasons that, you know, utilities, for example, did well earlier this year because they had such a tough time at the end of last year. But yeah, I think for the most part, if it fits with, you know, how we've been thinking about the economy and how disjointed this cycle has been in terms of some pockets of the economy taking longer to recover as you're now starting to see softening in areas like services, that I think will benefit over time a broadening of the rally. It's just not going to happen perfectly and at one time. Instances like last week are sort of this rubber band moment where you get a snapback in the names that have been that have been lagging.

But it's realization on the part of investors that overall the economy is hanging in there and remaining resilient. You know, Shannon, the market's trying to behave as if maybe this is a year when the seasonal choppy period ahead of an election or that sort of uncertainty move to the sidelines type effect maybe isn't going to come around. Although maybe that's exactly when it starts, when nobody expects it. So what are you thinking in the next few months in terms of how this market might proceed? Well, if you just overlay what we've seen historically in presidential election years, Mike, as you know better than I do, you know, we've seen a lot of that performance be pulled forward. And so do we see that that volatility potentially be pulled forward? Maybe. I think, you know, if you look at looking at an earnings led market, earnings led markets do generally tend to be less volatile. And so that

is a tailwind for us. The other thing, though, is just the confluence of factors that are coming to play in that late August, September time frame. And so you usually see election-related volatility pick up after Labor Day. Maybe we see that creep into August, though, because we've got Jackson Hole as well. And so maybe we see that happen, that sort of six-week period start a little bit earlier. But again, this is an extraordinary period where we've known the candidates much earlier than anticipated. Obviously, there's been some questions about that in the last 10 days or so. But I think, you know, just looking at it from a blueprint perspective, maybe you can't look at the historical precedent.

But there is probably some rhyming, albeit, you know, complicated a bit by what we're expecting from the Fed between Jackson Hole and the September meeting. Yeah, you have to figure there's going to be at least some kind of rethink or surprise along the way. We'll see how the markets might navigate that. Sorry we got to run. Shannon, Kevin, thanks a lot for the time today. Appreciate it. Let's now send it over to Kate Rooney for a look at the biggest names moving into the close. Hi, Kate. Hey there, Mike.

Yeah, so stocks tied to crypto today are some of the biggest winners, getting a boost from Bitcoin's rally. The cryptocurrency has been climbing since the attempted assassination of former President Trump over the weekend, with investors now pricing in higher odds of a Trump win in November. Trump has been emerging as a friendlier candidate towards the industry with some bullish comments around regulation lately. He's also set to headline a major crypto event at a conference next week. Coinbase is one of the names getting a boost today, up double digits.

You also got Marathon, which is a Bitcoin mining name, higher as well. And then solar stocks having a tough day., got SolarEdge leading the decline. The stock sank 13 percent after the company announced plans to lay off 400 employees due to declining revenue. Other solar stocks also tumbling. Sunrun and Sunnova both dropped nearly 15 percent. Nextera, First Solar and Enphase also sliding. Mike, back over to you. All right, Kate, thank you. We are just getting started. Up next, the Apple of your AI shares hitting an all time high today after Morgan Stanley's Eric Woodring names Apple his new top pick. He'll be here at post nine to make his case for double digit upside and why he sees a record iPhone upgrade cycle ahead. We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC.

Getting some more breaking news out of the Republican National Convention. Former President Donald Trump has officially become the Republican presidential nominee. Let's get back to CNBC's senior Washington correspondent, Eamon Javers, live in Milwaukee. Mike, it was the state of Florida that put Donald J. Trump over the top as the Republican nominee for president of the United States. The moment happening just a few moments ago. His son, Eric Trump, was on the floor of the convention in order to announce Florida's delegates. Here's how that moment played out. We hereby nominate every single one of them for the greatest president that's ever lived,

and that's Donald J. Trump. Hereby declaring him the Republican nominee for President of the United States of America. And that's the official moment there. Donald J. Trump no longer the presumptive nominee of the Republican Party. He is now officially the nominee of the Republican Party. Obviously, that was without a doubt heading into this week. The math on that, Mike, he did 1,215 votes to clinch out of a total of 2,429. Florida was chosen for symbolic reasons to be the state that put him over the top. So now Donald J. Trump has a vice presidential running mate, and he's got the Republican nomination for president, Mike.

Back over to you. All right. Eamon, thank you very much. Well, Apple hitting an all-time high today after an upgrade from Morgan Stanley. Eric Woodring calling it his top IT hardware pick and raising his price target to $273 a share, calling Apple intelligence a clear catalyst for a record device upgrade cycle. Eric joins me right here at Post 9. Eric, good to see you. Mike, good to see you as well. Thank you. So, you know, we've had a couple of, I guess, middling upgrade cycles. Why do you think that the AI technology incorporated here, we heard about it about a month ago, is actually going to move the needle? Sure. So, if we look back in time, there has been no other time in history that Apple's installed base has been as large,

that replacement cycles have been as long, and where Apple has forced you to upgrade your phone to get such a new and kind of pervasive technology at the same time. So you put all three of those together and you say there's a clear catalyst and only eight percent of iPhones and iPads can actually run Apple intelligence today. It's clear that Apple will try to add more utility value to your phone in introducing Apple intelligence. Almost certainly the product will just get better over time. And ultimately, there's over 1 billion devices that need to be refreshed to get this technology. That's what we think at its simplest form drives the upgrade cycle. So it's not necessary, I guess, by the way you put it out there, that today a preponderance of people feel it's immediately necessary to have this technology, but that it will build in that direction.

So that's why it seems like you're fixing the price target, the valuation on fiscal 2026 numbers. Yep. And that's exactly right. So if we think about it, Apple Intelligence will launch sometime later this fall. It's only available in U.S. English. About 30 percent of the iPhone installed base is in North America. And so there is a cohort that can upgrade this fall that can get Apple intelligence, but ultimately 70% of the world doesn't have access to it. In countries like China, you'll need a local cloud partner, right? So there's still language broadening that needs to happen, third-party API integration that needs to happen. We think that can progress over the course of the year, such that in fiscal 25, we have Apple doing

235 million shipments, very slightly above consensus. But in fiscal year 26, that becomes the big year, 262 million shipments. I'd also add that we think with the iPhone 17, which would drive fiscal 26 numbers, we think you get a bit of a form factor change. We think you get a slim model. We think that actually becomes an incremental reason to upgrade as well. Does this change the mix in terms of services versus hardware and all the multiple implications for that? Because even with this fairly aggressive above consensus idea of what revenue and earnings can be in fiscal 26, you have to 30 times multiple on top of that for your price turn.

Sure. So there's two ways that I would describe it. First is product revenue is going to grow faster than we've had it growing over the last two years. That is clear, right? Double digit growth versus relatively benign growth. So at the end of the day, the mix shift to services won't be as strong as it's been over the last two years, but we still have services outgrowing product. And therefore, you still do get this positive mix shift such that by 2026, 40% of gross profit dollars from Apple come from the services business. It's about 36% today. We then say, historically, there was a very clear correlation between services gross profit dollar mix and valuation multiple. So there's a reason to say even with this cycle, which in and of itself to me

is multiple enhancing, if services is growing faster, becoming more of mix, that is still a tailwind to the multiple, albeit earnings revisions still have to drive the majority of this. Yeah, I was going to say, I wonder what the main pushback you might get if it is just on valuation. I mean, even with meeting your revenue estimates for fiscal 26, I think the five year annualized revenue growth is only going to be five or six percent. Right. Yep. And that is how, you know, that is ultimately how Apple trades over time, which is I think we have to be cognizant there are typically four year cycles here, or at least that's what we've seen historically, the first two being very strong, the third one mediocre, and the fourth up to that cycle, depends. And this year, we are entering into this two-year up cycle. If you go back to 2021 with the 5G iPhone 12 cycle, Apple peaked

at about 32 times earnings. That was when the exuberance behind the 5G iPhone cycle was growing. We think the same thing can happen. So my price target is 31 times multiple. Again, a turn discount relatively in line with a historical peak. But you do have services mix as a percentage of gross profit dollars higher today than you did back in 2021. That helps to support that call. Is there a longer term issue? I mean, you have the industry investing hundreds of billions of dollars in capital,

in physical infrastructure to do whatever AI is capable of doing. Is there any risk that it, in some respect, displaces either the iPhone as a central vehicle for a lot of this stuff or something else? So today, not yet. There have been some, let's call it early use cases or early tests on other devices outside of an iPhone that haven't really come to fruition. The iPhone and the smartphone more broadly is still kind of your key compute device. Now, I think Apple actually has one of the most brilliant strategies that with the hindsight of 2020 is fair, but we can look back and say Apple is trying to take a very narrow approach to generative AI, provide better insights

and better functionality for what Apple can control on the device, but then ultimately try to integrate the best foundation and best multimodal models possible and distribute it to your customer base for free. So we all that own an iPhone, it's almost a bit of a capital light approach in which Apple's CapEx is 10 billion. You know, the rest of the big cloud compute companies spend 150 billion plus a year, but Apple is actually distributing those platforms for free. And so, or at least we perceive to be for free. So it's a very powerful strategy to me that keeps the iPhone and the smartphone as your kind of core compute device for the years to come, where people innovate.

That's going to be exciting as an analyst, but we don't see it yet. All right, Eric, thanks for running through it with us here. So 273 is a price target, 349 as your bull case. Thanks for having me on. Thanks a lot. All right, coming up, a breath of fresh air. Top technician Jeff DeGraff is breaking down the rally's broadening participation and whether the resportation is the real deal

or just another short live catch-up trade cozy belt be right back welcome back the russell 2000 again leading the market today as a major rotation builds momentum here to break down the technicals underneath the surface renaissance macro research chairman and head of technical research jeff de graff jeff great to see you. Take us through your checklist as to, you know, whether this phase of the rally is on solid footing and what you make of the recent breadth expansion. Yeah, well, you know, we were getting a little uncomfortable with the market at the early part of July. We knew that the seasonal trends were still very, very strong. So that was

keeping us in the game, if you will. But historically, as you get towards the end of July, the seasonals tend to peak. And that's the point at which we were going to look to exit unless we saw some type of notable improvement in breadth and participation. And we got that on Thursday. In fact, Thursday's advance was the fourth largest outperformance of the Russell 2000 versus the Russell 1000 in the history of the data, which goes back to 1979. So it was pretty meaningful. And that's exactly what you want to see. Now, Thursday was at the expense of the Russell 1000, but clearly we've seen improvement since then. So,

you know, when we look at 20-day highs and some of these other indications of breadth, they're not as good as they were back in December. And I wouldn't expect that at this point in the rally, but they were well above 40%. And that's a pretty good number that has some sustainability to it historically. I noted your work there about that, you know, greatest outperformance or breadth expansion last week in history. And some of the other similar dates, though, were all around major market lows, right? It was like you're coming out of a real washout. Does that change the calculus, or how does that work here? Yeah, I think you have to put an asterisk by it because clearly we're not in a big oversold condition.

We don't have the same amount of volatility that we had. You know, it was those three other dates, by the way, were the lows close to 87, the lows close to 08. big oversold condition. We don't have the same amount of volatility that we had. Those three other dates, by the way, were the lows close to 87, the lows close to 08, and the lows close to COVID in 2020. So clearly a much different environment than we were there. But we did the work on this, and it historically is bullish for the S&P out one in six months. It's actually pretty bullish for cyclicality versus defensive, which is what you'd want to see as well. It's actually pretty bullish for cyclicality versus defensive, which is what you'd want to see as well. It's a very good indication short term for the Russell 2. But what's interesting is that outperformance tends to fade after about three months. So, you know,

I do think that we've got this window of opportunity for the small cap names here. I don't know how durable it'll be. If you look at history, it's going to be good for about three months. And then you might as well just be a market participant at that point. But, you know, when we look at even some of the other dates around that that weren't those meaningful lows, we had one actually after the 2016 election that was very similar to that. And, you know, they proved to be bullish as well. Yeah, they certainly seem to have a little bit of life to them. I know you had been looking for months now, really, for yields to have peaked. And obviously, they've sort of rolled over at this point.

Where does that project down to, let's say, on the 10-year? Yeah, I think it's good news. We have to get through this 420 level. And I haven't looked at it in the last hour or so. So we'll see if we're through that. But getting through 420 then takes you down to 403. Getting through 403, which I think we will do, takes you down to about 380. So as long as that trajectory is to the downside. Now, we're already seeing it in short rates. I think that's important. So we're seeing a little bit of a

steepening of the curve. Short rates can take us down to 4% pretty easily. But all the things that we'd expect to see when we see short rates declining, a pickup in REITs as an example, all those are good signs. In fact, one of the most consistent asset classes is small cap when you get the short rates to come in. So all these things are kind of fitting together with this peak in yields. It took probably three months longer than we were hoping it would to kind of stall out and roll back over. But I think the inflation prints that we've seen and what we're getting from the Fed now is pretty clear that we're going to be on this trajectory of at least stable to lower rates on particularly the short end of the curve. That should feed into the back end of the curve. I just don't think it's going to be as aggressive. Yeah, the suspense definitely did build for a few months there on the yield story.

Jeff, thanks a lot for the time today. Appreciate it. Good to see you, Mike. Thank you. All right, up next, we are tracking the biggest movers as we head into the close. Kate Rooney is back with those. Kate. Hey, Mike. So retail is going to be our big theme today. One major U.S. department store down double digits after a buyout deal falls through and then a high end brand suffering from a luxury slowdown. We're going to tell you who we're talking about when Closing Bell returns. Fifteen minutes to the Closing Bell. The big cap index is still in record territory. Let's get back to Kate Rooney for a look at the

key stocks to watch. Hey, Mike. So take a look at Macy's first, plunging 16 percent after ending negotiations with Arkaus and Brigade, which wanted to buy Macy's for about six point nine billion dollars and take that company private. Macy's is in the middle of this turnaround effort led by CEO Tony Spring, who stepped into that top job back in February. And then shares of Burberry dropping about 16 percent after the company warned it's going to report an operating loss for the first half of this year. If the recent slowdown continues, the company has been battling a dwindling luxury appetite across all of its major markets. Burberry is also suspending its dividend and naming a new CEO.

Mike, back to you. All right, Kate, thank you. Still ahead, the financials hitting a record high on the back of earnings from Goldman Sachs and BlackRock today. We'll break down the numbers behind those moves and look ahead. The big reports out later this week. We'll be back with the bell right after this break. Up next, a warning from General Motors. We'll tell you what it is on the other side of this break. Closing bell. We'll tell you what it is on the other side of this break. Closing Bell, we'll be right back. We're now in the Closing Bell market zone with some selling into the close.

The S&P 500 now flat on the day. Phil LeBeau is here with some news out of General Motors. Warning on its EV targets. Plus, Leslie Picker sharing what to watch out of the major bank earnings tomorrow morning. And J.P. Morgan Asset Management global market strategist Jack Manley here to break down the crucial moments in these final minutes of the session. Phil, what did GM have to say? Mike, for some time, General Motors has had guidance that by the end of 25, it will have capacity in North America to produce one million EVs.

That's been the guidance for some time. Well, today, Mary Barra at a CNBC event said, uh-uh, they're not going to make it to one million. Here's what she had to say. You know, at General Motors, moving to an all-electric future, and almost what's more important is the fact that the vehicle really is a software platform. And so, you know, we're seeing a little bit of a slowdown right now. We won't, you know, we won't get to a million just because the market's not developing,

but it will get there. And so we're going to be guided by the customer. But what I like to tell people is get in an electric vehicle and drive it. It's a lot of fun. It's instant torque. It opens up new design language for the vehicle. So as the charging infrastructure gets more robust, as EVs become more affordable, I definitely think we're going to see that growth.

And the next 10, 11, 12 years is going to be pretty transformative in the way people move. So again, GM saying that it will not be able to hit its guidance of one million EV capacity in North America by the end of 25. Mike, I'm sure we'll get more details when the company reports its Q2 results next week. All right. We will look out for that for sure. Phil, thank you. Leslie, yet more banks we're going to hear from tomorrow. What should we be listening for? Hey, Mike. Yeah, four big banks down, two more to go. Tomorrow, we hear from Bank of America and Morgan Stanley, both trading higher today on the heels of Goldman's 2Q. That report showing net earnings up 150% from last year,

thanks to higher investment banking as well as trading activity. However, on a quarter-over-quarter basis, earnings declined 26%. Analysts are estimating Bank of America earnings to decline about 9.5%, while those at Morgan Stanley are expected to grow by 33%. Much focus for both firms tomorrow will be on investment banking and how much share they've been able to capture against a backdrop that's been largely strong for their competitors. And for Bank of America's case, can it stem concerns surrounding net interest income that have really befallen other money market banks, Mike? So we'll

see first thing tomorrow morning. We sure will. Always a lot of nuances once you hear the last of the big guys, Leslie. Thank you. Jack, let's talk a little bit about this market setup in general. So we have the S&P 500 up 18 percent. We're in another one of these phases where it seems like certainty has built around the execution of a soft landing, around the Fed moving toward an easing posture. Earnings are going to pick up. Is there anything you look in here and say the market's missing something or can it be that good? It feels like the market's more or less dialed into the actual narrative here, Mike. I mean, we see an inflation report from last week that is better than expected. We see an employment report from a couple of weeks ago that is a little bit softer than expected.

And remember, we're in this weird bad news is good news kind of phase. So, hey, that sounds pretty good. As long as it's not that bad. Yeah, exactly. We got some commentary out of Powell this morning that seems to underscore this idea that rates are moving lower. And if this economy is able to continue with some of these trends and the Fed is able to execute and cut once, maybe twice, then I think we have plenty of reason to be excited and a melt higher on the broad market as possible. I guess what manner we might melt, if that's the way we're going to go, is a big topic at the moment, too, right? So you have a little bit of a maybe fatigue in some of the biggest stocks that have been powering the market higher for a while. We have been talking

about this rotation into smaller, more cyclical financial stocks out there. You have an interesting thought that for that to really take hold, we might have to have a little crisis of faith in the AI story. I think that is a big part of this, right? Because you can talk about how better than expected GDP expectations, diminished recession risks, weaker wage growth, falling prices, or at least falling inflation, all these things are structural tailwinds for broader participation in general. But you've got to be wanting to move away from those darlings that have done so well in your portfolio for so long. And until you have a little bit more cold water thrown on the AI story, I just don't see that happening in a durable way. And what that cold water looks like, I'm not exactly sure. I don't know if it's an earnings

report that ends up missing on expectations. I don't know if it's some sort of regulatory or legislative headline that all of a sudden grabs attention. But that's what I think we need to see happen for this rotation to really get legs. Will the rotation, I mean, maybe you've seen little inklings of it, also extend to non-U.S. markets? Because that's been a piece of it. I mean, the rest of the world has traded like the equal weighted S&P or the value index as opposed to like the big cap S&P. It could, but I think you gotta be really careful about where you're allocating overseas,

if only because the dollar is so strong. And to me, that feels structurally like something that's not going away anytime soon, especially in a pretty uncertain volatile world. You know, when I think about international markets, Mike, my biggest problem is that so much of the attention is being paid to, well, it's not the U.S. Well, you know, the valuations are cheaper or this headline is something different and

not enough attention being paid to the competitive advantages that some of these regions have in specific markets. GOP one drugs, luxury goods, renewables in Europe, the move away from China and the emergence of Korea, Taiwan, Vietnam, India, Indonesia, all being more viable trading partners. This is longer term stuff that's more secular. It's more exciting. And it's got nothing to do with valuation. So I think you've got to take a long term view on that.

But that being said, is it time to actually start to get exposure to those themes or is that just sort of, well, we're not there yet? I don't think we're there yet. You know what? If we are, then I don't mind being a little bit late to that party. Yeah. Most likely, if it does start to roll, it would go for a little while. I think so. Because it has been a long time in the wilderness.

Jack, great to talk to you. Thanks very much. Thanks. I mentioned a minute ago that the S&P 500 has come pretty well off of the ties. It was up close to 1% at the peak earlier today. Now down about, oh, it's up one, two-tenths of a percent. The NASDAQ also underperforming the Russell 2000, which is up another one and three-quarter percent.

That is ahead by seven or eight percent over the last several days. The market plus also a positive, but not necessarily as overwhelming as we saw after CPI last week. That does it for Closing Bell. We'll send it to overtime with John Ford.