Closing Bell - Closing Bell: Navigating the Market’s Next Move 4/22/24

Episode Date: April 22, 2024

Where is the next move for stocks likely to be after last week’s tumultuous end? Gabriela Santos from JPM Asset Management, NewEdge’s Cameron Dawson and Ayako Yoshioka of Wealth Enhancement Management give their expert forecasts. Plus, tech strategist King Lip is flagging one big red flag he is seeing in the space right now. And, Max Kettner from HSBC Global Research’s thinks last week’s weakness is just temporary. He explains why he is still betting on the bull case. 

All right, welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with a bounce as stocks look to recover from last week's wreckage, especially within tech. We will ask our experts over this final stretch whether the worst is behind this market now or if an even bigger pullback is likely. In the meantime, take a look at the scorecard. With 60 minutes to go in regulation, pretty solid day for the major averages today and getting even better as this last hour begins. Breath good. Many sectors up now by more than 1 percent, and that includes financials. A nice session for technology as well. It's trying to claw back some of last week's big losses. And how about NVIDIA? It is bouncing after losing 13 percent last week. There's the stock up nearly 5 percent right now, trying to get back to 800 bucks. Meta, Microsoft, Alphabet all higher as well as we enter this final stretch ahead of their earnings this week. By the way, the first of the mega cap names to report yields. Well,

they are steady and that's really been the case of late. You take a look at the 10 year for 62, the all important PCE report coming out on Friday, and that's looming, especially large, given the backup in interest rates. It does take us to our talk of the tape. Where is the next move for stocks likely to be after that tumultuous end to the week? Let's ask Gabriela Santos, chief market strategist for J.P. Morgan Asset Management, with me here at Post 9. Welcome back. Thank you.

All right. What do you think about this market? Because last week was kind of rough, especially the way it ended. Now we have a nice move here into the last hour. You think the worst is behind us? I think there are two separate things going on. The first was the initial macro driven kind of correction that we saw in stocks that affected a multitude of sectors related to interest rate volatility, related to inflation expectations overshooting, related to the move higher in oil and the dollar. I think early signs that that one's run its course. If you just look at Fed rate expectations for this year, quite

hawkish at this point. And if you look at the performance of the equal weight on Friday, doing a lot better. So that we have more comfort has run quite a long way. But I think this week it's game time for the second bit of the story, which is much more around mega cap technology related to earnings and initial signs that, you know what, great's just not good enough given valuations, positioning and sentiment. And this week will be a key week for that. You think this was a comeuppance of sorts for the hire for longer idea? Because the market kind of brushed that off for a while. A bond

market kind of got there and stocks have taken a little bit. Is that in part what this is? I think it's all about the interest rate volatility, because what was interesting is the first quarter yields moved higher, but interest rate volatility actually fell to the lowest since before the Fed started raising rates. And then it just became a positive growth story and perhaps a high for longer, which is OK, can be absorbed by stocks. What changed in April was all of a sudden you had to shoot up in interest rate volatility and you actually brought back the higher for longer discussion because it became much more about inflation. And, oh, my goodness, do we need to price in a chance that we go back to actually speaking about rate hikes?

And that last bit we think is overdone. The bar is quite high here to actually reintroduce hikes. And we heard that from Chair Powell. And we expect interest rate vol to calm down from here. What do you think about valuation overall, the market? If valuation was justified before, an elevated valuation, like 20 times, right, if not a little bit higher than that, justified on the idea of good earnings growth, good economy, and rates are going to be coming down.

So can we have our cake and eat it too? If now we've pushed out rate cuts, if rates are going to remain higher for longer, can we justify the multiple of the market relative to even earnings growth expectations now coming down? How do we square all that? Yeah, and I think in the short term, you're really seeing multiple contraction. That's really what's happening here in April. You've had a decline of 6% in the multiple at the same time that earnings have hung in there. And that's just to account for some of these more uncertainties we talked about. But I think if we zoom out once we have a recovery after what we think is a temporary correction, then yes, I do think valuations can stay elevated as long as it's still a story about a soft landing

and high for longer, but not great hikes coming back and then hard landing fears. But that's where, Scott, really it's beneath the surface in the market. And to us, the major, major story is the eventual decrease as the year goes on of the earnings growth alpha of MAG7 versus the rest of the market. And then it becomes not just about a hope of broadening out, but a reality which meets earnings recovery plus more discounted valuation. Is that kind of what's going on now in some sense, too? A rotation really away from mega cap tech and away from tech in general to some of these other areas. I mentioned financials

at one point today were outperforming by a lot. Now the rest of the market's caught up because every sector in the S&P is now green and it is no longer the financials, the best sector on this day. It turns out that it's technology. So you have those dip buyers coming in. Absolutely. I think for those that had missed out on the rally last year for the mag seven or for the S&P 500 overall, we're bemoaning that we were back at all time highs., this is another bite of the apple here to buy into some of these themes. But I think what's more long-lasting here is the dispersion within a group like the Magnificent Seven. Very clearly, you have a lot more dispersion. Not every group is up double digits. You have some down double digits. And we

can't forget the importance of thinking through these as very specific individual companies and what weight should they have. And we're not really bought into this idea that it just goes up and to the right and that it's the new defensive. I think if you're looking for defense, it's in your traditional defensive sectors like utilities, which really did quite well last week. It's funny you say that because, you know, sort of the proof is in the pudding in that those stocks have been used as a defensive play. They've been used as offense, too. Are you suggesting that it's just no longer going to be the case that you're going to play defense in the largest tech stocks in the market? Because people have been doing that

for a while now, actually. So I think if you just look at the quality of these mega cap tech companies, they've got a lot of cash. Certainly they have very high quality earnings. That also just, of course, a continuation of elevated multiples in these companies and that they serve a certain role of defense in the portfolio. I just think you can't look to them to be a hedge for risk aversion driven by geopolitics, by a spike in oil, a price in the dollar. For that, you really need to rely on traditional defensives. And that really proved its mettle last week, especially when you have some questions around earnings for this big block, which is the case this week again. As long as interest rates remain elevated, you mentioned utilities.

Now, rates have pretty much remained stable for the last couple of weeks. It's not like there's been a lot of volatility in the bond market. Can utilities work in a hire for longer world? Can staples, for example, work in a hire for longer world? I think what you saw last week is that perhaps it can when it's about risk aversion, when it's about concern around geopolitics, we mentioned, or when you might get concerns again about the Fed overdoing it and there being a policy mistake. Sure. But those are like moment in time trades. Let's talk like longer term. If rates are going

to remain elevated, can I trust those places to go? I think you can. And I think that the trick with utilities is it's a nice combination of defense, cheap valuations, plus structural themes. And this is what we're discovering around the energy transition, around artificial intelligence. It doesn't just benefit tech and tech related sectors. It is also really key, actually, for the utility sector. So you've got a nice combination there. But my main point to clients is that you can't just look at one or two sectors or companies as your diversifier. You really need to broaden that out, even beyond just stocks and bonds. Okay, let's bring in Cameron Dawson now of New Edge Wealth and Ayako Yoshioka of Wealth Enhancement Group.

It's nice to see you, Ayako. Welcome to our set here at Post 9. Thanks so much, Scott. So you've heard what Gabriela has to say. Do you agree, disagree? What are your views here as we're coming off a really rough week? Sure. No, I think a short-term bounce in the market makes a lot of sense here in that, you know, we had a rough week and a half plus. And so now we're seeing a little bit of a rebound as we go into tech. But I think those earnings from Microsoft and Alphabet and Meta are going to be really important to determine whether or not that tech trade can continue to take the market higher. Yeah. What if it what if those those companies just don't come through

like they have in the past? Is it OK because we've decided that we can rotate away from them into these other areas or are we going to have yet another problem that we're reminded that those stocks went too far, too fast, the multiples expanded by too much, and now we're going to have even more of a giveback than we thought? So I think Microsoft may be in that camp, but I think Alphabet is in a different camp. Alphabet sold off over 10 percent, I think, the last time they reported and even the time before that. So they've had two quarters in a row where the stock sold off over 10%, I think, the last time they reported and even the time before that. So they've had two quarters in a row where the stock sold off on earnings. But afterwards, there were people who came back and purchased the stock, and the stock has actually reached new highs after that.

So it really depends on the quality of those earnings and what they report. I think with Microsoft, you really have to watch out for what those commercial bookings growth numbers are going to be and how the AI story really unfolds going forward. So, Cameron, we're down 4 percent now, let's say, off the highs on the S&P. And that takes into account this rally we've started here in the final stretch. How do the markets look to you now? Well, we certainly think we can bounce because we got oversold enough at the end of last week. But then we will have to judge the nature of the bounce to see if there is more digestion to come. So we'll be watching things like the momentum and thrust, seeing if people are clamoring to get back in.

We'll also be watching leadership really closely. We think tech still remains all important just because it is such a big part of the S&P 500. It's 30% of the index. So did the weakness in tech actually signal a trend change for that sector? Yes, other sectors might do better, but for the cap-weighted S&P 500, it is all-important. We need rate cuts, Gabriela, this year. What happens, like, let's just say we don't get any. Are we OK with that? I think it would be nice to get one in the sense of actually starting a normalization of interest rate cycle. I think we're OK if it's not June or July. Maybe it's

September, December. But I think if you don't want to see financial conditions really tighten and get the conversation about a hard landing to really come back to the forefront, it would be quite important to get one in this year and then, of course, continue next year and the year after to normalize those interest rates. Otherwise, also real rates just start expanding and you start restricting the economy too much as inflation comes down. Which is why the biggest event of the week might not be until Friday when PCE comes out. And I know the mega cap earnings reports are important, but given where the rate conversation and the inflation conversation and the most recent reads on CPI have been, this looms large. Absolutely. The PCE is the Fed's preferred measure of inflation. And so what that comes out to be

will definitely impact markets. But we also get GDP reports on Thursday and we get the University of Michigan numbers on Friday as well. And so when we see inflation expectations continuing to rise, I think that could be a bigger problem for the Fed. Cameron, how do you see this PCE report on Friday? And I'll ask you the same question because it ties together the idea of whether this market, quote unquote, needs rate cuts. The market doesn't need rate cuts if growth remains strong, meaning that we think the thing that has underpinned this rally has been the fact that GDP estimates keep going up. If the Fed is cutting for the wrong reasons because we're starting to cut GDP estimates, then rate cuts might not actually be a good thing for this market. Now, when it comes to the PCE, of course,

hot data would likely push yields higher and it would likely cement the Fed talking rather hawkish next week at the meeting. So the PCE remains incredibly important. We're watching the two-year Treasury very closely as it keeps bumping up against that 5%. Hot PCE, maybe we do break above it. So Cameron says, Gabrielle, you know, GDP estimates keep going up. The problem is, is that earnings growth estimates for this current quarter keep coming down. Is that an issue? It's totally normal as we start the year to start to see, especially the first few quarters, get revised down. I know, but from like 10 percent down to two, maybe three if we're lucky. And what's interesting to see is actually that the very specific issues with two health care

companies brought down the first quarter estimate from what was five percent to basically flat. So I think we can look through some of this in the first quarter. What I really hope we get this week is really a kind of a reorientation of this narrative ping pong that we're in here between hard landing, Goldilocks, no landing. Look, hold on. It's neither of the three. Good luck with that. It's a downshift in GDP to two. What else are we going to talk about?

It's a downshift in GDP to two. What else are we going to talk about? It's a downshift of GDP to two. It's the PC comfortably below three, which is a perfectly good environment. It's neither too cold nor too hot, and it can leave room for the Fed to start normalizing slowly. We started also, I had to get into this poor trend, I would think, of pretty decent earnings and pretty bad stock reaction. We can't afford that anymore. Absolutely. We don't want the Googles to be down 10% plus on their earnings, but expectations have gotten high.

And so having this pullback in the market ahead of these tech earnings is actually a good thing. You flush out some of that bad sentiment, and hopefully you get a little bit of short- term recovery when they do report better than expected earnings. Yeah. How would you address that same issue, Cameron, about the price action after decent earnings report was sort of an ominous sign that something bad was about to happen? That's exactly right. When stocks don't go up on good news, it usually is a sign that there is a sea change in risk appetite. But of course, having a little bit of a lower bar being oversold into this earnings season does help. But we do think that there is this big pain trade happening within sector positioning, meaning that the sectors that

are doing better after the last couple of weeks are the places where you've seen a lot of outflows, financials, industrials, materials, whereas tech has been very crowded, which even though there is a slight lower bar, we'd say with high valuations and crowded positioning, that's why we likely are seeing these negative reactions, meaning good is just not good enough. Maybe, Cameron, it's good, too, that NVIDIA is going through what it's going through. Now, it's had a nice 5 percent bounce back today. But as I said, it was like 13.5% last week that that stock bled off. Now, we're going to have to wait a month for the earnings report, right? It's May 22nd, literally a month.

That's a long period of time. Maybe a good thing, though, that this stock is having a little bit of a pullback or, in fact, a major one now, rather than just continuing to amp up into a number. Yeah, I think that's exactly right. Trees don't grow to the sky and neither do semiconductors, which just means that we move very, very far, very fast, got extended above trend for NVIDIA and the rest of the semiconductor space. We don't think that the upcycle in semis is over. We still have overall sales being below the prior peak in 21. But it's likely that we are pulling back in an uptrend, which just means as you start to test support,

whether it's your 100-day or 200-day moving average, that likely could be an opportunity to add to this space where you're still in a cyclical upswing. So digestion is good and healthy, even for the hottest parts of the market. The other thing, Gabrielle, is for the first time in a while, we've reintroduced the alternative to stocks idea, cash and things like that. If you're going to be getting 5%, here we go again on reasons to not take so much risk into equities when you can just stay safe in cash or bonds of some kind. Exactly. And I think for 10, 15 years there, we got used to this knee jerk of over-weighting stocks,

over-weighting stocks, whether it was individual investors or pension funds, endowments. They had to take on so much more risk because you had such low interest rates. And now that's just not the case. We've been seeing, especially those institutional investors, really bringing back their core fixed income allocation.

So there's tons of demand for treasuries on investment grade. They're now fully funded. And then for individual investors, I think it's hard to argue for a very large overweight to equities, given the math. It's more of a small overweight to equities and where it's worth it. Right. So it brings back kind of investing basics that we forgot, like valuations and quality and position sizing. What about that, Cameron, outside of equities, plays that make sense right now through whatever credit you think is best right now? We do still think that we have to be very, very selective within credit, meaning that you saw credit spreads tighten so much year to date, mostly in the high yield space, not necessarily pricing in the potential risk for either weaker economic growth or a lot of increased supply of credit as companies

have to refinance, mostly going into 2025. So we are finding opportunities as yields have moved back higher to be able to lock in higher yields. But again, we have to be very, very selective within high yield credit simply because you have had those spreads come in so very much. We will leave it there. That was fun. I appreciate it. Cameron, thank you. Aya, thanks to you as well for being here. Gary, we'll see you soon. All right. Let's send it to Christina Partsenevelis now for a look at the biggest names moving into the close. Christina. Thank you, Scott. Tesla trimming prices by up to two thousand dollars on the Model 3, the Model Y in markets like U.S., China, Germany. All of this just this past weekend. And this

comes amid competition in China and as a way to drive demand slowed by higher interest rates. The cuts, though, come ahead of earnings out tomorrow. The street is expecting a revenue drop and a big fall in gross margins. Shares down 3%. Bitcoin, surprisingly up despite its fourth halving supply cut, which really maintains scarcity. Many expected a fire sale of Bitcoin, but the price jumped almost 3%, just well above $60,000. Bitcoin miners and traders, though, are dealing with this chaos, which has pushed up the price of transaction fees. So crypto platforms like Coinbase and Robinhood are benefiting today. You can see Coinbase up over 6 percent. Christina, we'll see in a little bit. Thank you. Do have a news alert now on UnitedHealth. Our Bertha Coombs joining us now with new details on the hack

reported earlier this year. Bertha, what do we know? That's right, Scott. The Wall Street Journal is reporting, citing sources familiar with the investigation, that the hackers who got into the changed health care systems actually got in earlier than the company reported, starting on February 12th. According to the journal, they got into there through a remote access system that did not have multi-factor authentication. It was not enabled in this particular application, which allowed them to get in. Now, just last week, we did hear UnitedHealth say that they are making progress getting the systems all back together. So far, that hack, that cyber attack has cost some $870 million. It could cost up to $1.6 billion, they estimate, this year because of all of the disruption that has resulted.

Next week, we will see CEO Andrew Witte up on Capitol Hill testifying before Congress on this cyber attack. But again, The Wall Street Journal reporting that it started earlier than the company said on February 12th. The company first revealed that it had begun on February 21st. Back over to you. I appreciate that, Bertha. Thank you, Bertha Coombs. We are just getting started here on Closing Bell. Up next, what's at stake for big tech? Investors awaiting results from Meta and Amazon, Microsoft and Apple. Now top strategist King Lip breaks out his playbook for what to expect from those names. Got some big ones reporting this week. Also has one big red flag he is seeing in that space. He'll tell us where after the break. We're live from the New York Stock Exchange.

You're watching Closing Bell on CNBC. All right, stocks are ripping in the final stretch today, rebounding from last week's losses. NASDAQ up more than 1% now. Investors look ahead to this week's big tech earnings. Joining me now for what to expect, King Lip, Baker Avenue Wealth Management. Good to see you. Welcome back. Hi, Scott. How are you? Have we seen the worst? I'm good, thank you. Have we seen the worst of this tech sell-off? Possibly. I mean, we've had a lot of technical damage due to macro-related issues, technical

issues. We're still expecting strong earnings growth this week, however. So whether this tech sell-off continues, I think really depends on how the mega cap tech reports. I think valuations have definitely been more reasonable now, now that we've had a little bit of a correction. I think most importantly is how stocks react to the earnings news. If we have inline earnings guidance and stocks sell off, I think there's more for tech stocks to go down from here. I mean, it's not like tech valuations have corrected all that dramatically in the pullback we've seen in some of these names. So I'm not so certain that that issue has been taken care of if one believes that an issue existed in the first place. Well, it depends. You know, not even if you look at the Magnificent Seven, not all names are the same. For example, names like Google and Meta, which we think our valuations are pretty fair, right in line with 10-year averages.

Earnings have kept up, so stock prices have come down, means valuations are in line. On the other hand, you have names like Microsoft and NVIDIA and Apple where valuations are still elevated. So to us, it really depends on how the reactions are more so than what the valuations are at this point. But if you think Microsoft, Apple and NVIDIA valuations are still elevated, those are within your top 10 holdings. So what does that mean for how you're thinking about your own portfolio? You know, we have, you know, in the last couple of weeks actually trimmed some of our tech exposure just because of the fact that the sizes have gone so large. We're still bullish. Near term, I do think there's going to be a lot more choppiness. Longer term, I still think the earnings growth is there. There's long runways for the AI industry.

And I do think that the earnings growth is going to keep up, although I do recognize that comps are going to get a little harder. So from that perspective, I think near term, you're going to see a lot more choppiness. Longer term, the businesses are still intact. But how much of that trimming, I get portfolio management, I hear that a lot is just earnings growth. With NVIDIA, for example, we've had two years of triple-digit earnings growth. We can't expect companies like that to continue to deliver that type of earnings growth. But can we grow in the mid-teens in terms of earnings growth for the next couple of years? We do believe so. And if that's the case, you know, 15 percent per year over five years means your earnings double from already very high levels. So,

you know, trimming of stocks is something that we do from a portfolio management perspective. But we still like these companies and we still think they're going to do well relative to the market. If you're if you're looking at earnings growth as a key metric, then of how you're viewing where these stocks are going to go from here, then I'm assuming that you must be a little more defensive, perhaps, about where you think Apple could go. We are. So out of the seven and perhaps more appropriately, the fabulous five now, you know, Apple is the company that has lower earnings trajectories, more sort of mid-single

digits rather than double digits earnings growth. And for that reason, we've actually trimmed some of our Apple exposure as well. But having said that, I do think the company is going to have its AI initiative a lot more formalized and concrete over the next couple of quarters. I think the company can leverage over its, you know, over $2 billion of its devices that are active. So I think there's a lot of leverage that Apple can pull that can make the company, the stock, still a very good long-term investment. What's the largest mega cap position you have? If you suggest that you've been trimming a lot of these names ahead of this pullback, What's the largest position you hold and why is it the biggest? Microsoft is still our largest. And the reason why we like that company is simply

by the fact that it's so entrenched in our day-to-day lives in terms of enterprise and just the consistency and the defensiveness of the business. So while valuations are elevated for a name like Microsoft, we think that the premiums that investors are paying for it is reasonable. The idea of low, I'm going to take you back, let's say, I don't know, six months, four months. Let's go four months. The idea of lower interest rates at some point this year, how much do you think that had to do, if at all, with the run that we saw in these mega cap names? And then if I take that off the table from you, what is it going to mean for the next six months, let's say? Fair question. You know, we were non-consensus in terms of our interest rate outlook. We thought that the Fed was not going to do what the market had expected in terms of a

percentage cut in rates. So we were thinking one or two rate cuts this year. We think, honestly, earnings growth is going to be more important than whether the Fed cuts or not. And frankly, given the recent economic data that we're seeing, I think it's reasonable that the Fed doesn't become too aggressive in cutting rates. So from that perspective, whether the Fed cuts or not, we still think these are good investments because of the fact their earnings growth is going to be so strong. Even with no cuts at all? Correct.

King, it's good to talk to you. We'll see you soon. That's King Lip, Baker Avenue. S&P now trying to snap its six-day decline. Up next, why one strategist thinks last week's sell-off is just some temporary weakness and where he thinks investors should be putting their money to work right now. Just after this break. We are back as stocks bounce back from last week's sell-off. The S&P now set to snap its longest losing streak in 18 months. My next guest is still a believer in the bull case, says the latest market setback should be temporary. Joining me now is HSBC Global Research's Chief Multi-Asset Strategist, Max Kettner.

Max, welcome. It's good to see you. Good to see you. Thanks for having me. So the bull market's intact? Yeah, I think so. I mean, what we're seeing now is obviously a lot related to rates, it's related to inflation. But I do think it's a little bit exactly the opposite from what we've done about four months ago. Remember, four months ago, the narrative was, oh, you know, the fed is way too late they've been late in hiking and now they're late in cutting because you know something like the three month or the six month annualized core inflation is already at or below two percent

and now just four months later that narrative has shifted to the entire opposite extreme so i think as much as four months ago was entirely really exaggerated on the cutting and on the dovish side, that is now exaggerated on the hawkish side. It's not like we're on the brink of a new inflation wave. Yeah, inflation is stickier, but we know that. But it's also stickier because earnings growth, because nominal growth is just much stronger. And that is what ultimately, I think, should be driving equities and risk assets in general here. Sure. But if four months ago, part of the rally was based on the idea of multiple rate cuts, how can we be in the same position today if the number of rate cuts has gone so dramatically down and at best pushed out?

Yeah, it's a great question. I think, you know, part of that narrative that it was related to the number of cuts or the extent of easing, I think was a little exaggerated. Yeah, there has been, you know, somewhat of a correlation in the second half of the year or between the S&P 500, for example, and the number of cuts until December 2024. But let's be honest, that correlation really only existed from around August last year

up until December last year. So really only around four or five months. It's not been something that's been around for really ages or anything like a persistent correlation. I do think for equities overall, unless the narrative from the Fed really decisively shifts from cuts to hikes, unless that happens, it should be bullish for equities. Because remember last year, a lot of the narrative was based, why should I buy equities? Why should I buy credit if I get 5.5% in cash? So I do suspect there's quite a lot of cash still on the sidelines that can be put to work. Some people are being reminded

of why they have that cash on the sidelines in the first place, aren't they? As rates have backed up again, the money that was expected to spur the next leg of the bull market may never come into the market because it feels better sitting in cash and still getting five percent. Oh, yeah, it absolutely does. I think it always does before the fact, right? Like we have the same thing last year, let's say around April, May last year, where, you know, we were also very bullish on things like emerging market debt and high yield and equities. And we had to push back against that narrative around 5.5% cash yields versus, you know, an earnings yield that's not looking too attractive

and versus corporate bond yields that don't look too attractive. Absolutely, at the face of it, it looks very unattractive. But let's face it, when we look, for example, at things like sentiment and positioning, we just had three weeks ago at least a mild sell signal on our shorter-term signals. That has all but evaporated. That's all but gone now. So, from a sort of technical perspective, at least we can see a bit of a short-term bounce. When we look at the earnings picture, it's the same thing. Look at, for example, S&P 500 earnings expectations. It's expected to drop almost $3 on an index level now in Q1, particularly driven by the cyclical sectors, by things

like consumer discretionary, industrials, by things like energy. So it's really also that cyclical pessimism that is still, I think, in those expectations. And all of that really, that kind of pessimism that is still in the near-term expectations. I think once we see those earnings beats perhaps already starting this week on the tech side, that really can spur the next leg higher, despite at the face of it still these attractive cash yields on the sidelines. So, you think earnings are going to be good enough to justify current market multiples? Yes, I do think so. It would be different, and I think it is going to be different from Q3 onwards

when expectations are much, much higher. Remember, what we're faced with right now is around $53 on S&P earnings in terms of the index levels. That is expected to increase to $63 and $65 in Q3 and Q4. So just in six, nine months' time. I think that kind of optimism is a little bit too much. That's something that we don't have to deal with now. I think, you know, as long as earnings will be beating that very low bar, as long as guidance does come in a little bit better than expected, or at least in line, that's going to be good. That will be showing, hey, you know what, the growth side, the nominal growth side of things is still fine, and that's going to be good. That will be showing, hey, you know what? The growth side, the nominal growth side of things is still fine. And that's ultimately what matters. But in Q3 and Q4, when the bar to beat is going to be much higher, I think that's where then risk assets and

particularly US equities will start to struggle. But we'll deal with that when we get there. That's not before September, October. Breath is pretty good today. Every sector within the S&P is in the green. Now, some are not up quite as much as they were as we entered this final stretch. Are you a believer in the rotation away from tech, or is that still going to be the dominant play? And are we going to be reminded of why starting this week when we get three of the biggest names in the market reporting?

So I would sort of escape your question with saying, look, it's probably tech and the rest. So it's not something where we say you've got to shift out of tech and forget about tech and just go into energy materials and all the rest of the cyclical stuff. No, because we have already seen quite a bit of rotation in in march of from mid-feb until end of march already into those more cyclical sectors i do think there is a bit more space particularly and precisely because of those pretty downbeat earnings expectations for q1 that i've just referred to but tech particularly after that latest leg lower particularly the mega caps they still do make sense because at the end of the day, that's still where the strongest earnings growth is. So I wouldn't be rotating out of those.

I think it's a mix of both of them. I mean, I'm not going to let you escape that easily with all due respect, because what happened in March was, yes, we had a broadening. We could use the word and as you did. It was tech and all of these other sectors that did well. It just tech dropped back to sixth or seventh in the pack. And that was fine. Right now, we may be going through an or where you have had tech upset last week. And there are some who are saying, OK, maybe that trade got way ahead of itself. And then now we're in the midst of what is a rotation to all of these other places.

And it's not necessarily going to be an everything rally. Yeah, I would take the other side of that trade, because let's remember, it comes back to the very first question that we talked about around inflation and about rates, that now when you look at things like inflation expectations, longer term nominal forwards, you know, even interest rate volatility,

all of those things have been picking up. But all of those things have been already weighing on mega cap and on tech stocks. That's already happened. So part of that is at least in the price, right? Part of that is really at least partially now priced in. So I would say that all we need is really one or two data points on the inflation or on the wage side

that is at least in line, if not a couple of basis points below expectations, and then with lower yields, what we could be seeing again is tech taking the lead again, but actually dragging the rest of the market with it. It won't be, I think, in that environment, it won't just be mega cap and tech and the rest will be lagging. I think it will be tech regaining the leadership, but actually dragging the rest of the market upwards with it. Get a good test this week with those mega cap earnings and, of course, the PCE on Friday.

Max, I appreciate your time. Thanks so much much we'll see you soon thank you all right that's max kettner up next tracking the biggest movers into the close christina parts of nevelos is standing by with that christina we have an activist investor urging a chip maker to put itself up for sale and a massive software acquisition falls flat those market movers are next. We're less than 15 from the closing bell. Let's get back to Christina Partsenevelis now for a look at the key stocks she is watching. Christina. Let's look at silicon carbide producer Wolfspeed jumping after activist investor Janna Partners, suggesting the company look at ways to improve shareholder value and not depress the stock. And that means maybe a potential sale. Janna says they have, quote, significant, a significant position in Wolfspeed and noted that the 10-year total shareholder

return of Wolfspeed is a loss of 61 percent. See, Wolfspeed's shares are up about 8 percent right now. Salesforce shares are also climbing higher this afternoon after software provider Informica announced it was no longer going to be acquired by Salesforce. This would have been Salesforce's biggest acquisition since Slack, but Reuters saying the two companies just couldn't agree on terms of the deal. And that's why you're seeing shares of Salesforce up and Informatica down over 7%. All right. All right, Christina, thank you. Christina Partsenevelis. Still ahead, Verizon shares are slipping after reporting mixed results this morning. One key metric falling especially short.

The details when we come right back. Up next, Cadence Design. Those results, top of the hour. Rundown of what to watch for in the Market Zone next. We're in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, Julia Borsten on what's behind Verizon's sell-off today. And Christina Partsenevelos is back to look ahead to Cadence Design's earnings.

They're out in overtime today. Pretty decent bounce. It took a while to get going, even though we've lost a little bit of steam as we've headed towards the end. Is this what you were looking for, what you expected? Now what? I mean, it takes some of the pressure off. It's not the kind of really violent snapback that you might expect if you had a truly washed out market where everything lined up and you really had that kind of flush of a sell off late last week. We didn't really get that. I think the good news is nobody came in Monday saying we still need to be indiscriminately peeling back equity exposure. Last week, it seemed like that.

Again, last week, we had intraday rallies and it closed negative each day. Not happening again today. Didn't really see a lot of a chase when we got to the highs of the day, like 1.4 percent at one point in the S&P. It looked like we were getting what you described, though, and then it just sort of fizzled as we went on with the last hour. And the issue is, you know, even if we got up 2%, you'd have to say, well, that's an oversold bounce. Let's see if we get followed. That's the game we play once you get a sell. If it's only 5%, no rules have really been violated here.

And the breadth of the market is pretty good today. It's like 70-plus percent upside volume. So it is still pressure on some of the big concentrated index names. That's sort of obscuring a little bit of the strength below the surface. But you've got to see day to day. Julia, Verizon's been the worst in the Dow for much of the day. I'm not sure if it still is. But anyway, it's been an off day.

Yeah, Verizon shares falling about 4.5%. This is after the company missed expectations in terms of revenue. Though Verizon did beat in terms of earnings per share by three cents. Now, CEO Hans Vestberg saying on CNBC this morning that Verizon is on track to meet its financial guidance and to deliver positive postpaid phone net ads for the next year. This after the company's consumer business had its best first quarter performance since 2018, losing fewer wireless subscribers than anticipated. Newstreet Research flagging that Verizon's lower-than-expected broadband results could indicate a slowdown in the broader broadband market,

saying, quote, we remain cautious on broadband market growth until we hear from more other operators. And like many other companies, Verizon talked about how it will make money from AI, but did not help the stock at all today. Back over to you. All right, Julie, appreciate that, Julia Borson. All right, Christina, what to expect now from Cadence in overtime? A lot. And first, I got to explain. Cadence makes critical software for semiconductor designs. It's known as electronic design automation, EDA. Shares are up right now, but down 10% on the month. The incredible

investment cycle around AI and memory grabs all the headlines. But Piper Sandler is betting that design programs are going to be what sets companies apart in the future as chips become more and more complex to design and manufacture, which is why they believe the EDA space, the electronic design automation space, will become even more essential. The sector, which is really just Cadence and Synopsys, the two yellow bars on your screen to the left, they have outperformed software assets just over the last decade or so. NVIDIA recently expanded its partnership with Cadence for EDA tools and simulations. So expect to hear more about that on the earnings call tonight. Competitor Synopsys recently raised its full year growth guidance on EDA and IP strength as well. So key bank analysts say that's good for Cadence and they raised their price target to $340. They say Cadence's recent IP deal with Intel Foundry should help keep up

Cadence's backlog. So they're positive on this name. All right, we'll see what happens in OT. Christina, thank you. All right, back to Mike Santoli with a minute to go. Tesla tomorrow. Yeah. Feels like they've kitchen sinked maybe a lot heading into this number. It's hard to think that there's going to be an outright negative surprise based on what's led into it. Historically, Tesla stock doesn't do well when it's mostly about the near term fundamentals. But right now, people have been assuming things have been so bad. I think the bright side is, you know, it doesn't matter that much for the index anymore. You know, it's way out of the top 10. So that's a good thing.

And it doesn't seem to be even a bellwether of that kind of risk appetite trade. That's the NVIDIA still right now. It's up 4% today. Still very erratic as it sort of bounces around these levels and seems to have maybe put in a little bit of a top, but we'll see how deep it goes. Yeah, we'll walk you up to that tomorrow, by the way, ahead of those earnings. We'll hold on to 5,000 today in the S&P as the bell rings. I'll see you on the other side in the O.C. now with Morgan and John. Субтитры подогнал «Симон»