Closing Bell - Closing Bell Overtime: 2023 in the Trading Books 12/29/23

Episode Date: December 29, 2023

The Nasdaq was the big winner of the year – up more than 40% on the year, which is its best performance since 2020. The Dow, S&P and Russell all finished strong with their fourth positive year in the last five years. Now it’s all about what to do in the 2024. Vital Knowledge’s Adam Crisafulli and Victoria Green of G Squared Private Wealth break down their year-ahead strategies. Plus, RBC’s Gerard Cassidy reveals his playbook for the banks in 2024. And, investors are eyeing big gains for the new year… in the fitness space. Brandon Gomez explains the key stocks to watch amid the resurgence of New Year’s resolutions. 

There you have it. 2023 is in the trading books. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is off today. This is your scorecard for the final trading day of the year. All of the major indices closing the day slightly lower, but still higher on the week. And here is your picture for the year. It is a breathtaking one. The Nasdaq is the big winner of more than 40% on the year. That's its best performance in three years. The Dow, the S&P, and the Russell 2000 all finishing strong with their fourth positive year in the last five years, all up double-digit percentages. Now it's all about what to do in 2024. Throughout this hour, we will talk to experts in different sectors to help you decide how to position your portfolio. But first, we start with the best and worst performing sectors of the market. Steve Kovach is looking at tech, this year's big winner. And Pippa Stevens has a look at utilities, this year's biggest loser. Steve, tell us about some of the key factors that have driven this tech run that was

so massive. Do I really have to say it, Morgan? It was AI, the theme of the year, driving the action behind. Who else? The top performer, NVIDIA, up a whopping 230 percent or so this year. NVIDIA, still the only AI chip game in town, though that could change soon as AMD starts selling its new AI chips. Intel expected to get in the game, too. And you have Microsoft, Amazon, Google all making their own. Microsoft, the other direct beneficiary of AI this year, but on the software side, of course, thanks to that lucrative partnership with OpenAI. And it's not over yet for Microsoft.

Keep an eye on sales of its co-pilot for businesses next year. And there are already some new rumors. Microsoft is working on an AI-powered version of Windows that'll run on so-called AI PCs throughout next year. Beyond AI, the theme of this year, though, was also efficiency. Don't forget, the year began with tens of thousands of tech workers losing their jobs from the most of the magnificent seven winners, but investors rewarded those companies for slashing what was viewed as bloated costs from overhiring during the pandemic, Morgan. All right, Steve Kovac, yes, you did have to say it. Apparently, we have not

said it enough this year. Also worth noting, NVIDIA saw most of its gains in the first six and a half months of the year. Since mid-July, it's only up about 4%, so it's actually been underperforming in this most recent rally that kicked off at the end of October. It was up 300 or so at the peak, I think. Exactly. All right, Steve Kovach, have a happy new year. Let's send it over to Pippa Stevens for a look at utilities. Pippa.

Hey, Morgan. Well, for utilities, it all comes back to rates. The sector down 10% this year and actually posting back-to- back annual losses for the first time in more than two decades. Utilities typically have quite a bit of debt, given how capital intensive the industry is, meaning when rates go up, their costs rise. The sector is also viewed as a bond proxy or a relatively safe place for income seeking investors to park their money. But when rates go up, those dividends look less attractive relative to treasuries. And you can clearly see this relationship on a one-month chart. That big spike there coincides with the Powell pivot and expectations for rate cuts. The big losers this year include renewables, heavy AES, and NextEra. On the flip side, NRG, the top performer by far,

with Constellation and Edison also winners. Now, looking forward, rates cooling could boost the sector alongside higher CapEx, thanks to necessary grid upgrades. Plus, something has got to power all these new data centers. Morgan? Exactly, Pippa. And of course, none of this even includes the solar stocks. The other provider to electricity with names like Enphase, some of the worst performers this year as well. We know you've been following that so closely in 2023. Pippa Stevens, thank you and Happy New Year.

Well, let's bring in the market panel. Joining us now, Adam Crisofulli of Vital Knowledge and Victoria Green of G Squared Private Wealth. Good afternoon to you both. It's good to have you on. Adam, I'm going to start with you because, yeah, the market took a breather here in this final trading day of 2023. All the major averages finished down, but only fractionally. It has been a torrid run since the end of October. Can it continue, or are we due for some consolidation because we're so overbought here?

So the answer to both questions is yes. I think it can continue. But I do think that the market is due for one to three percent pullback just to consolidate, digest the recent move that we've had. Prices are overbought. Sentiments a bit complacent. Valuations are a bit rich. So, you know, I think that a pullback would be very healthy. But I do think that the market has further to run for all the same reasons that we've been rallying since October. So ongoing disinflation. You're going to see the CPI, the PCE continue to drift lower throughout 2024. Shelter, the shelter component moving lower is going to be an important driver of that. That will lead to Fed easing.

So the market's already pricing in an aggressive wave of rate cuts this year. But I think simply following through on that, if Fed comes through with rate cuts starting in March, that's going to be important. And then resilient earnings. Earnings are really going to be the wild card, the critical factor. So if you look at the last few earnings reports, Nike, General Mills, FedEx, they disappointed on revenue, but they were able to preserve earnings through cost cuts and other operational levers that they pulled.

And if other companies in corporate America, as we get up into the Q4 season in the coming weeks, if they are able to perform similarly, I think markets will be relieved. And those three factors, I think, can help push the S&P, you know, towards 5,000 and above by the spring. But in the near term, you know, a little bit of a pullback would be very healthy and welcome. Victoria, do you see it the same way that the trajectory is probably, despite maybe some consolidation in the nearer term,

that the trajectory is higher next year? And if it is, is it going to be the same types of factors, and by the way, the same types of sectors that are going to power it? I think there's going to be a little bit of rotation. I think your interest rate sectors, if you look at actually what led November and December, it was REITs. I know utilities didn't quite get the same bump, but if you look at the top performing sector, it wasn't technology the last two months. It was REITs because of the pivot. So I do think some of these more rate sensitive sectors, I'm very bullish on REITs next year. I do think you'll still have leadership

from technology. And one thing I love to do is step back and look at the two-year chart. If you look at where we ended 2021, we are literally three points off of that ending value today because we closed right there at 4766. And that's where we ended 4769. So two years, round trip, not a whole lot accomplished. So you do have room for multiple expansion. You have a little bit of room to run. Breadths have increased tremendously. Small caps look like they may be poised for a nice breakout. Very cheap relative to the large cap peers. So I think you'll see this broadening out that is not just technology discretionary. You could see some leadership stumble and rotation out just because they are very, very pricey. But again, if you look at AI as the new internet, you're in the early innings of that cycle. Okay. The round trip element of the S&P, Adam, as we do talk about it, closing in on a new

all-time high. Just looking at your notes here, you're making the argument that even if we reach that level, whenever we reach that level, that that's actually not really the real high for the S&P yet in terms of meaningful gains for longer term investors? So, yeah, I think you kind of have to adjust that that number. So on a nominal basis, you know, we're kind of right at the cusp of reaching the levels we were at two years ago. But if you adjust for inflation the last two years, you'd almost have to get to 5,400 just to kind of break even given what inflation's been. So, you know, there's still room to run. You know, obviously, I think you have to factor in earnings and rates and all that. But

the real high in the S&P still is several hundred points above where we are right now. So there's definitely more room, you know, for room to run on the upside. OK, Victoria, I mean, you just mentioned some different sectors. How much of your investing thesis hinges on for 2024 the fact that we get a soft landing? Or are you factoring in the possibility that a recession could happen? No, 100 percent. Got to be a soft landing. If the Fed's cutting rates because of a hard landing, I think it's a completely different market scenario. And so that's something you have to be very willing to be nimble and adjust as we get data in, because right now you have a lot of expectations baked in.

But I look at it and I think 150 basis points may be a little bit too aggressive, March a little bit too early. But if they're easing because of the disinflationary properties and they're trying to maintain inflation, that's a different reason to ease rather than the economy is falling apart, unemployment's rising and we're trying to stimulate the economy. So I think you have to have an understanding of where the data is leading us. I will caution some of this deflation has definitely come from the good side, a lot of it on the energy and oil price side. So if we see that creep up again because of any Middle East conflict continuing to grow, oil prices creep up again. That was a big driver of inflation before. So I think investors really have to be monitoring the data, understanding what may be driving Fed policy. Is it because we're fighting deflation or is it because we're fighting a slower economy? Okay.

Victoria and Adam, thanks for joining me on this last trading day of 2023. Happy New Year to both of you. Happy New Year. Quality stocks ruled in 2023. But will they have more room to run in the new year? Let's ask senior markets commentator Mike Santoli. Mike. Yeah, Morgan, you know, the outperformance of quality as a factor, as a characteristic within large cap stocks is an example of, I think, the consensus getting it right. It seems as if it was a drumbeat of recommendations this year.

Emphasize quality stocks. People thought overall earnings and the economy were at risk. And so strong balance sheets, high and predictable profit margins. That's what makes it a quality stock. What I find interesting is comparing it to the other big factor bets you can make through ETFs, value, low volatility or momentum. These are all represented by iShares factor ETFs. You see they're all clustered in the same area with about an 11%, 12% gain. That's less than the 24% the S&P did, less than even the 12% the Equal Weight S&P did. And it just shows you that it was all really about the Magnificent Seven and similar type stocks, because all of those are overrepresented in quality. And I would also say things like Visa, MasterCard, even Costco. So within sectors, it was the big quality dominant companies that worked best.

Also, kind of have to know what you're investing in when you get something called a momentum ETF or a value ETF. The momentum ETF had a bad first half because they were underinvested in tech. They had a lot of energy in health care. Middle of the year, they rotated tech too late to rescue the year. Similarly, minimum volatility. Yep, it basically was a calmer ride. But the largest holding in the minimum volatility ETF is Broadcom. Same as the momentum ETF. So they're all working with the same samples of stocks and they can kind of slice it and dice it different ways. But quality next year, if we still have a challenged economy and we want defensive characteristics, that's quality.

If the economy reaccelerates, we feel better about the macro and the Fed, probably it'll give back some of that outperformance. Yeah, I just want to shift gears here with you for a minute as we do wrap up the performance we saw across different asset classes in 2023. Just get your take on what we saw in the bond market, because it was a wild bout of volatility, particularly in the second half of the year. The 10-year Treasury yield, it started the year at 3.83%. It just ended at 3.86%. Yeah. It's amazing. And along the way, it went down as low as about 3.3% in the spring, up as high as 5% in October or thereabouts, and then gave it all back. So it shows you,

I think that the market clearly did not have a fix on exactly how fast inflation was going to come down and what the Fed was going to have to do to help it along. So we came, we started at a point where high and volatile inflation was giving way to, you know, declining price pressures and in a more predictable way. So I think all that eventually calmed the bond market. What I find fascinating is as the yields were surging toward 5 percent on the 10 year back in the fall, everyone was basically adamant that it was about Treasury supply. Treasury supply didn't go down. Yes, they changed the maturities of where they're selling new debt. But it largely was, I think, basically a macro shock. How much is the Fed going to have

to do? The hire for longer story made its way to the bond market almost until the moment it stopped being true and the Fed pivoted. Yeah. I mean, it's just it's incredible. I mean, you did have some central banks buying fewer treasuries and buying more gold in the midst of all this. But to your point, not necessarily to the level with which we saw all of this performance play out as fast and furious as it did. Mike, we'll see a little bit later in the show. Thank you. Up next, your big bank playbook. It was a volatile year for the financials. Top analyst Gerard Cassidy joins me with a breakdown of the stocks he thinks could be big buying opportunities in 2024.

But first, we mentioned NVIDIA earlier, that company launching a new chip for China. The company telling us in a statement today, quote, the GeForce RTX 4090D has been designed to fully comply with U.S. government export controls while developing this product to be extensively engaged with the U.S. government.

That will certainly be another one to watch in 2024. Overtime is back in two. Welcome back to Overtime. As we wrap up this year, a quick look at the top performers on the Dow in 2023. Salesforce seeing gains of nearly 100 percent. Intel jumped about 90 percent. And Microsoft up nearly 60 percent this year. Meantime, Walgreens, Chevron and Johnson & Johnson were the worst performing Dow stocks of the year. 2023 was a tumultuous one for banks. We saw three bank failures as a result of the Silicon Valley bank collapse, the KRE and the KBW ending the year in red. But despite this year's struggles, 2024 could be the year investors earn outsized returns from banks, according to our next guest. Joining us now is Gerard Cassidy from RBC.

Gerard, it's always great to speak with you. Why is now the time to be buying bank stocks? Well, Morgan, when you take a look at past tightening cycles, what we have seen is that when the Fed reaches the terminal rate for Fed funds, it's been a catalyst for the stocks to outperform the general markets. And so possibly the July rate increase is likely to be the last Fed funds rate increase. So if we go into the first part of 2024 and it becomes more clear that the Fed is not going to be raising short-term interest rates, then we're at that point where the stocks should and have started to outperform. As you know,

from the October lows, the banks are up anywhere from 33 to 35 percent depending on the indice so the stocks have bounced real well off those lows but as you pointed out the full year numbers however they underperformed yeah so do you buy big banks or do you buy regionals it's an interesting question because the rising tide will lift all ships for the banks when you you compare this period, we have a couple of comparison time frames that we can look at. If you go back to 94, 95 or 04 to 06 and those two tightening periods, all the stocks did well in 95 and in 2006. The key question will be about credit. But whether you buy a large cap or a regional bank, I would say that money center banks are certainly viable, such as Bank America. We want risk on. Risk off worked very

well in 2023. JP Morgan, of course, is the classic risk off big bank name, and it was up over 25% this year. And when you look at next year, though, if we have the soft landing, the Fed is finished raising rates, we want to take more risk. So names like Bank America would work, but also the regional banks, names like Fifth Third or Regions, Key Corp, all of those names could work in an environment where it's risk on. Okay. I mean, the banks, the big banks, are going to kick off the next round of earnings season in just about two weeks, give or take. In light of this conversation, what are the metrics that investors need to focus on? Is it going to be things like net interest margin and net interest

income? Or, and I think about this coming off of 2023, where part of what triggered runs on some of these banks like SVB, is it going to be the mark-to-market accounting and unrealized losses in the investment portfolios? Morgan, you touched on all the key points. In fact, we've written our fourth quarter preview, which will be released on January 2nd. And what we talked about is very much what you just brought up, the fourth quarter discussion that we're going to hear from the banks. And it kicks off with the largest banks reporting J.P. Morgan, Wells, Citi on January 12th.

But what we're going to hear and more talk about is margin pressure. We expect that to continue this quarter. But we also expect to hear from the banks that the margins should inflect and net interest revenue growth should inflect probably between the fourth quarter of this year and the second quarter of next year. We're also going to hear about the unrealized bond losses that you just brought up. throughout the year. But with the bond market doing what it has done since October, as you recall, when it hit about 5 percent in the 10 year, we're now down to about 3.85 percent. So the unrealized bond losses, of course, will shrink and there will be more relief there. The real key discussion point, though, will be the outlook for credit quality. That is what everybody's going to want to hear about. And credit, we expect in the fourth quarter, will have remained pretty benign. Okay. Gerard Cassidy, thanks for joining

me and happy new year. You too, Morgan. Happy new year. Fun factoid, 98% of this year's broader stock rally, market rally, took place from the lows of that mini bank crisis that played out in March. Well, energy was one of the worst performing sectors this year. Up next, we're drilling down on how to play the space in 2024 and how you can best navigate potential risks to the energy stocks. That's coming up next. And as we head out, take a look at gold prices. Gold having its best year since 2020. Overtime. We'll be right back. Welcome to Overtime. Welcome back to Overtime. Crude down 11 percent this year. It's the first negative year since 2020. Joining us now to discuss where oil goes next is Vikas Dwivedi, Macquarie's global energy strategist.

Vikas, it's great to have you on, and I'm going to start right there. Where do we go from here for crude? Yeah, Morgan, we think crude's still in for a challenging 2024. You know, there will be inevitable rallies, but we think they'll be sort of short-lived. We still are dealing with too much oil supply. There's a lot of oil production growth still coming. OPEC spare capacity is higher than

it's been in quite some time. And demand is, you know, I think poised for either being neutral or slightly with some negative surprises. Okay. How did geopolitics play into all of this? And I ask that because obviously we see all of the strife going on, conflict in the Middle East, issues with shipments making their way through the Red Sea and attacks by Houthis on commercial vessels and the rerouting of those. Every time you get a report about another attack, crude moves higher, but it's short-lived. So in terms of gaming out the risks, what would the scenario, I guess, potentially have to look like in the Middle East to have meaningful upside for the price of oil in a more sustained way? going even back to Russia-Ukraine, where the risk is high, but the probability is very low of an actual disruption. It didn't happen with Ukraine-Russia, and it's not really happening now. The Red Sea issues are real, but we think they'll be short-lived. And to your exact question about

what would have to change to make it a longer lasting effect to the upside for oil. We think either one or more of the principal nation state actors, you know, a country would have to want that as an end goal. We think nobody really wants that. It's not worth it for any of the big players involved. Okay. In terms of the supply side of the picture and the fact that you say we are oversupplied, that's helping to pressure the price right now. What does it do to the global oil dynamics from a policy perspective? OPEC, we know, particularly with Saudi Arabia, has been keeping production cuts in place. But the U.S. is drilling more and more. We're at record output levels.

Brazil, Guyana is ramping pretty exponentially here over the next couple of years. And now, even just this week, Argentina's new president saying we're getting government out of our energy market, drill, baby, drill. What does this do to that supply side equation in 2024? Yeah, great points. I think it's going to just keep pressuring oil. It'll be tough to generate organic rallies that don't involve geopolitics, right? So we think it'll be short-lived. And we think the other part of the geopolitics is the U.S. and other big players, China, really across the board, you know, are not intending to let oil supply go down through any of their own policy actions. So I think that's going to help oil stay on the lower side. OK, which would be good news for consumers. We know in a time of focus on disinflation, nat gas. It was a rough year for natural gas. We finished down, what, futures-wise here in the U.S., down two bucks lower than where the price started.

What's causing that? Is this all weather-related, or are there other dynamics to watch as we head to 2024? Yeah, as you know, in weather and natural gas, they go together very closely. And so this warm weather has hurt gas quite a bit. But the big other part of the equation is supply growth. And so much of the gas supply grows from oil production. So if oil production in the U.S. is growing fast, gas supply will grow as well. It's associated with oil as a byproduct, right? So we are reaching levels that, you know, I think we had one of the higher estimates of where gas production would be by this end of the year. It's exceeding, I think, everybody's production estimates. And that has created another source of oversupply. And I think next year, it's a situation where, you know, usually demand does what it does and supply has to respond. In this market, supply is driving the boat and then demand has to respond. You have to find new sources of demand to absorb the supply. And that's kind of been a perpetual thing with gas outside of a couple of

the COVID years. Interesting. OK, Vikas Dwivedi, thanks for joining me. Happy New Year. Happy New Year to you. Thanks. It's time now for a CNBC News Update with Pippa Stevens. Hi, Pippa. Hey, Morgan. Ex-Trump attorney Michael Cohen and his lawyers admitted in a court filing unsealed today that they used artificial intelligence for legal research. This resulted in fake cases being cited in the request to have Cohen's probation shortened. Cohen and his lawyers were forced to admit their mistakes when the judge threatened sanctions over the fake cases. Former Binance CEO Chengpeng Zhao lost his second attempt in front of a federal judge to be allowed to leave the U.S. before sentencing.

A federal judge in Washington state released the ruling today. Zhao pleaded guilty to one count of breaking money laundering laws. He could face up to 18 months in prison at his February sentencing. He remains free on a $175 million bond. And the annual confetti test in Times Square took place this morning as New York authorities gear up for the iconic New Year's celebration. Authorities in New York say to expect a large police presence this year as law enforcement preps for the possibility of protests over the Israel-Hamas war. According to the NYPD, about a million people are expected.

You know, Morgan, one of these years, I actually want to go there for New Year's. If you've never done it, I recommend it. But you do it once, you're probably not going to want to do it again. It's a long day with a lot of standing and a lot of people. Sounds like you've been before. Yes, it's been a while, though. Pippa Stevens, thank you. Up next, our own Mike Santoli heads back to the dashboard with a look at how retirement portfolios fared this year.

And before we head to break, the best performing health care stock of 2023, Eli Lilly, up nearly 60 percent. The worst performer in the sector is actually one of the worst performers on the S&P 500 as well. We're going to tell you what that is next. Over time, we'll be right back. Welcome back to Overtime. A quick look at the best performing S&P stocks this year, Nvidia and Meta coming out on top. The worst performing S&P stocks of 2023, though, those were Enphase Energy, FMC Corp, and Moderna. We mentioned before the break, Moderna was also the worst performing health care stock overall. Pfizer also had a rough go of it down this year, one of the

worst performers in the S&P. Meantime, Mike Santoli returns with a look at the standard retirement portfolio as it hovers near record highs. Mike. Yeah, Morgan, big comeback. Also, a pretty good reminder that this sort of standard equities and fixed income, about 60-40 mix, Vanguard balanced index fund has actually done well for you if you kind of held it through and rebalanced along the way. So this shows you the total return of this portfolio. So it includes the yield off the bonds and dividends off the stocks reinvested. And it's a five year annualized return is nine point seven percent. So that shows you that's actually better than this portfolio has done historically.

Seven, eight percent. Clearly, big tech stocks were a part of it. But over that period, we had a covid crash. We had, you know, a pandemic and a quick recession. We also had a full Fed tightening cycle. So it shows you that over time, time is your friend when it comes to a portfolio like this. Now, on the strength of bonds recently, particularly corporate bonds, take a look at spreads on global investment grade debt. They are down at levels, basically 22 month lows. That means that they're tight compared to Treasury yields. That means that they're tight compared to Treasury yields. That means that the corporate credit market is very flush, and companies' borrowers have pretty good access

to relatively affordable capital. So it's about 115 basis points right now. That takes you back there pre-COVID times. So it shows you, again, whether it's right or wrong, usually the bond market is going to start to sniff out some difficulties, whether it's in the financial system, some stresses in the capital markets or a macro shock like a recession coming. So far, nothing coming from this signal, Morgan.

OK, I'm sensing a theme here. Earlier in the show, you talked about quality stocks. Now it seems like you're talking about quality bonds. Yeah, that's exactly right. And it has been a magnet for capital out there. So, yes, we can talk about uncertainty. You can talk about we don't know what the Fed's going to do, the economy. We've been on this vigil for a recession for a while. But there are assets out there that do benefit from this, you know, global excess savings, which still does exist. And, you know, they're reaping the benefits now. Whether now is a really attractive entry point for those quality assets, different equation, because you don't have as much of a buffer of return here if you're buying them right now. OK. Also, let's also talk about your outfit here, because I'm not used to seeing you without a tie on TV. Is this going to be your new Friday attire for 2024? Is that your New Year's resolution?

I'll tell you, next Friday is a full week away. It's also next year. It's really a long way before I can, you know, consider my wardrobe. But my guess is no. This might have been a one-off because I really do like the uniform. I just have to think about it, you know? Okay. Well, I like it. And I'm sure John Fort, our fearless, tireless leader, would really approve of it as well. I was kind of channeling the Ford 2023 collection. Mike, happy New Year. Thank you. You too. Thank you. Up next, your 2024 defense outlook, where Goldman Sachs sees that sector headed in the new year

and the key stocks to watch ahead. And before we head to break, check out Cathie Wood's ARK ETF. It is up, having its first positive year in three years. Over time, we'll be back. The world's became more dangerous in 2023, but spending strife in Washington weighed on defense stocks. The global surge in weapons demand will continue in 2024, but will contractors keep pace amid production constraints and a lack of consensus on the broader budget in Washington? Those are key questions for the industry as stockpiles of missiles and munitions have dwindled. Defense dollars will also go to big ticket items like submarines, next gen fighter jets, nuclear modernization and a variety of autonomous weapons systems. Big programs that will benefit the entire industry

from North of Grumman to HII to AeroVironment. Spending on space will continue to grow the fastest, and commercial players will compete for more contracts. Software, still just a tiny fraction of the overall budget, will take on greater significance as the Pentagon continues to adopt more AI, forging more inroads for more tech companies to take on more government work.

The Army's Titan competition between RTX and Palantir will be a prime test of possible prime disruption. The 2024 defense policy bill, representing a record $886 billion, recently became law. But the $100 billion-plus package for Ukraine, Israel, and other hotspots still remains unresolved. Overall, U.S. defense spending could close in on a trillion dollars. As we come into a presidential election year, analysts note defense stocks tend to outperform. And as TD Cowen's Roman Schweitzer points out, it's traditional to be on the lookout for, quote, October surprises. That said, with two wars, tensions around Taiwan, the Houthis in Yemen, China's

provocations of the Philippines, North Korea's nuclear ambitions, and Venezuela's border dispute with Guyana, any number of surprises could potentially materialize throughout the year. To discuss more on the outlook for defense stocks specifically in 2024, let's bring in Goldman Sachs research analyst Noah Popinak. Noah, it's great to have you on. Defense stocks in general tend to trade as a group. Didn't have a particularly great year this year. What do you expect in 2024? Yeah. Hi, Morgan. Thanks for having me on. I hope you had a good holiday and happy new year. You outlined the many geopolitical events that are occurring right now. One of the things we're thinking about with defense stocks is you had all that happening

in 2023, yet, as you pointed out, defense stocks underperformed the market. So, you know, with the hope that, you know, cooler heads prevail in a lot of those situations and some of the major geopolitical events can be more likely to de-escalate than escalate as you move into 2024, 2025, that would potentially be less upward pressure on defense spending. You couple that with the battles in Washington over total U.S. government spending and debt. You have a debt ceiling deal that gives you a continuing resolution into the early part of 2024, and then you have to have that fight again, and you may have automatic spending cuts come into play. It's pretty hard for the defense budget growth rate to accelerate, and it's not hard at all for it to decelerate. Defense stocks, as you mentioned, the group valuations tend to trade together,

and they're very highly correlated to that growth rate in the budget. So we see a higher probability of decelerating growth rates, potentially negative growth rates in the budget, and the valuations of the group are above the historical averages, and we therefore see more downside risk than upside risk in the group as a whole. Okay. So when we talk about defense specifically, are there certain names you would buy here, or would you steer clear and focus on other areas within aerospace and defense like business jets or commercial aerospace? Yeah. So we're generally cautious on defense as a group. We have sell ratings on Lockheed, Northrop, L3 Harris, Huntington Ingalls,

sort of the big, bigger cap bellwethers in defense. We prefer commercial aerospace stocks, so we continue to recommend Boeing. We like a number of companies in their supply chain, Homet, which makes hot parts in the engine, CAE, which has a dominant position in simulation and training, Transdime, Hyco, really high quality aftermarket companies. You mentioned business jet. I think the BusinessJet market remains underappreciated. We recommend Textron, Bombardier, Embraer there. There's pockets of things to do in defense, I think. There's some companies that

have a defense business without being a true pure play defense company. We recommend Teledyne and Planet Labs in that vein. And then there's the government IT and services group. We like Booz Allen and Leidos. Government IT overall can be correlated to defense, but the budgets they sell into are growing faster, and they don't face some of the margin issues that the big cap defense companies face as well. OK. So whether it's on the defense side or whether it's on the commercial side,

supply chain has been an issue. It's been a persistent issue for a number of years now. Is 2024 going to be the year that we step back and we go, okay, we saw supply chain normalization, stabilization. And if so, even if you have pressure on, say, the top line from potentially a lower defense budget, for example, if those supply chain situations can be normalized, does that mean that at least from an earnings perspective, it could be better than expected? Yeah, supply chain has been a challenge in this group for a surprisingly long time. You know, When we speak to portfolio managers that look at the entire market and we talk about supply chain still being a challenge here, they sound surprised because in so many other end markets, that's largely been resolved.

These are long cycle sectors and they're long manufacturing processes. And so there's some tail wagging the dog in the supply chain and they're complex products with a lot of component providers. So it's proving to take longer to fix the supply chain and they're complex products with a lot of component providers. So it's proving longer, it's proving to take longer to fix the supply chain. On the defense side, there's been a strange phenomenon where the defense budget authorization, what Congress allocates to the Pentagon has been growing at a certain clip and the treasury outlays have actually been negative. And that seems potentially due to supply chain. And so you could have a short-term positive impact to defense from that, but I'd anticipate more valuation pressure as that authorization growth rate slows. And again, there's a margin headwind

that I haven't discussed as much that's a challenge there. On the aerospace side, you have had the travel recovery. There's still more to go in the travel recovery and then long-term air travel grows 2x GDP. There's been really strong demand for airplanes for Boeing and Airbus from the airlines, but the challenge has been supply chain has held Boeing and Airbus back from delivering the planes. That seems to finally be getting better. I do think 2024 will be the year where that really finally picks up a lot of steam and Boeing and Airbus can get the output to meet that demand. Okay. Noah Popinak, thanks for joining me. Happy New Year. Thanks. You too.

Up next, we're tracking the consumer. Aren't we always? We'll hear from the CEO of payments provider Payoneer about where shoppers are putting their money to work and what it might mean for the economy in the new year. As we head to break, a look at the best performing S&P sectors, technology, communication services, and discretionary. Meantime, utilities, energy, and consumer staples were the worst performing sectors of 2023. Overtime, we'll be right back. Welcome back to Overtime. Check out shares of Costco. The big box retailer is the best performing consumer staple stock this year, jumping more than 40 percent.

And speaking of the consumer, spending has largely been resilient, but growth is slowing. And companies from Target to General Mills to Nike have cut sales outlooks as customers watch their budgets. Joining us now is John Kaplan, CEO of Payoneer, a fintech player that provides cross-border payments platform for small and medium-sized businesses. And you join me here on set. Welcome. It's great to be here. Thanks for having me. Happy New Year.

So I do want to start right there with the fact that we're coming through the holiday season here. And what has that meant for Payoneer? And what have you seen in terms of that key time for consumer activity? So what's remarkable about Payoneer is we're a financial operating system for emerging market small business owners. So our customers are in 190 countries and they're exporting their goods and services around the world. So directly as it relates to the U.S. consumer, we have merchants in Vietnam, in China, and around the world who sell on Amazon or Walmart or Etsy, you name those platforms. And what we've seen is really strong e-commerce volume growth. We reported in October, November,

18 percent growth year over year. We haven't yet reported December. I can say the U.S. consumer, though, has traded down in average price point, moving to lower-priced goods as they filled up their holiday baskets. Interesting. So what has that meant in terms of the mix? Since you do work with small and medium businesses and across the world, we know they tend to be the lifeblood of the economy and sort of the first indicators of where economic growth is headed. What are you seeing? So it's fascinating about Payoneer. With customers in 190 countries, we're in the parts of the world where SMBs power the economy

and cross-border exports power the economy. And what we're seeing is really great growth. You know, India, for example, where the GDP is anticipated to grow 7% next year, our business is very strong. South Korea, very strong. In the Philippines, super strong. Argentina, Colombia, Brazil, very strong. We're seeing exports really driving

the emerging market economy. And in the West, we're seeing people source supply or contractors or employees around the globe. And what Payoneer does is we created a financial product, a platform in your hand, a mobile app, that does all of your cross-border accounts receivable and accounts payable. Really the financial guts of the most important

growing part of the global economy. So when you talk about 190 countries, and you talk about all these different markets that are growing so quickly, is it that they're growing quickly selling into the U.S. or selling into other markets? So it's a great question because we support 7,000 corridors of trade between the globe. So we see in UAE and Dubai lots of trade to other parts of the Far East. In the U.S., imports from China or other parts of the globe, really strong.

Interesting. You used to work at Alibaba as well, and you handled their cross-border business there. I mean, we're seeing more of the Chinese e-commerce players. Xi'an's been getting a lot of attention ahead of a potential IPO next year. Begin to take a bigger piece of the global e-commerce pie, including here in the U.S. Is that what you're seeing as well? Yeah, we definitely see the strength in the low-cost, fast delivery, fast fashion e-commerce platform. Shein, Taimou, TikTok.

We have Amazon, Etsy, Airbnb, Walmart, MercadoLibre leveraging the Payoneer platform and those future marketplaces beginning to explore how to use our platform as well. Okay. John Kaplan of Payoneer, thanks for joining me here on set. Happy New Year. Happy New Year. Happy New Year to you. Great to be here. Well, up next, big gains in 2024.

It's that special time of year again, New Year's resolution season. We're going to tell you the stocks that could stand to benefit from some renewed interest in the fitness space. That's coming up after the break. Stay with us. Welcome back to Overtime.

It is time to talk about the big money behind New Year's resolutions. Brandon Gomez joins us with a look at how companies are preparing for a renewed focus on fitness and weight loss in the new year. I can't believe we're already back at dry January, Brandon. I know. This feels like the eternal New Year's resolution, right, Morgan? I mean, according to a new survey by luxury brand Lifetime Fitness, nearly two-thirds of Americans say they're prioritizing health and wellness in the new year. And that translates into more dollars spent. Companies like Peloton, Lifetime Fitness, Planet Fitness,

all trying to capture some of that spending in the new year, all leaning on the latest trends that are being discovered by this Lifetime study. If you look at that survey, they're finding that, quote, building muscle is the number one goal in 2024 for over a third of Americans. So companies are changing, moving away from expensive to maintain cardio machines. Planet Fitness said back in November they'd be freeing up capital spending for franchisee owners by extending the replacement cycle for treads and bikes that aren't being used. More weightlifting, also the result of a rise in GLP-1 drugs, just another area that investors have been watching in the space. As

those drugs become more accessible, industry experts say users are looking to build muscle to replace the fat that they are losing. Companies like Weight Watchers already working GLP-1s into members programs. Lifetime announcing earlier this year that they're going to be getting in on some pilot programs for some members. Morgan, Resolutioners driving the change and looking to perhaps boost some of these names in the new year. I just want to make sure I got this straight. More people using more of these weight loss drugs is propelling more of them to go to the gym as well? Yes. And the thing is, is right now the FDA actually requires that users of those GLP-1 drugs maintain an active lifestyle. That's translating into a benefit for names like Planet Fitness, like Lifetime Fitness. Planet Fitness, 40% of their members are actually new to the gym. So

all of these folks who are on the weight loss their members are actually new to the gym. So all these folks who are on the weight loss drugs that are then going to be looking for a place to do those fitness routines might actually be picking up memberships in the new year. Okay. I mean, it's been a little bit of a mixed picture for the publicly traded, you know, gym managers or gym companies, I should say. Expectations for next year, if indeed they are going to be beneficiaries, including of this GLP-1 trend. Yeah I mean you have brands that are on sort of the lower end in terms of pricing right you have Planet Fitness $10 a month gets you in the door they're talking about raising it to $15 a month that might

impact some of the consumers but then you also have the luxury brands as well Lifetime Fitness the average lifetime member annual income about a hundred and forty thousand dollars a year so we're talking about a more affluent there, perhaps more money to spend once they're inside the facilities, all of this translating perhaps to long-term growth for those stocks. Okay. Brendan Gomez, have a very happy new year. Happy new year to you. I'll see you on one of those treadmills, maybe. All right. Well, just taking a quick check of the markets, we finished the day fractionally lower. All the major averages higher on the week and dramatically higher of double digit percentages on the year. This was also a big year for us here at overtime as John Fort and myself took over, took the helm in February.

So I just want to say we have the best team in television. And thank you to all of you for this first year together on Closing Bell Overtime. That's going to do it for us here. I hope you all have a very happy new year. Fast money begins right now.