Closing Bell - Closing Bell Overtime: A Huge Rally On Wall Street; We Break It Down From Every Angle 11/14/23

Episode Date: November 14, 2023

We have you covered from every angle on a huge rally on Wall Street. Bespoke’s Paul Hickey on some of the big movers but Rich Weiss, American Century Investments CIO of Multi-Asset Strategy Group isn’t convinced on the rally. Neither is Rosenberg Research’s David Rosenberg, who gives a few reasons to remain cautious. On the other side, Piper Sandler’s Craig Johnson says keep buying as there is more upside ahead. Plus, our Kristina Partsinevelos on what moves the biggest players in the market are making. 

And what a day it's been. Green across the screen as the Bulls take charge following a softer inflation trend. It's the best day for the S&P since January. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is on assignment today. We have got full coverage of the rally throughout today's show. We're going to take a technical look at the next key levels to watch when we're joined by Piper Sandler, chief market technician, Craig Johnson, plus Rich Weiss from American Century, which has about $200 billion under management, breaks down his take on if this rally is sustainable. And will politics put the brakes on the bulls? We're expecting a vote in the House of Representatives this hour on a continuing resolution to avoid a government shutdown, a CR that might be a little different

than what we've seen in the past. Let's get straight to this major rally sparked by a cooler than expected CPI report, though. The Dow, S&P and Nasdaq jumping today and the Russell 2000 outpacing them all, finishing the day up more than 5 percent, 5.3% today as yields pull back sharply. Every S&P 500 sector finishing in the green with real estate leading the pack. Regional banks and other hard hit parts of the market spiking today as well. Joining us now is Paul Hickey from Bespoke Investment Group and CNBC senior economics reporter Steve Leisman. Steve, I'm going to go to you first because we had a CPI report that was better than expected, both in terms of the headline number and in terms of the core. And what we've seen is this dramatic repricing in the market around

when investors think the Fed is now going to start cutting rates next year. Walk me through it. Yeah, I think I'll reveal what I said on the morning news call. I said it was possible we could have an upside surprise and the market would like it. I had no idea that the market was this wound up about getting rid of the possibility of additional hikes, but B, that a little beat would cause the market to really accelerate its timeline for rate cuts. Now, let me walk you through where the market is priced now. Zero probability in December or January or forever after that for any rate hikes coming. In fact, there's a very slight 3% probability of a rate cut built in for the January meeting. And the result when you look further into

next year, when you look at cuts, is a dramatic increase in expected cuts for next year, a 34% probability for March, and then it keeps moving on until you get into 100% probability. And what you're looking at on that chart right there is how much in the way of cuts are built in, 100 basis points for next year, whereas the Fed has only 28 basis points built in. So what's happened is a small beat. I really think the market's taking this data a bit too far, Morgan, because I don't think the data is going to be as consistent. I think inflation is going to drop.

I just don't think it's going to be as consistent as the market seems to have priced in. It wouldn't be the first time we've seen the market go against what the Fed has been saying. But Paul Hickey, if I look at the S&P 500, we closed just below 4,500, 4,495 to be exact. I think it was just last week we were closing above 4,400. Again, the state of this rally and how strong it was and how strong the breath was today, does it have legs? Do we know yet? Yes. I think, Morgan, to your point, we had this correction, which was driven by higher interest rates, higher crude oil prices, higher dollar, and then you threw on rising geopolitical

tensions. And they've all come in a little bit. A lot of the rally we saw was on confidence that the Fed was done hiking rates. And I think today there's a certainty that the Fed has done hiking rates. And that just added more fuel to the fire. And to paraphrase Powell, we've closed the effing door on rate hikes. And now we're going to look ahead. I don't know if the market may be getting a little bit ahead of itself on when the cuts are going to come. But I think the rate hikes, as I think Steve would agree, are probably done unless something crazy happens with the data. So in that respect, remember the strong breadth that we've seen. This is crazy.

The Russell 2000 outperformed the S&P 500 today by over three and a half percentage points. That's only happened right after the 87 crash in October 2008 and October 2011. So that doesn't happen very often. And when you see similar types of outperformance on the part of the Russell versus the S&P when the market is up, going forward, you have tended to see small caps outperform the vast majority of the time. So we've been waiting and waiting and waiting some more for small caps to start rallying and outperforming. And maybe this could be a sign that we're seeing it. You know, Steve, it's interesting because we came in at 2023 and market strategists were all over the map in terms of their price targets for the S&P and

what this year was going to yield for equities. And now as we get ready to go into 2024, some of the same big banks, but on the economics side, are all over the map in terms of what Fed hikes are not Fed hikes, Fed rate cuts are going to look like as we go into next year. How do we juxtapose that against what we're getting in terms of the Fed speak? Because we got a couple speakers today, voting members today, and there's something like 20 still on the books just for this week. Yeah, I mean, there's a lot of Fed talk to come, and it really boils down to what you think. Like I've said, you can argue against the Fed, but you have to come to the table with

your own outlook on inflation. How is inflation going to behave over the next several months? I kind of thought going into the meeting or going to the number today, the idea that there was a 50 percent chance of a rate cut in June, that made a lot of sense to me. I'm not quite sure pulling it ahead to March is the smartest move at all. We're at 34% for March. I guess we're up over the 50% for the next meeting. That seems a little aggressive to me because if you count it out, okay, there's one more inflation report for the next meeting. And then you've got to have like

four or five in a row, I think, that would convince the Fed we are comfortably on the way back to 2%. There were stuff in this number today that did suggest we were on the way. Let me tell you that people have been waiting for that housing number to start to come down. But remember, it surprised us last month up to 0.6, fell down to 0.4. There's this expectation, Morgan, that this is the beginning of that decline that people have been waiting for for a while. I'm just not sure you want to go all in on that, which is the way the market is. I'm sure there's some technicals, there's some short covering in there. And I'd just like to say to Paul, I don't believe it was confirmed that Powell was the one who uttered about closing the effing door.

We'll see. But I think to your point, Steve, bringing rate cuts ahead to March, I think that would not necessarily be a positive for the market here because we're not going to get back. You know, we're not going to make that's only four months away from here. And in order for the Fed to start cutting rates by March, I would think you would have to see some negative uh negative events happening in the market whether it be the economy geopolitics or something else and in that respect i don't think that would be a market friendly uh occurrence so that may be a little bit of probably paul what's that and probably i was gonna say probably probably Paul lousy Christmas season on top of that, just to add, if that were to happen and you get a lousy retail number tomorrow, that would really put us on the way to that. Sorry to interrupt. No, no, that's good. So I think in that respect,

you know, as the market, we're in an environment where good news is good news right now. And in that respect, the Fed isn't going to necessarily be too quick to cut rates when inflation is still comfortably above target, as it will be by March, no matter what kind of data we see. And in that, you know, so the only way to get there is bad news and that bad news wouldn't be, you know, market friendly, as I just said. OK, and we know we're going to get a lot more news just before this week is out. Gentlemen, thanks for kicking off the hour with me, our own Steve Leisman and Paul Hickey of Bespoke. Thank you.

Let's turn now to NVIDIA just notching its 10th positive day in a row. It's tying its best ever win streak. Christina Parts Nevels has a closer look at what's driving those gains. And, Christina, we've had no shortage of news to go along with the moves in the stock. Exactly. And I'm going to get to that. But to your point, 10 straight days. NVIDIA has added over $200 billion in market cap. That's like adding an entire Salesforce or Netflix. And it came close to its all-time intraday high, which was $502.66.

You can see it's at $496, so not too far away. But to your point, what's driving this winning streak when you maybe think all the AI is already priced in? Firstly, yesterday, the company announced an updated GPU, the H200, with even more memory than the previous version, the H100. You know, the one that's been on back order with a 30-week lead time and the same one Elon Musk once said was harder to get than drugs. The only pitfall is this new chip still has less memory than AMD's new AI chip, which ships out in Q2 of next year. But overall, there has been a return to the AI trade, given depressed valuations, and we're seeing improved demand from hyperscalers like Meta, for example. In or for 2024, consensus estimates show $60 to $80

billion in NVIDIA data center revenue. That's a huge gap when you compare it to the fiscal 2024 $2 billion expected for AMD's data center revenue. So 80 versus 2. And lastly, and the biggest overhang for NVIDIA stock, is China, given the U.S. export restrictions. China contributes roughly 20, you can say even maybe 25 percent of NVIDIA's data center revenue. But it did just create three new workaround chips, that would be N NVIDIA that fall below the U.S. thresholds. NVIDIA hasn't actually confirmed those chips since they're in quiet period right now with the earnings out next Tuesday. But these chips will eventually be sold to China very soon, which means that revenue stream is still somewhat intact. So those are the stories that are helping propel this stock forward, Morgan.

It's going to be interesting to see what happens with Microsoft's event, which is kicking off Ignite as well, where there's a lot of reporting ahead of it in anticipation that we're going to see an AI chip unveiled by that tech giant, too. I mean, Christina, the SMH, the semiconductor ETF, fresh all-time high today. The XLK, which NVIDIA is the third largest component of, also a fresh all-time high today. I mean, is this an NVIDIA-specific story, or are we just seeing strength across the semi-space right now, both because of AI fervor but also maybe excitement that the economy is doing at least a little bit better looking to next year than everybody had expected? Many points.

Rates are obviously helping the semiconductor trade, and it's very cyclical heading into Q1. It seems like there could be some improvement. We're seeing improvement with PCs. That's Intel and AMD saying it. You still have this backlog for GPU chips. But to your other point about Microsoft tomorrow, that's pretty big news. Microsoft coming out with their own AI chips.

This is not something that should be considered new. A lot of these hyperscalers are trying to integrate and build in-house because it's going to save them money. So I think that would be a major problem for several chip makers in the future, you know, when they try to figure it out two to three years from now. Apple failed to do so. Remember, Apple was supposed to get rid of Qualcomm's chip in their phones but couldn't do so. So they signed on for another three years. So let's see how this AI chip stacks up with Microsoft. But eventually, these hyperscalers could prove to be a very big threat to semiconductor companies. All right, Christina Parts-Navalas,

thanks for joining me. And of course, my partner in crime here in overtime, John Fort, will be sitting down with Microsoft Satya Nadella tomorrow on The Exchange, which kicks off at 1 p.m. Eastern. But in the meantime, we're going to go to Washington right now, where another issue that had been weighing on Wall Street could be on the verge of resolution. As we mentioned at the top of the show, the House is expected to vote this hour on a bill to avert a government shutdown. Emily Wilkins has more on this upcoming vote. Emily, what do we expect here?

Hey, Morgan. So at this point, we are expecting the House to be able to move forward with this temporary stopgap funding with bipartisan support. We are expecting Democrats to help out with Republicans and Speaker Mike Johnson is going to need Democrats because there are a number of Republicans who have already come out so that they will not support this because it lacks some conservative priorities. Things like spending cuts, things like border security. But that's also why this bill is going to be able to probably make it to the finish line. You saw Senate Majority Leader Chuck Schumer, a Democrat, come out today and say, look, we're not happy with everything about this bill, but we're glad it doesn't contain

these conservative priorities that Democrats would never be able to support. The thought is that if the House is able to pass it, and we are expecting that vote to happen in the next 15 minutes to half an hour or so, that the Senate will try and take it up as soon as possible. The goal, of course, is to get it done before that midnight deadline on Friday, I guess technically Saturday morning. But at this point, it does look like Congress is going to be able to move quickly enough to avoid a shutdown. All right. This is going to be one to watch. And there is, to your point, in D.C. parlance, a lot of time between now and Friday. Emily Wilkins watching this vote carefully and will bring us any headlines as they come here over the next hour. After the break,

a reality check after a big rally. We're going to talk to a portfolio manager from American Century who says he's underweight stocks and there's still plenty to be worried about in this market. Overtime is back in two. Welcome back. A big rally on Wall Street today after this morning's tame inflation report, or tamer than expected inflation report. But some investors are still waiting for, quote, an inevitable downturn in the economy. Joining us now is Richard Weiss from American Century Investments. It's great to have you on the show. Welcome. I just put that in quotations,

inevitable downturn, because I'm seeing that in your notes. Why do you think it's inevitable? Oh, I don't think there's any debate out there in the economist community that we're into a downturn. We're headed into a downturn. Now, the debate is whether we actually technically hit a recession or it's going to be a softer landing. But I don't think there's any question, both domestically and globally, economic growth is decelerating, maybe less so here in the U.S. than overseas. But it is a global economic deceleration. OK, so what do you make of today's rally then on the softer than expected CPI report? Yeah, you know, I guess I'd say we're not lulled into a sense of complacency just based on one, you know, better than expected

CPI print. And by the way, that CPI print is still well above the Fed's target, right? A 0.2% monthly run rate of core CPI amounts to an annualized rate of around 2.5%. That's still 50 basis points higher than what the Fed is shooting for. So we still need to see inflation come down significantly from even today's good print. Also, I'd argue we need confirming evidence, right? One data point does not a trend make. So PPI tomorrow, the next PCE report. I mean, these are the things we're going to be watching for to make sure that inflation is indeed on its way down.

And else rates are going to stay where they are. And we don't see valuations in the equity market compelling. OK, so it doesn't sound like you're ready to throw your target into the Fed rate cut debate that we were just having to kick off this show. Right. Not not quite yet. And you'll forgive me. You may be too young to remember, but allow me to quote that song by Metallica. I think it was back in the 80s, maybe 90s, no leaf clover. But that soothing light at the end of the tunnel may just be a freight train headed your way. And so that's what we're worried about. We'd like to see more capitulation in the equity market before we jump on the bull market bandwagon. It's very kind of you to say

that. A big Metallica fan here. So I appreciate the reference. So if you're cautious or even underweight on equities, then where would you be putting money to work right now? Well, high grade fixed income cash has been king for the last roughly two years. If you if you start in the beginning of 2022, we've been mostly defensive for much of that period. Cash is up about 5%, 6% point to point from the beginning of 2022 to now. Stocks, the S&P is down a handful of percent over that period. And equal weighted stocks and the Russell 2000 small cap, they're down 10% and 20% respectively over that period. So no question, cash has been king. And we believe at least for for the foreseeable future, is the prudent place to be a bird in hand at five, six, seven percent for high grade, shorter term grade investment,

fixed income investments relative to an iffy stock market at best at questionable multiples, given all of the clouds on the economic horizon today. OK, so when you talk about fixed income, it sounds like you're you're talking about shorter term debt and bonds right now. You're not looking at things like, for example, the 10 year Treasury, where the yield just dropped dramatically below four point five percent today. Right. We're somewhere in between now. Our macro experts are still at the margin calling for a recession. I think we have a 60 percent probability on a recession. The longer end of the curve would be the place to be if that's the case. But I think we're a little more diversified in duration than simply legging out to 10 years. Okay. Rich Weiss, thanks for joining me today. Great to have you on. Well, up next, David Rosenberg from Rosenberg Research weighs in on the rally. And if he thinks stocks are starting to get stretched, stay with us.

Welcome back to Overtime. A broad rally on Wall Street today as yields tumbled, including the 10-year falling below 4.5%. The Russell 2000 posting its best day in a year, up more than 5%. Joining us now is David Rosenberg, president and founder of Rosenberg Research. David, it's great to have you on the show. I do want to get your thoughts about what we've seen here in equities and your expectation, not only through the rest of the year, where I know we have technicals and seasonals at play, but as you look to 2024? Right. Well, look, today's reaction, both in the stock market and the bond market, and of course, the bond market led the stock market, you could argue is perfectly rational trading reaction to today's number.

And it was a great number. I mean, you strip um rents and the cpi was actually negative 0.1 and the year-over-year went from 2 to 1.5 so you do have to start to wonder at what point the fed runs out of excuses uh to sound so hawkish uh you know as far as the overall outlook it really comes down to arithmetic and i'm always guided by relative valuations. And in this case, I'm talking about the equity risk premium, which is still very thin. It's 95 basis points. And of course, what we're talking about here is the earnings yields that the S&P 500 delivers against the yield in the 10-year Treasury note. And historically, that gap is 300 basis points. Historically, you should be getting paid to take on the risk to be an equity investor. And to this day,

and even after today's impressive rally, you're still paying to take on the risk. And that doesn't make a whole lot of sense to me. So this is still a two-standard deviation event in terms of how stocks are trading relative to bonds. And so for next year, standard deviation event in terms of how stocks are trading relative to bonds. And so for next year, I think that we're going to see a pivot where for the first time in several years, treasury market returns are going to outperform equity market returns. Interesting. What would it take to actually reverse that dynamic and for equity investors to be, to your point, getting paid to take on that risk? Ouch. Well, this is something where a lot of the viewers are going to want to, you know,

have a double single malt. But if we're talking about getting towards a mean reverting equity risk premium, you'd be talking about, for example, a 3300 S&P 500 and something like a two and a half to three percent 10-year treasury yield. I mean, the arithmetic is so daunting that if you think that the stock market is where it should be right now, to make it make sense from a yield perspective and mean reverting to the historical average, the 10-year note would have to collapse to one and a half percent. So everything I'm looking at, you know, the homeowner affordability ratio, that's a mean reverting ratio that has to include lower interest rates in the coming year. Mean reverting the equity risk premium, that has to include lower interest rates in the coming year.

So my thematic for 2024 is that all roads lead to lower bond yields. And given the convexity, the long end of the curve, I agreed with your previous guest that I think that the long bond is going to be the place that you want to have money in for the next 12 months. I think they will deliver double-digit returns. Interesting. OK. I want to go back to something you said earlier, which is basically, what is it going to take for the Fed to sound less hawkish? I mean, to your point, if you look at the Fed's funds, Fed funds rate, I mean, the real rate adjusted for inflation is what, two and a quarter percent now. And if you do see inflation continue to move lower, the Fed sitting there doing nothing, keeping rates at this level continues to do something. So what would you be looking for to see not the market pricing and

rate cuts, but the Fed actually starting to signal that it could be in the pipeline. Well, I think that what they want to see, and it actually is something that we did see in the last employment report, is slack coming to the fore in the labor market. They will be convinced once they see that wages are moderating and moderating for good. And I think that piece of the puzzle was solved. I guess you could always say, well, you know, it's one month, but it's not one month. We're seeing actually a multi-month trend here of slower growth in wages and slower growth in prices. But I think that the Fed really wants to see the unemployment rate, you know, move discernibly above 4%. And I think that at the same time, we start to see job losses. And look, you know, nobody talks about the fact that the household survey, which is the companion survey you want to pay attention to,

are turning points in the cycle in both directions. The household survey actually showed in October that the economy lost 328,000 jobs. But, of course, we bow down to the holy grail of non-farm payrolls, which showed 150,000, you can only imagine what interest rates are going to be doing and what the Fed will be doing, which is like scrambling and seeing like a canary. If we start to see the payroll numbers start to look like the latest household numbers on the employment side. And I actually think that'll be coming by the early months of next year. Okay. We're going to have to wait and watch and see. David Rosenberg, thanks for joining me today. Thank you. It's time now for a CNBC News update

with Pippa Stevens. Pippa. Hey, Morgan. A federal judge ruled against social media companies today saying they must face hundreds of youth addiction lawsuits. Alphabet, Meta, Snap and ByteDance, which operates TikTok, are being sued on behalf of children who allege they've suffered negative physical, mental and emotional health effects from social media. The district attorney in Donald Trump's state election interference case in Georgia said the trial may not end until late 2024 or early 2025. That could mean voters cast ballots in the presidential election while the trial is ongoing. DA Fannie Willis said she does not consider elections when bringing criminal cases. The

judge has not set a trial date. And Oklahoma Republican Senator Mark Wayne Mullen challenged Teamsters President Sean O'Brien to a fight during a hearing on Capitol Hill today. It began when Mullen started reading O'Brien tweets about him, calling him a clown and a fraud. Mullen rose to his feet after O'Brien took him up on the offer to fight. And that's when Bernie Sanders, who was chairing the meeting, told Mullen, quote, your United States senator, sit down. Morgan, back to you. I mean, this was wild. This was wild. This has been trending on CNBC.com as well. Never a dull moment in Washington. Clearly not. Pippa Stevens, thank you. The S&P 500 is now up 17% on the year after today's rally,

but USMNA volume is down by a similar percentage versus last year. Up next, we're going to ask RBC's global head of mergers and acquisitions about his outlook for deals and the two sectors in particular that investors should be watching. And check out some of the huge moves for regional banks today. Western Alliance, Valley National, Horizon, PacWest, and First Bank Corp among the biggest winners. Look at that. Double-digit percentage gains for Western Alliance and Valley National and Horizon and PacWest. Some of the hardest-hit areas of the market surging the most today. We'll be right back. Welcome back to Overtime.

The 13-F filing from David Tepper's Appaloosa management is out. Christina Parts Nevelis has the details. Christina. Well, Appaloosa management is out. Christina Parts Nevelis has the details. Christina. Well, Appaloosa cutting its exposure to chips. This according to its latest 13F filing. The fund is completely dissolving its positions in Broadcom, Cadence Design Systems. All those stakes are a little bit smaller. But they're also completely getting rid of Marvell.

That's over 1 million shares sold. The company cutting its positions also in AMD, Intel. Cutting Qualcomm by 30%. TSMC by over 40%. That means they sold over 2 million shares in both just Qualcomm and TSMC. Appaloosa, switching gears, it's not all about chips, also dissolved its position in Apple by 480,000 shares. But they did hike up their stake in Amazon and Alphabet by almost 20%. Keep in mind, all of these stats I just shared with you are from last quarter ending September 30th, so they could have changed as of now.

All right, Christina Parts Nevelis, thank you. Thanks. Energy finishing in the green, but it was the worst performing sector today. Meantime, oil and gas companies have been top targets for M&A in the U.S. so far this year, getting a boost from the Exxon, Pioneer and Chevron Hess deals. That sector just slightly ahead of technology and health care. Joining us now on his outlook for M&A, RBC Capital Markets head of global M&A, Vito Sparduto. He's coming to us from the firm's technology, Internet, media and telecommunications conference. Vito, welcome to the show. It's great to have you on. Morgan, thank you for having me.

We had seen a real dearth of activity the end of last year and into the beginning of this year, but it seems like more recently that's starting to pick up. Your take. Sure. I think at the end of last year we were all expecting that this year was going to be a flip or a reverse of what we saw in 22. Certainly the first half was basically equal to the second half of 22. And then it's been a bit slower. I think the rate hikes have gone longer. I think some of the geopolitical concerns, the financing markets haven't been as stable to be constructive to allow

us to do more M&A. And so it's kind of pushed to the right. We've seen some pockets of activity. You mentioned a couple of the deals in the oil and gas space. We've certainly seen cash rich corporates take advantage of this environment and execute on some of the M&A transactions that they've been looking at for some time. And especially in an environment where private equity has been slower and probably not spending as much as they have historically, certainly within, if you look at the last five years um but i do think that the volume of activity in the u.s this year will likely end up being close to even to what we saw last year it's really going to be that global volume which is going to end up down it's a global volume will likely end the year probably down 10 to 15 percent versus last year at about three trillion of m&a volume okay and the u.s will be will be strong um which i think is again it's the desired target market okay there so you just said a lot i'm going to parse some of it out yeah and i'm going to

start with the fact that we we've seen the fed raise rates more, at least earlier this year, than had initially been anticipated. I mean, you had this huge rally in the market today after the CPI print, largely because the market now thinks that that's it. The Fed's done raising rates. We're done here. I mean, it raises the question about higher for longer and what that looks like into 2024. But given that fact, does that mean, do you look at a day like today and a data point like the reading we just got on inflation and go, okay, here's the moment where you start to see deal activity pick up in a more meaningful way?

I think the moment we're going to see that is when we have some greater confidence that the Fed is done. Because at that point, there's greater certainty as to what the math or the numbers are going to be going forward. If I know that rates are going to be at this level or no worse than this level, I think I can plan for that. And I think the difficulty has been that it's uncertain as to when it was going to end. So I think once there's a strong conviction,

a confidence that the Fed's done raising, even if we think that it's going to be higher for longer, or, you know, if you look at the different economists, some are saying second half of next year for cuts, some are saying longer. That doesn't matter. I think once there's a conviction that rates are at a level that it's the max we're going to see, you're going to see a fair amount of deal activity because there's such pent up demand in terms of buy and sell side. Yeah. You mentioned geopolitics, too. That got my attention. What you didn't mention was regulatory scrutiny, which we've seen so much of, including, I think, just today with European regulators taking a closer look at Adobe's

acquisition of Figma. Yeah. I think, look, I think the regulatory scrutiny, as we've always talked about with our clients, good transactions get done. You plan for it. You need to have the wherewithal to last two things. One is you need to be able to spend additional time between sign and close of a transaction because those periods are elongated given these extended reviews. And then two, you need to have the financial wherewithal to be able to take this to distance. What we've seen in the U.S. is that the DOJ and the FTC have taken more aggressive tones in terms of what they're trying to enforce, in terms of the novel definitions that they're trying to enforce. But the reality is the large firms that have taken it all the way to court and have gotten

to a decision, they've won seven out of eight times. And so I think that's emboldened a lot of players. Now, we can't lose sight of the foreign regulators that you've talked about. And I think that's part of the equation. And that's become a bigger piece, especially over the last five years. You mentioned cash-rich corporates. We know many private equity investors are sitting on an arsenal ready to be deployed as well. When you look across sectors and you look across industries right now, where do you think we're going to see the most dealmaking the soonest? Sure. I think, look, I think you've got the stat on the screen. There's over $2.5 trillion of dry powder in private equity funds.

There's almost $2 trillion of dry powder of cash sitting on corporate balance sheets. And we look at that based on looking at cash on the S&P 500 as an indicator. When we look at the sectors that have the largest cash piles, it's technology with about 42% of that number, and it's healthcare with about 21% of that number. So when I think about who's best positioned from an M&A perspective, it's those two sectors. And the other piece in relation to the prior question from a regulatory perspective, I think those large parties have taken advantage. You saw Cisco announce the acquisition of Splunk earlier in the year. That's a significant transaction, feels an incredible need for them. And they're taking

advantage of an environment where they feel pretty confident in terms of getting that transaction done. So again, I think from a regulatory perspective and the cash perspective, I think they're going to challenge deals. But at the same time, I think we're going to find ways to get transactions done because it's in everybody's best interest. OK. Vito Sperduto, thanks for joining me. Thank you for having me today. Well, the Russell 2000 spiking 5.4 percent today. So significant move and significantly outperforming the broader market rally. Up next, we're going to discuss whether small caps could deliver big gains for investors through the end of the year.

Welcome back to Overtime, a big, broad rally today, including the best day of the year for the Russell 2000. Our next guest says you should keep adding to positions in small caps as further upside is likely. Joining us now is Craig Johnson, Piper Sandler, chief market technician. Great to have you on, Craig. I'm going to start right there. Why? Why are small caps compelling right now? Thanks, Morgan. Small caps are compelling for a couple of reasons. Number one, they've seriously underperformed the broader market year to date. Second, if you look at the composition of the Russell 2000 index, it's really a combination of financials, health care, and industrials that really comprise the

vast majority of the index. And if you look at what's happening today with the cooler than expected CPI numbers, it's likely that the Fed is done, done raising rates, which could be a very big positive for the future shape of the yield curve and certainly a very big positive for financials. And the financials certainly had a pretty good day with the KRE as strong as it was. And with the financials picking up, industrials already doing well. There's a real shot for the Russell 2000 to trade back to the upper end of this multi-year trading range it's been in, which means about 11 percent upside from here. Okay. So do you like the small caps better than the S&P 500, which has also had some pretty large moves, including today,

a 1.9% gain, 44.95 is the level there. I think from a risk reward standpoint, I think you've got more upside potential in the near term here for the Russell 2000 with about 11% upside. That being said, we still have an objective on the S&P 500, year-end objective, that is, Morgan, of 4825. So still about 10% higher. So we still think there is good upside for the S&P 500. And again, with rates coming down, the dollar getting weaker in here, and you're seeing oil prices getting weaker, that's positive for the consumer. That's positive for stocks. And I think those will be the catalysts for equities to continue to move higher into year end. 10% higher from here over the next basically month and a half is what you're saying?

That is correct. Okay. Is it the Magnificent Seven that are going to lead the charge? I think they're going to participate. And if you look at the price action of the Magnificent Seven today, they did well. But when you look down cap, your mids and smalls had a much better day. And I think this market will ultimately broaden out. But if the Magnificent Seven at least participates, it'll again, it'll push the breadth of the market up and we'll get to this 4825 year end objective. And again, they'll participate,

but they probably will not outperform from our perspective. Yeah, I mean, industrials have had a pretty solid year as well. And particularly as of late, we don't talk about them as much as tech, but you like the XLI here. We like the XLI. Nice downtrend reversal on the XLI. You start digging through some of the mid

and small cap components inside of it. You can find a lot of good looking charts. Kratos is one example on the security side of things. It's a good looking chart. It's still well off of its highs. Your prior highs were up into the $30 range. And where the stock's at now, you got a nice setup and a nice risk reward for buying some of those kind of names. Stocks like the Deere and the Caterpillar, they're okay. But again, you got more upside when you look down cap inside of the industrials. Interesting. What would you say away from here, if anything? Well, from my perspective, I do not see a lot of positive trends happening in the staple space. that looks weak from

from our perspective at this point in time energy looks like it's ready for a bit of a breather and some profit taking coming in there or a couple areas we'd stay away from and then lastly i'd say the electric utilities a good day today but if you think about the upside potential it's probably not going to be utilities as sort of leadership in the market. It's probably going to be financials. And in fact, inside of our work, we've got 80 plus industry groups inside of our work that are making 26-week relative strength new highs right now, Morgan. Most of those are financials. Interesting. Okay. Does this carry water into 2024? When you look at the technicals, I guess, what's the timeline? Well, if we look at the technicals, I do think it will carry forward into 2024. If you think back about the history of

last hike to first cut in terms of the Fed, that's usually about 8.2 months. And so if you think about carrying this forward into the year, this means that your first rate cut would, based upon history, would probably happen somewhere in the first quarter, which would be consistent with the interest rate probability tables right now. So yes, I think you can carry forward. But also keep in mind that when you go back and you look at every election year back to about 1928, you'll make the observation that there's only been four down years in election years and you've only had a recession twice in since 1928 in an election year in the United States. So I think 2024 is probably going to be a better year than most people are thinking about at this point. Well, we'll have

to see. We know 2023 certainly was as well. Craig Johnson, thanks for joining me. Thank you. Home Depot leading the Dow's rally today after an earnings beat. Will Target be able to follow in its footsteps tomorrow as we do look at a heavy week of retail earnings? An analyst who just upgraded Target to buy tells us what he's expecting when overtime returns. Welcome back. More 13Fs rolling in. Let's get back to Christina Partsenevelis. Christina. Well, George Soros is fun getting on the weight loss hype train with a new $1.5 million Novo Nordisk steak. The maker of Ozempic and Wegovy weight loss drugs. The only other big trade in this 13F filing was selling out of EV maker Rivian. Soros, though, isn't alone.

Other hedge funds like Viking Global also dissolved its stake in Rivian, while KOTU and D1 decreased their stakes. As a reminder for our viewers, these positions are as of September 30th, my birthday, so they could have changed since then. Okay. Christina, thank you. Thanks. You may be asking where in the world is John Ford today.

Well, he was on assignment traveling to Seattle from Microsoft's Ignite conference, where the company is expected to make some new AI announcements. Microsoft hit a new all-time high in today's session. John will be speaking exclusively with Microsoft CEO Satya Nadella tomorrow at 1 p.m. Eastern on the exchange. You do not want to miss that interview. And here's something else you won't want to miss tomorrow. Target's earnings up next. An analyst who thinks the stock could rally more than 20% will tell us why he is so bullish ahead of those results.

And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We will be right back. Welcome back to Overtime. The consumer discretionary sector participating in the rally in a big way today, closing higher by more than 3 percent. Home Depot helping lead the charge after today's earnings beat. Can Target hit the mark tomorrow? Well, joining us now is Bank of America Securities Senior Retail Analyst Robbie Ohms. Can Target hit the mark tomorrow? Well, joining us now is Bank of America Securities Senior Retail Analyst Robbie Ohms. He recently upgraded the stock to buy. Robbie, why do you

like Target going into this print? And I ask that knowing that the expectations have come down pretty strongly ahead of it. They have. And let me tell you, I don't expect sales upside tomorrow. In fact, I expect pretty cautious commentary out of Target on the fourth quarter, holiday sales, the consumer, discretionary spending, etc. So it's not about sales in the near term. We did upgrade Target about a month ago, and one of the things that we think you could see upside in is the gross margin. We think Target's planned their inventories conservatively, they're anniversarying some freight costs that should not be recurring this year. So that could be one of the drivers of upside we see.

Okay, so does that mean that a Target or even some of the other retailers that are comparable in this space has maybe hit the end of their pricing power, but because disinflation is afoot within their own companies operating costs and expenses, they're able to see better profitability. Is that the way to think about this? Well, I would think about it in terms of Target specifically had a pretty tough last year and a pretty tough last couple of quarters. Their traffic obviously took a hit

in the second quarter on some of the boycotts that we were seeing from some customers. We do expect traffic to be similarly weak in the third quarter that they're going to report tomorrow, but where they could be in a good position is they did a great job getting their inventory clean and they're doing some great merchandising initiatives, particularly on the own brand side of the business with lower price points and things that are attracting a challenged consumer in a high inflation environment where student loan repayments are back. And there's a lot of pressure out there and Target is moving towards being a good answer for consumers. Yeah.

How do you juxtapose Target against its chief competitor, Walmart, which reports the next day? Well Walmart is doing amazingly well. You know we expect a healthy quarter for them and we think Walmart is gaining a lot of share. What I would say about Target is the stock is obviously a lot cheaper than Walmart right now so it's trading at 12 times our nine dollar estimate for next year. The other thing that's interesting about Target is the stock, in a sense, is almost trading like the company is a little broken, given how low the valuation is versus historical averages of a 15 PE.

And obviously, it's traded higher than that. But if you look at things like mobile app active users, which have remained very steady for Target over the last three years, it would imply that the core customer attraction of Target is not broken. And so I think it's only a matter of time before you start to see traffic improve. You could see gross margin upside even tomorrow. And as you move into the first half of next year, Target, especially in the second quarter next year, is going to be up against some pretty easy sales comparisons that can make it even easier for the same store sales to improve from the current negative trends we're seeing now. Okay, Robbie, quickly, the all-important holiday quarter that we're in right now, how key is guidance to Target and all of the other retail names that you cover in general?

It's important to all of them. However, I do think there will be some looking through of what is, I think, well known by investors that this is going to be a challenging holiday season for the consumer. We've had very high inflation in groceries. Other things have been inflating that have been pressuring the consumer. I've mentioned the student loans coming back online. So I don't think anybody's planning for this to be a great sales holiday. But instead, you're seeing really smart actions from people like Target who are introducing more accessible price point offerings. They just did this in September with the launch of Figment, which is a kitchenware line that starts with prices as low as $3 and over 50% of the assortment under $10. All right, Robbie, thanks for joining us. We'll watch Target tomorrow.

That's going to do it for us here at Overtime. Fast Money begins right now.