Closing Bell - Closing Bell: Navigating the Big Tech Bounce 12/13/24

Episode Date: December 13, 2024

Will stocks run or limp to the finish line this year? Perhaps the answer lies in what happens with tech which has seen a resurgence. We break down the big move in Broadcom and Apple’s massive run to $4 trillion. Plus, Payne Capital’s Courtney Garcia, NB Private Wealth’s Shannon Saccocia and JPMorgan Asset Management’s Jordan Jackson tell us what they’re forecasting for stocks. And, Former Cleveland Fed President Loretta Mester breaks down what she is expecting from the Fed next week – and what it is at stake for the economy. 

All right. Thanks so much. Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange on this Friday. This Baker Bakeout begins with two big tech stories we are following. Apple tracking towards $4 trillion in market cap and Broadcom surging towards its best day ever. We have reports on both coming up. In the meantime, here's a scorecard with 60 minutes to go in regulation. Stocks broadly lower today as the week winds to a close, though Nasdaq making a little run here. Dow's off about 2% for the week. It is working on a six-day losing streak. More stocks down and up, which has been the trend of late. It does take us to our talk of the tape.

Will stocks run or limp to the finish line this year? Perhaps that answer lies in what happens with tech, which has definitely seen a resurgence of late. We mentioned Apple and Broadcom, the big stories of this day. Our tech reporter Steve Kovach and Bernstein's Stacey Raskin on the case for both of those fronts. Steve Kovach, we start with you in this march towards $4 trillion. Yeah, getting pretty close here. And let me give you a few stats here, Scott, on what Apple shares have been doing these last several days. Hit intraday highs on Monday, Tuesday, and Wednesday this week. That capped nine straight days of intraday highs. That streak, of course, ended yesterday.

Shares are about 7%, maybe a little less, from hitting that $4 trillion milestone. Of course, it would be the first public company to ever reach that mark. And there's a lot going on in the meantime in Apple's world outside of these price moves here. Launch of ChapGPT on iPhone, that happened on Wednesday. And more artificial intelligence features as that Apple Intelligence Suite, those are coming early next year. And then earlier this week, we got that information report. I know we're going to talk about Broadcom soon, but Broadcom is developing an artificial intelligence chip for Apple. And there's also this broader, more macro,

interesting AI story developing around Apple. We're learning that Apple doesn't necessarily have to go out there and buy billions of dollars worth of NVIDIA chips and build huge data centers like we see Meta and Microsoft doing. And it's really able to pull off this Apple intelligence product without putting in such a huge investment right up front.

That's part of the reason why it gives away those features for free. And of course, you just cannot ignore the Trump factor here. Shares are up 11 percent since Election Day. Trump, of course, said that he spoke with CEO Tim Cook before Election Day. And there's also just a general sense of optimism that CEO Tim Cook can pull off a repeat with the president-elect and dodge tariffs like he did in Trump's first term. But you see shares, they're down just a hair here, but well on the way to four trillion, Scott. Yeah, Cook doesn't need to take a number outside the gate at Mar-a-Lago, right? Like many of the others are doing because he already had managed to develop some level of working professional,

whatever you want to characterize your relationship with Mr. Trump. Yeah. And we saw so much of that during Trump's first term, just before and right after his inauguration. We saw a lot of hand-wringing from Tim Cook's peers in the big tech industry, from Google, whether it's Google executives holding these town hall meetings with concerned employees. We saw, of course, the dynamic with Jeff Bezos and how that ended up killing Amazon's Pentagon contract. All of these people are kind of learning their lesson from the first time that Tim Cook got right the first time. And we're seeing them take these trips to Mar-a-Lago. We know Jeff Bezos is likely going to make that visit next week. I think Sudipar Chai as well.

If he didn't meet yesterday, he's going to meet pretty soon here. And then Mark Zuckerberg a couple of weeks ago. And yes, not to mention the inauguration donations. We're seeing that from Sam Altman, who just donated $1 million to the inauguration fund as well, on top of Meta's donations. So we're just seeing just kind of a snapback of the perception of how Silicon Valley plays along with Trump that basically taking Tim Cook's playbook from from round one. Yeah. Interesting, Steve. Thank you, Steve Kovac. And now Broadcom joining the trillion dollar market cap club today after its earnings surge. Stacey Raskin Bernstein is with us. It's nice to have you with us, too. Are you surprised at the stock move today? How would you put it into perspective for yourself? Yeah, you have to remember, so like people were expecting the guy to miss tactically. They were worried that the AI numbers were going to be weak in the first half and there may be some

wireless seasonality. And a lot of that stuff actually happened. But he had sort of enough arrows in his quiver, Hock Tan did, the CEO, to sort of overcome that. Now we're looking for sort of a probably likely material ramp on their custom AI ASICs into the second half, so the second half looks really good. And then he gave people a real reason to dream. He kind of painted this sort of longer-term, three-year picture that, if you believe in it, it doesn't seem implausible at all,

would suggest material upside to get into those AI expectations if you go and significant upgrades to earnings power. And so, I mean, it's up a lot just given where sentiment was, I think, going into the print. But I kind of get it. He gave you a real reason, especially if you're like a long only you're going to be in the stock for the long haul. He gave you a real reason to own it. So I'm given all of that, like it's up a lot. I'm not exactly surprised that people are chasing it today. You said of Hawk Tan, he might think about shopping for a leather jacket. I see what you did there. Yeah, I mean, why should Jensen be the only one, right? Hawk looks pretty good,

I think, in a leather jacket, too. Yeah. It does speak to how this company is, you know, trying to get an AI lift. And, you know, it is a part of its business, but it's not the biggest part of its business, which I find interesting in thinking about how much should a chip company, how much of an AI bump should a chip company get when it isn't their massive, if not core, business? It's going to be their core pretty soon if they're anything close to right. If you sort of roll the numbers out a few years, I think currently it's, I can't remember, they did $12 billion this year out of, I can't even remember what the number was. It was, I don't know, a third of their business right now. It was more

as a percentage of their semiconductor business. If you look at the potential growth that they're talking about, if you go out a few years, though, the AI piece is going to be a material part. It'll probably be 40% plus of the total company. And it'll easily be more than half of the semi-business, if you're're looking out like three, four years, if you believe it. And I think it's important to remember, like I made this point here before, you know, this big AI boom that people are talking about. There's really only two companies, maybe until recently, that were really seeing any upside at all. It was NVIDIA and Broadcom. That's it. And if you sort of think through the potential evolution of this market as we go forward, you've got NVIDIA who kind of owns the GPUs and

the natural second source, it's really looking like it is probably going to be these custom ASICs as the hyperscalers start to build out their own internal infrastructure. And Broadcom's the 800 pound gorilla there. So, I mean, I still think these two guys are the natural AI winners. And for Broadcom, it really is becoming more and more impaired. I mean, this this print, if you believe their numbers, this was almost kind of like their NVIDIA moment, like NVIDIA had their NVIDIA moment like last year, kind of middle of the year May. This may be like Broadcom's NVIDIA moment, so to so to speak. Yeah. I mean, what do you make of what's happened with chip stocks in general over the last few months? The diver in performance between software and semis does does a report like

this help change that what what does yeah i mean so semis have have been weaker as a group like in in recent months and you have to remember performance outside of ai has not been great in in in the sector right i mean it's it's really been bifurcated if it wasn't for the uh for the ai cycle semis in general would be having a pretty nasty time this year. You sort of look at everything in the different end markets. PCs are kind of meh. Smartphones, at least they're not going down anymore, but you're not getting a ton of unit growth. Industrial looks like we're sort of rolling into a double dip. Industrial is already quite weak, and it looks like it's getting weaker now. Auto, I've been

nervous about auto for quite a while, and actually it's been fairly resilient until recently, but auto is now starting to roll over. Like there aren't any end markets out there that are really, even traditional data center, like outside of AI is quite weak. You can even look at Broadcom's own classic on networking business is pretty weak. There's nothing outside of AI that is really strong. It's sort of supporting the whole space. And given that context, I'm not necessarily surprised to see the divergence we've seen within semis. And that'll filter into like the different ways that the sector plays off against other sectors as well. And quickly, before I let you go, you did raise your price target to 250 from 195. And we're at

226. It could get to 250 reasonably quickly. I guess we'll worry about that when we get there. But it's having a good run today. Yeah. Yeah, it is. I know how much you'd love to talk about your price targets. We'll see you soon. All right. It's not my first rodeo. We'll see you. Enjoy the weekend, Stacey Raskin. All right. Now let's bring in Courtney Garcia of Payne Capital Management, Shannon Sikoshe of NB Private Wealth, Jordan Jackson of J.P.organ Asset Management. It's great to have everybody with us today. Jordan, I'll turn to you first. Apple, Broadcom, it does underscore what has been a resurgence of sorts for tech, especially on the larger cap side of things, right? Absolutely. And you kind of hit the nail on the head. Will we limp to the finish line or will we walk? And the good thing about limping is you're still putting one foot in front of the other.

And it does appear that at least to round out the end of the year, tech may very well be what drives us to further gains in the market through the end of the year. But I think we've just got to be impressed with the resilience of these companies' balance sheets. You know, you keep in mind the MAG7, they spend 60 percent of free cash flow on growth capex and research and development. So, you know, as was highlighted, they're situating their balance sheets and their earnings growth potential for the economy of the future. And so we don't want to discount that. And so I think they'll continue to continue to see this market concentration. But we still believe in that broadening out in earnings growth and broader participation as you look ahead towards 2025. But do you still think we'll see the concentration, though, into next year? I mean, people tried to write the story off a little bit, thinking that, well, these stocks are up so much, their valuations are

stretched, their growth rates, while so super impressive, are slowing a bit. There's no way they could possibly maintain the growth rate that they had through this entire year. But here they are. They're saying not so fast, kind of back with a vengeance. Yeah, I think some of it is the enthusiasm around incoming policy, right? The potential for deregulation that doesn't just benefit financials, which have also done very well as of late, but kind of this friendly, kind of business friendly environment for mega cap tech potentially. So I think you've got some of this enthusiasm that's embedded in the rally. But the fundamental story, as you've

highlighted, is still pretty constructive. Court, Nasdaq's gone positive. It it is the only of the three majors anyway that is positive on the week. Is this the place once again to lean into? Yeah, I agree with the idea that this trade isn't going anywhere, but I also don't know if it's the best place to add all of your hard-earned cash that you have sitting on the sidelines right now. Because realistically, this is a category when you look at the MAG7, who is facing slowing earnings growth and really high capital expenditures when it comes to artificial intelligence. And we don't know when that's going to be monetized. And I think this is one of those stories where we tend to overestimate what AI can do in the short term,

probably underestimate what it's going to do in the longer term. The question is, how much of that is going to be sustainable short term and what's priced in? Isn't some of this already being monetized, though, for at least the hyperscalers? I mean, you can start to draw some lines, can't you, from spend to return? Yeah, we're drawing lines, though, but I think actually seeing the hard-earned cash on the bottom lines, I think that's the question. Apple is a good example of this, where everybody's saying, OK, they're going to get AI on their phones, they're integrating chat GPT, but is it actually going to have this upgrade cycle that everybody expects it to have? We haven't seen

that yet. So will it happen? It's possible. I don't know if it's going to happen as quickly as people are hoping it is. So I'm not getting out of this trade. I completely agree with you, Jordan. I think you have a lot of good points when it comes to this. So we stay in it. But if you haven't rebalanced your accounts, we have a lot of people who are 30, 40 percent above their targets in these categories. It's a good time to say take some profits, spread out to other areas. Don't get out of it, but don't be overexposed. OK, Shan, how would you address that? So I think we're talking a lot about AI, Scott. And I think if you look at mega cap tech and you think about this third wave of agentic AI and you think about the

broadening. So I think that it goes beyond just the mega caps that we're talking about every day in terms of the AI impact. The other thing, Scott, as I would say, is like we're really looking at the three C's. We're looking at the consumer, looking at China and looking at cloud. And so if you think about Apple and Amazon, the opportunity there for consumer, you know, consumer spending is starting to inflect again, even across lower and middle income consumer bases. We're starting to see that, you know, we've seen a resilient consumer, but we're actually seeing evidence that the consumer is getting more constructive as we move into 2025.

And that could certainly be helped by an expansion of real income growth. And you think about a potential uptick in Chinese stimulus next year. And then you think about cloud consumption, which has really been on the sidelines. We're seeing evidence from an enterprise spends perspective that we could see some spending

come back into cloud consumption. So all of that supports some mega cap tech names in general, but for reasons outside of the AI story that we spent a lot of time on this year. Jordan, where are we overall on your view of 25 in the market? What kind of returns do you think we're going to get? I think we're looking at high single digit returns. Singles?

High single digits. Why only single? Between 5, 5 to 10 percent. I think, one, we're a little bit concerned about valuations, right? And I'm a little bit hesitant to make a big rate bet in terms of interest rates coming down. And so the question really becomes for next year, you know, when will markets start to care about interest rates? And I think we'll see a four and a half percent U.S. 10 year potentially higher,

depending on what kind of policy announcements that we get over the first half of 2025. And in that environment, I think you've got to get a little bit of valuation correction in the market. We can't keep trading at 22 times forward earnings. So assuming you get a bit of that valuation correction, maybe the big names kind of struggle a little bit, but you get some of the participation on the cheaper side of the market. I think that gets you somewhere in the high single digit. You can't trade at 22 times forward earnings if earnings growth in general doesn't continue to grow along with, you know, into that valuation or at least to support it. Are you skeptical on how good earnings are going to be in 2025?

Because I hear more people saying, well, you're not going to get multiple expansion because you already got a lot of that, but you're going to get good earnings growth and that's going to be able to carry this market higher. It's going to justify where you're trading now and you may get multiple expand a little bit. No. So I think I struggle with a market that can get to 23, 24 times multiple. So I don't think you're going to get the multiple expansion. And I may not be as bullish on the earnings side, broad index level earnings. Markets are now calling for about 15 percent earnings growth for next year. I do think you'll get some of the more kind of value orientated parts of the market, say health care, industrials, financials, that probably have a little bit more perhaps for double-digit earnings growth in the second half of next year.

But I think the uncertainty around the political backdrop, you know, what's going to come down the pike? Are consumers going to stay as resilient given a number of headwinds, potential inflationary things picking back up? So I think there's a lot of uncertainty from an earnings backdrop. And, you know, look, after two years of 20 plus percent returns on the market, I think it's OK if we can accept, you know, a high single digit return here on the market. Yeah, we're tracking on the S&P for 27 percent. I mean, that's what we're doing right now. Rate cuts. How much court do they matter? Next week, we're likely to get another one. Is that your expectation? And then what are all bets off? We're going to have Loretta Mester on the former

Cleveland Fed president coming up. We're going to ask her what she thinks. What do you think? And I think that's, I think what's more important than what they're doing next week, which it's highly likely they're going to cut, right? I mean, there's almost 100% odds that they're going to be cutting next week. Should they be cutting, though, while we're basically at full employment, prices are relatively stable? I mean, I think that's the question, is what do they need to do going forward? And we're clearly not getting down to that 2 percent target that they want to hit. We're seeing that inflation is still a little sticky here. So I think the question is, what is that tone going to be going forward?

And are they a little more hawkish? I think that's actually going to be more important of where rates are going early next year. The tone. Exactly. Listen for the tone. Exactly. Because we want to know, are they going to start to pause next year? Winners, can we actually expect rates to come down further?

I think it's probably not going to be as fast as people had hoped. And there are going to be some of those inflationary pressures, which Jordan, I think, very accurately points out here. And that's probably one of the bigger risks when we go into 2025. So I think that's something that's going to continue to be a story. Are they going to cut next week? Probably. I don't think that's as important as what they're doing next year. What happens, Shan, if Courtney and Jordan are correct,

and maybe the Fed cuts less, even less than people think now, is what they're doing next year. What happens, Shan, if if Courtney and Jordan are correct and, you know, maybe the Fed cuts less, even less than people think now and rates remain sticky higher than people want them to be? Is the market going to have a problem with that, even with a backdrop of deregulation and expected tax cuts and, you know, more robust economic growth? Interestingly, Scott, where we haven't what you would expect is that we are in the camp, actually, that we end up with a terminal rate that's a little bit higher than expected, 375 to 4%. We think there's going to be a pause after next week's cut. But to your question, if you think about the potential levers of distress and you think about areas of the market which have, frankly, been fairly resilient and less vulnerable than we had thought with rising interest rates. I think what you're seeing

is that you're really seeing just a resetting of expectations for 2025 and 2026. We're going to have our view is that we're going to continue to have stronger nominal growth. It's going to be another above trend year for the U.S. economy next year. And so we do think, to your point, we do think that that top, you know, the headline, top line growth is going to offset, you know, some of this continued weakness. But it could result in things like we're very constructive on real estate. I think you could see maybe a longer tail on that trade as, you know, especially in residential, we're not seeing that more immediate impact than we anticipated from rates. But our view is that the overall strength of the economy is able to offset these higher rates as we move forward into 2025. I do find it interesting, Courtney, that you think, well, you know,

rates can be a little sticky high. You do like small caps. Isn't it a problem if rates start to back up a bit? How is that trade possibly going to work in that scenario? Well, because the Fed is still cutting rates, which is actually going to more directly affect the loans on small and mid-capitalization companies. Even if they're cutting slower and smaller? To a certain extent, but they are still cutting, right? So the short end of the curve is still coming down. And I think you're also setting up not only from an interest rate coming down on that end, but also from mergers and acquisitions, less regulation. Also, small cap companies tend to be more U.S.-focused,

which, again, in a new administration, which could be more protectionist, can absolutely put them in a better benefit where they do more business here in the U.S., less abroad. So I think for a lot of reasons, not just rate cuts, they're set up to do well in 2025. Do you agree or disagree? I'd be geared a little bit more towards the larger cap of the market. Maybe you thread the needle with mid-caps, right?

If you kind of believe in that high beta play, that cyclical recovery in the economy, more deregulation, business-friendly sort of environment. I don't know if I'd dabble too far into the small-cap, junkier space. All right. We'll leave it there. Everybody have a good weekend.

Shannon, thank you. Courtney, it's good to have you here. Jordan as well. Nice to have you here post-night. Shares of Lamb Weston are popping right now. Kate Rooney has those details for us. Hi, Kate. Hey, Scott. Yeah, so a possible deal in the food space to bring you Reuters now reporting that Post Holdings is working with bankers to explore a possible deal with Lamb Weston. These are two major packaged food makers. Reuters citing sources familiar with the deal and says it's ongoing at this point. Lamb Weston is the French fry maker. Reuters saying here it has been seen as a target by Post since back in 2015 when it was owned by Conagra. Company has faced, Lamb Weston has faced some activist pressure to sell itself according to this report. And Post, by the way, maker of Grape Nuts, Bob Evans,

Mashed Potatoes as well. Post has a market value around roughly $7 billion. Lamb Weston is closer to $10.5 billion. You can see shares going the other direction here. Lamb Weston up more than 4%. Post getting hit on this news, down more than 3%, Scott. All right, Kate, thank you. Kate Rooney, we're the other direction here. Lamb West is up more than 4%. Post getting hit on this news, down more than 3%, Scott.

All right, Kate, thank you. Kate Rooney, we're just getting started here. Coming up next, the Dean of Valuations, Aswath Damodar, and he joins us from NYU. Gives his forecast for the market in 25. The risks he's watching, whether the market's too expensive or not. We are live at the New York Stock Exchange, and you are watching Closing Bell on CNBC. Well, stocks are heading for another year of stellar returns with many outlooks suggesting the good times are likely to last into 2025. One obstacle, though, could be the market's lofty valuation. The big question now, is it too rich? Let's ask the so-called dean of valuation,

Aswath Damodaran. He is NYU Stern School of Business Professor of Finance. Welcome back. It's good to see you again. Thank you. I mean, we're going to do an amazing year. Are we too expensive now or are we all right? Well, it's tough to follow back-to-back 25% plus years, right? If we hold up to the end of the year. I mean, I think we got really close in the 1950s and the mid-70s.

But remember the last time we had back-to the S&P 500, which were 25% plus years. So if nothing else coming off that high, it's going to be tough to continue in that momentum. So I think that's got to be kept in the equation somewhere. Are we, I mean, would you call the market overpriced, overvalued, or how would you assess it? I'd come down right in the middle. It is richly priced, but it's not bubble territory. I know people compare it to the late 90s. Now, here's the way I think about it.

Am I going to sell everything and head for the hills? No, it's not that kind of market. Am I going to take every dollar of cash I have and throw it in the market? Not that kind of market either. So if I have cash, I might be a little more reluctant to put that cash to work in the market right away. But if nothing else, the last two years should tell us the cost of not being in the market. People sometimes ignore it when they think about being conservative and not going to markets. But you'd have given up 60% upside in the last two years by staying in cash. That's a lot to try to get back by market timing.

What do you make of the argument, as I brought up earlier, that you may not be able to get any more multiple expansion in 2025, but you could still get a good return next year because you're going to get better earnings growth than what was anticipated in much respect because of the policies that are going to be introduced by this new administration. You buy that? You know what? I'll take eight to 10 percent returns after the last two years. That would be good enough for me. I'm not trying to get rich in the market. I just want to preserve and grow my wealth. So I'm not looking even for double digit returns. If I make eight to 10, that's good enough. Interesting. You know, when you look at the way that some of the that AI related trades have gone, when you when you when you look at the idea that,

you know, the Nasdaq's had a bit of a resurgence, obviously, you know, we got to 20K for the first time ever. Are you surprised by that? Did you figure that this broadening that had finally, you know, showed up was going to last longer? How do you assess that? Not really. I mean, if you think about it, tech collectively, you don't count the Mag 7, is up about 31 percent. The market's up 25, 26 percent. That's where you'd expect tech to fall. So by itself, it's not like tech is taking off on its own. And the segment of technology which is AI-driven is a very, very small segment of the overall tech sector. So I think that the AI architecture part, obviously, the chips, the cloud storage business have taken off. But the AI product and service market's being pretty cautious about piling into those

stocks because until you can show me you can monetize those products and services, I'm not jumping in. Well, what do you make of the outperformance of software versus chips? I mean, it's been pretty dramatic over the last few months. What's the signal? I mean, I think that the architecture market has gotten ahead of itself. I mean, we've had, with NVIDIA alone, had $2 trillion in market gap in the last year and a half. I mean, at some point, you've got to stop and say, you're building all this architecture. What are you going to use the architecture for? So the next phase of AI is, I think, the use of the architecture, whether it's software, the products and services that emerge. So that's what I'd be looking for if I'm looking in the AI space is converting that architecture

to actually making money off that architecture. I think we're trying to take a look at what this new administration is going to bring, what deregulation and tax cuts are going to mean. Doge, the Department of Government Efficiency, what that is going to mean. I know you have one sector square on your mind today beyond tech, and that is health care. Why so much? And how much does the recent debate, this growing discourse that's around the idea of health coverage, the cost of it, the companies that are in the center of that public storm? No, I define a bad business as a business where nobody's happy. The producers are not happy, the consumers are not happy, the government is not happy. And we use that definition, healthcare is in trouble. It was the worst performing sector of 2024. So the market's

also already leading into 2025 with lots of questions. And I have a feeling that this might be that very strange moment in time of both sides. You know, Democrats and Republicans decide that something needs to be done. And if that's the case, you're going to see pharmaceutical companies and insurance companies in the eye of the storm. So to me, that's where you're going to see a lot of action in 2025. Doesn't make it a bad sector, but I think you've got to be picky about where you invest. You feel like as it relates to that, that the goalposts clearly have moved? I absolutely do. I mean, I can't find a single person who will defend health care as offered today in the U.S.

Almost 20 percent of GDP is spent on health care and the outcomes don't reflect that spending. Clearly, something needs to change. And I think that's a consensus. And once that's a consensus, there is going to be action. And that's why I think in 2025, I wouldn't be surprised if you saw some major actions on health care. I don't know what they are, but they will affect the profitability and value of these businesses. Would you stay away from all of those stocks as a result? I don't have the luxury. I already have four of them in my portfolio.

The question you've got to face is including UnitedHealthcare. Are you going to sell it? I did sell half of my UnitedHealthcare leading into 2025. Again, it's not a signal that I think it's overvalued, but it's done well for me in my portfolio. But at this stage, I think that there is a reckoning coming and I'm worried about what UnitedHealthcare and other companies like it will feel as a consequence. I just want to make sure I got this correct.

You sold half of it since the incident here in Manhattan? Yes. Okay. Professor, I appreciate your time. Thank you very much. We'll talk to you soon. That's Aswath Damodar in NYU Stern. Up next, former Cleveland Fed President Loretta Mester standing by with what to expect from

the Fed next week. She'll join us right after the break. All right, welcome back. The Fed expected to cut rates next Wednesday, despite some sticky inflation reads this week. But after that, anyone's guess, as some say, a prolonged pause could be in the cards. Loretta Mester is the former Cleveland Fed president, joins us now. It's nice to see you. Welcome back.

Thanks, Scott. Glad to be here. Are they going to cut next week? Are they going to do that? Well, I suspect they will. I think they'll have a robust discussion about, you know, what the right move is. And not only at next week's meeting, but I think, you know, you can accomplish the same as if you cut in December and then really put out a signal that, look, you know, probably we're going to have to go slower, certainly than we thought in September when they had the SEP the last time they put out projections. Because, as you said, inflation has proven to be a little more sticky than they anticipated.

There hasn't been much progress over the past four months. And also the economy on the real side, growth is above trend, and that's a bit stronger than they anticipated. And the employment part, which is an important part of the mandate, of the dual mandate, that's also proven to be stronger, you know, several months and likely will go over the next few months going forward, I think a pause is in order. Whether they do it in December or not, I don't think they will. The markets certainly are expecting them to cut. And there's no reason to disrupt that at this point, given they can signal that, hey, you know, we do think we've gotten rates better down, they've calibrated policy, and now it's really about where's the outlook?

What is the data informing our outlook, informing the restaurant outlook? And it just seems like given where inflation is and its stickiness, it makes sense to go slower. It also makes sense to go slower because they're getting closer to neutral. And remember, the whole point of this is to recalibrate toward neutral, not to go low neutral. Would I be overdoing it to suggest that it sounds like your thinking is we could get what I would characterize, I guess, as a hawkish cut next week? Well, I think that's what people are saying. That's the way they characterize. And I don't know whether I'd say hawkish, I think that's what people are saying. That's the way they characterize it.

I don't know whether I'd say hawkish. I think it just makes more sense, right? I always think that I wish they'd get away from data dependent and call it data informed, right? They have an outlook where they think the economy is going. They have a view of the risk. And the real question at any meeting is, OK, have the data that come have come in since the last meeting changed your outlook significantly enough that you want to change your policy? And I think at this point for December, you know, they anticipated cutting December. There's not enough change. But going forward for next year, I suspect they're going

to revise their outlook and have fewer rate cuts for next year, which means going slower. Do you think there would be a dissent next week? And if so, what would that mean towards the greater conversation in the room? Yeah, I mean, I do think they're going to have a robust discussion about is this the time to pause or should we, you know, go ahead with the 25 and then, you know, signal and communicate that, look, given where the economy is going. So could someone dissent if they really felt strongly that this is the time to pause? Yeah, that could happen.

I mean, we've seen defense sense before. And in fact, Nikki Bowman dissented the first cut because she wanted a 25 basis point rather than 50. So, you know, I think the chair rightly tries to get consensus, but I think he's also comfortable, especially when there is, you know, not an obvious move, right? This should be a robust debate. And having an assent which shows kind of, OK, they had that robust discussion isn't a bad thing. Is it an ominous sign, though, for where things could go from here if, let's say, she Bowman, who I'm talking about and you just referenced, if she actually dissents on a move in and of itself? Maybe that portends that, you know, it's not going to be such a friendly conversation that my word may be the wrong one to to use there

as it is but you get the point that i'm i'm trying to make like you're you could be on the cusp of a really robust uh months ahead of debate as to whether they need to cut anymore now because the economy is is strong you have what some expect to be reflationary policies coming out of the new administration, which raises more risk of even stickier inflation. Well, you just made the case for why having a debate about whether to pause now or to wait to pause later is the right debate, having a dissent on that isn't the end of the world. I mean, I think that would actually communicate that, you know, we did talk about both sides.

The committee did, you know, debate that. So I don't see why that would necessarily be a negative at all. In fact, the Fed's been criticized more recently by having everyone be in agreement, even when there's been cases on both sides. So, you know, how the markets will read that, I think they'll read from the press conference, from the statement and from the SEP that, OK, the Fed still thinks their modal outlook is that inflation is moving down, but it's not moving down as quickly as they had hoped or had expected the last time they put out

projections. And that just means that to actually get inflation to get all the way back to 2%, which is their goal, they're going to have to have a little bit firmer policy path. And that means fewer cuts next year than they had penciled in in September. Now, you're exactly right. There's fiscal policy actions that are likely to come. And it is a little too early for them to actually put in something in the SEP. Most participants probably won't. But most likely showing up first in the risk assessment, maybe in the December SEP. But then as more is revealed about the timing, the magnitude, you know, presumably their staffs are running these scenarios of particular kinds of policies through their models. That will inform sort of how they're going to adjust the forecast. But you're right. That's that's an uncertainty. The Fed doesn't set fiscal policy. Right. But the need to think

about how it affects the economy and in particular inflation and employment, which are their goals. Let me lastly ask you on the idea of Fed independence. Do you think that the Fed is truly prepared to a person on how disruptive the administration plans to be? And that is not qualified, whether that's, you know, suggested to be a good or bad thing. But they're going to be disruptors. The people they're putting in, they want to be disruptive. Right there. They've got the Doge agency, which wants to disrupt how the government spends its money. You have conversations today about will they get rid of the FDIC? I'm just wondering how you would think about that, knowing what's likely coming?

Well, you know, the Fed has faced these kinds of discussions before about its independence. And everyone at the Fed realizes the importance of independence in terms of monetary policymaking. Because when you have independent, you know, deciders on monetary policy, you end up with a better outcome for the economy. And I would presume that the administration, incoming administration, wants a good economy. So I think that's well established. You know, I think there are things to think about in terms of, you know, maybe there are ways to simplify our regulatory structure. You know, we have a very complex financial system, and it wouldn't be amiss to think about that. I always am a little paused that reorganization would be the way to do that, because, you know, it takes a model to beat a model. If, you know, just reorganizing isn't going to solve the underlying

complexity. So there are things that the Fed has been working on with the other regulators to try to make the regulatory structure simpler, more predictable for the institutions that are supervised, etc. And I think those are the way I would start it first. And I don't think that discussion is a bad discussion to have. I don't think getting rid of one of the federal regulators would be the place I would start. But I mean, this can almost be akin to, in the parlance of how we think about things here every day, an activist investor on steroids, so to speak, going after Corporation USA.

And they're going to shake it up and they're going to want to, you know, change a bunch of things. And that is going to be for career, you know, Fed people who've been around those jobs for a long time. It might be jarring, no? Well, I mean, no one likes to have a lot of change all at once. And I guess I'm more optimistic that some of it will be thoughtful, right? I mean, what's said in the campaign. Even if it all is thoughtful, right? I mean, even, I think the point is, even if it all is thoughtful,

it's something that has not been seen or experienced before, the disruptive nature that this administration wants to be for a number of different parts of our government. No, I agree with that. They certainly are going to be looking at all agencies, and that includes the Federal Reserve. But the Fed, of course, has been, you know, during the aftermath of the 2008 crisis, right, there was discussions about reorganizing regulatory supervision and regulations of the financial, of the banking system in particular. So this isn't a new concept. It's something that the Fed, people at the Fed have been through before.

And there are parts of, you know, the relationships that the fed has with legislators through the bank presidents and also the board of governors a lot of that is explaining the way the fed works and how we organize our work and how we think about things so that those are productive conversations so i don't think we're starting from scratch and i don't think we're starting from a point where um they want to tear up the fed i think we're starting from a point where they want to tear up the Fed. I think we're starting from the fact that they recognize that there are some probably inefficiencies in the government. We start from the point of view that, you know, we think we're doing a pretty good job.

Where's the place in the middle where we can actually get to a place where everything works better? So I guess I'm more optimistic about it and maybe overly optimistic, but we'll see. All right. President Mester, I appreciate your time once again. Thanks so much for being with us. Thanks, Scott. All right. Up next, Richard. Yes. Happy holidays to you, too, of course. We are tracking the biggest movers as we head into the close. We'll be right back. All right. Ten minutes till the bell. Let's get back to Steve Kovach now for the stocks that actually he's looking at Tesla today, Steve. Yeah. Let's just talk about Tesla here, Scott.

When those shares are higher on a Reuters report that President-elect Trump's transition team wants to drop a car crashing reporting requirement opposed by the company, the rule forces automakers to report crashes if automated driving systems are enabled within 30 seconds of an incident. Tesla has reported most of those kind of crashes since the requirement began, Scott. Steve, thank you. Still ahead, we'll tell you why RH's stock is soaring today. We're back after this. Closing about market zone time, CNBC Senior Markets commentator Mike Santoli will break down the crucial moments here of the trading day. RH at its highest level in nearly three years. Courtney Reagan starts us off with those details for it. Yeah, so investors looking right past the weaker than expected third quarter, focusing instead on expectations in the early

read from the fourth quarter. RH noting demand for its expensive home furnishing, accelerating in December from November, and expecting market share gains for the quarter, too. As a result, retail raising its total demand and operating margin guidance for the quarter and the full year. RH also plans to fully exit China as a manufacturing source by the end of the second quarter. So any potential new tariffs could not or should not, I should say, have a negative impact. At least four firms increasing price targets

for RH after those results and shares are up about 14% today, 49% year to date, outperforming the retail ETFs, the XRT, the XLY and the iBuy. All right, Court, thank you for that. That's Courtney Reagan. All right, Mike, I did this to you again. Sorry. We have a minute left. Look, we have the benefit of the fact that it's a very similar story to what it's been for a few

days right now, which is, you know, that's unassailable trend in the S&P 500. You're like 1% off the highs. We haven't been below 6,000 since before Thanksgiving. So that's hanging in there fine. But without the buying panic and Broadcom, it might be a different story. And we still have more stocks down than up for the 10th straight session. So clearly, the market needed to reset. We have Treasury yields, again, probing above or right around 4.4. That's about the level where bond buyers have come in over the last, let's say, six or seven months, you know, at least four, four, four, five.

So we'll see if that does happen, if this is just kind of a stutter step before a stronger end to the year. But really, there is some definite selling in the cyclical parts of this market. Very difficult to try and lead if that means something bigger. All right, that does it for us. Thank you. Enjoy the weekend. Get some rest for sure. That does it for us here at the New York Stock Exchange.

S&P, trying to eke out a game here. Everybody, please have a great weekend.