Closing Bell - Closing Bell Overtime: Averages Snap Weekly Losing Streaks as Stocks Surge, Richmond Fed President Thomas Barkin Says No Cuts This Year, PE Giant Orlando Bravo on the State of Software Firms and Jason Furman on Why the Fed Needs to Go Faster and Further.

Episode Date: March 3, 2023

We break down the action as stocks gained throughout the session. Vital Knowledge’s Adam Crisafulli and Northwestern Mutual’s Brent Schutte give their market outlook. Our Steve Liesman brings us the latest from Richmond Fed President Thomas Barkin. Thoma Bravo’s Orlando Bravo on the state of software and why more firms are going private. Jason Furman defends his op-ed calling for the Fed to go faster and further and MSA Capital’s Ben Harburg breaks down what he expects from this weekend’s NPC in Beijing.

Happy Friday. That's a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Coming up this hour, an exclusive interview with Orlando Bravo, who runs the world's largest tech buyout firm with more than $120 billion under management. His thoughts on AI, the macro environment, and opportunities in software ahead. Plus, we'll talk to former Council of Economic Advisors Chair Jason Furman about his new op-ed calling on the Fed to go faster and further with its rate hikes. Now let's get straight into the market and this push higher to end the week. Joining us now is

Adam Crisafulli from Vital Knowledge. Adam, welcome. So you've been saying buy the dips below 4,000 on the S&P, and it looks like everybody did that. But we've got another jobs report coming a week from today. Before that, factory orders, job openings, jolts, data. How much of that has to come in hot for you to back off of your buy the dips call? Yeah, so the coming week's going to be a real critical one. You have some major macro events on the calendar. How testifying for two days Tuesday

and Wednesday. You have the jolt report on Wednesday and then the big jobs report on Friday. And you we really are a very important inflection point we've had now. Weeks of very hot January data on inflation and employment.

Retail sales etc. so. Month of January the numbers came in well with expectations. That's pushed yields up that's pushed rate expectations higher. And on inflation and employment, retail sales, et cetera. So month of January, the numbers came in well above expectations. That's pushed yields up. That's pushed rate expectations higher. And now we're waiting to see if that continued into February. We saw a couple of data points this week with the ISMs. They were a little bit inconclusive, you know, suggesting that things are still pretty robust. And so a lot will depend on that jobs report Friday. It's a little unfortunate that Powell was speaking before the jobs report, just because if you kind of look back at last night,

we had a speech from Fed Governor Waller, and he essentially said we're all waiting for the January, the February figures, rather. So jobs on the 10th, CPI on the 14th, Fed on the 22nd. If you do see the jobs report come in line with the consensus, so, you know, we did over 500,000 last month in January, the street's modeling about 200,000. I think that would be a huge relief. Obviously, it would suggest a pretty notable cooling. It would suggest that, you know, we're not running at a very elevated pace on employment. And I think that would give the Fed comfort. So, you know, short, long story short, yes, next week's going to be huge for the macro landscape. What do you make of the action?

We did see inequities today and we did close the S&P up above 4K again, the level there of 40, 42. We have just snapped these multi-week losing streaks for the major averages. We did see yields come down a little bit with a 10-year dropping back below 4 percent as well. Is this just a wait and see, everybody positioning themselves ahead of what could be a big catalyst with these data, particularly jobs next week? Yeah, I think to a certain extent that certainly played a role today. You know, you came in today with very negative sentiment and you had positioning inequities that had dropped back down. So you had in place the technical setup for a rally. You had a couple of encouraging inflation readings today. They're not really very important, but they're

encouraging just given what we've seen for the last few weeks. So the Eurozone PPI, the prices paid component of the services ISM, you had the UN Food Index. And then on the Costco call last night, management has been very explicit in calling out inflation on nearly a month by month basis. And on the call last night, they said that they're continuing to see some pretty notable disinflation that's continued all the way up into February. So you kind of got those encouraging inflationary data points. And then I think the most important piece of news today was the Volkswagen update. So Volkswagen came out with their earnings for Q4 2022 and provided very bullish guidance for 2023 on sales and on margins. And I think that has a couple of important

implications for stocks. On the one hand, more auto supply is obviously going to pressure prices. That's something that the Fed very much wants to see. And then they talk about how easing supply chain conditions is allowing them to fulfill existing backlog. So they're not necessarily dependent on sales at the moment. They're fulfilling backlog that already exists. And they're doing so because supply chain conditions are easing so you said yeah you said on the one hand and i got excited but then you didn't go there to close out i don't want to steal your thunder okay you know we'll just leave that unsaid for people who are under weight fixed income and that should probably be a lot of people if they were positioned right uh when interest rates were guaranteed to go higher for a long time. What's the right way to build

bonds into the portfolio right now, assuming you're going for the yield, not the trade? I think, you know, as we look into next week, you know, bonds are obviously very oversold. Rates are very high. They've had a huge repricing in fixed income. I think it's going to be a lot easier to kind of come out of next week talking about how Powell sounded less hawkish than feared or the data wasn't as hot as feared. And so I think the setup for bonds is favorable into the next week, you know, just given the very steep decline that they've already witnessed. So, you know, I think that, you know, again, just given the steep decline in treasuries, you know, the setup, the risk reward is favorable going into next week. Okay. Adam Crisafulli, thanks for joining us. Thank you. Well, let's bring in Mike Santoli. He's at the New York Stock Exchange for a closer

look at whether this rally can continue. Mike. Yeah, Morgan. And what it's really trying to suggest based on the character of the rally from the lows last fall. So this is a chart goes back to some historical patterns from Ned Davis Research. This is the current pattern of what they call their early cycle composite. The sector is the parts of the market that tend to do well when the economy is recovering and accelerating based on past cycles. So you see it's tracking right around here, really in line with the past average of non-recession bear markets and then the recovery from those bear markets. Now, the better results here are after you actually have gotten a recession in the bear market bottom and then you recover from there. But that's because the decline has usually been steeper. So it's a really

interesting takeaway if the pattern is genuinely telling us that despite all the fears about an inverted yield curve and the leading indicators of recession, the market itself is picking up signals that there is some reacceleration, at least in parts of the economy, industrials with consumers remaining strong. And if that were the case, it does seem like it's conforming to some of the more encouraging type of cadences of past cyclical patterns. This is just fascinating to me. And I'm looking at I'm looking at the data here and I should my reading glasses on. But how many cases how many cases, I guess, roughly have we seen of these types of non-recessionary bear markets? And I guess how granular can we get here? And I'll put you on the spot a little bit. How granular can we get in terms of how they've resembled what we're seeing right now in the market? I think you're probably looking at somewhere in the half dozen area of bear markets,

which would be a more than 20 percent decline with some other conditions as well. And they do did not actually have a coincide or directly lead into a recession. So it's not the biggest sample size, but it suggests that basically what we saw last year, a 25 percent drop in the S&P 500 with profits still looking OK, at least when some decent distance toward pricing in a higher probability of an overall economic downturn. You can't say it's an all clear. You can't say this cycle is going to fit neatly into what everything else has shown in the past. But for now, it is suggesting. And what's also fun about this is it kind of goes against everybody's expectation for what the market ought to be doing.

You always come in strong. You come in hot with the really cool charts that we never see anywhere else. I'm here for it. Mike Santoli, thank you. We will see you a little later in the hour. Well, as the stock market rose today, Treasuries did take a step back, the 10-year dipping below that key 4% level after rising all of the week. Joining us now to discuss bonds and more, Brent Schuette from Northwestern Mutual Wealth Management Company. Brent, great to have you on.

I do want to start there with you because, my goodness, the past month plus, what has happened in the bond market has been pretty incredible. I want to get your thoughts on that and what it means in terms of how you're counseling your clients to be positioning their portfolios. Yeah, so I'll pick up on what Mike said. And I guess I agree with him. I don't think we're in the all clear yet. And so if you think about the market, it really bottomed in October of last year. That was the day before CPI came in lower and started showing that CPI was really tied to COVID. And so I think inflation fears have peaked and the markets behave better. But I don't think it's all clear yet because I do think you're going to get a recession.

And right now, we're simply kind of in that space between. And so if you believe like I do that inflation is going to continue falling, any recession would put the final nail in the coffin of inflation. And interest rates at 5% on investment grade bonds right now. I think that's fairly attractive, especially given the S&P valuation. And so we have been lengthening our duration because I do believe that you will see a recession that will be mild and short, but importantly, inflation will come down. Okay. So 5% sure is safe. But for those who are willing to take on some risk, you don't have to take on too much, but who want to get a little exciting in their bond portfolio, how do you screen bond funds in this environment,

maybe keeping in mind that close-end funds with leverage are maybe at risk if rates have to go higher than the market assumed? Well, I don't think you have to take the risk that you once had to take to get an incremental yield. And so right now, the 5% that I mentioned is an investment grade bond index with a duration around six. And so that's where I'd focus my bond portfolio. And on the equity side, I agree with what Mike said. We actually like those parts of the market, even though I believe there's going to be a recession. Because I believe it'll be mild and short, those are the areas that do well. And the really, really important thing is they're not expensive right now. And so there's a margin of safety of those parts of the market. The S&P 600

small cap, for example, trades around 14 times earnings that are diminished relative to the S&P 500. That's at 18 times. And so we are owning investment grade bonds, staying true to higher quality there, but pushing out just a bit on the risk spectrum in the parts of the market that are cheap and do well coming out of a recession. So we can talk about the possibility of recession. We can talk about the Fed's role in all of this, given the inflationary backdrop right now. But the earnings piece of the puzzle, and we do know earnings more broadly are coming down right now. How do you navigate that? And how does it speak to where you are finding value right now in this market? You mentioned small caps, but where else?

Yeah, I mean, we like value stocks. And so the S&P 500, we are actually underweight because it is expensive. It's at 18.5 times earnings or so. And I don't think earnings are going to grow. And I don't think you're going to have multiple expansions. So how do we get that higher? I think the good news is there are cheap parts of the market, value stocks, that no one has really loved except for the past year. The prior 10 years, they were out of favor.

Those are still relatively cheap. And that gives you a margin of safety against falling earnings, which I don't think will be extreme because I do think any such recession that would pull down those earnings will be mild. I'm just looking at your notes here and you say you like gold. I mean, I realize you've seen a little bit of a breakout in recent months, but it hasn't really gone anywhere for years. So I build portfolios for individual investors. And the important thing is to have hedges within that. We've owned commodities, for example, for the prior three or four years, which has done very well as the rest of the world kind of got rid of those because they hadn't. And we own those because if you look historically, you think about the connection over the past few years between low

yields and high stock prices, we thought the opposite might occur. And during periods of time when stocks and bonds are both negative we've chosen and history would show that commodities have done well within that gold is another hedge we certainly decreased our position there but we still own a position for uh you know any geopolitical risk and any risks that arise it's a smaller position but certainly one that we still recommend investors have some of them okay brent shooty thanks for joining us. Thank you. Brent didn't want to play at all about, you know, riskier bond funds. He was 5%, you know, just take it. Just take it. After the break, billionaire private equity manager Orlando Bravo joins us to talk tech valuations, opportunities in AI,

and how his portfolio companies are adjusting to rising rates. And speaking of rising rates, former White House economist Jason Furman calling for the Fed to go faster and further in a new op-ed. He's going to join us to explain why when overtime returns. Welcome back. We have breaking news on the Fed. Steve Leisman has the details. Hi, Steve. Morgan, thanks. Richmond Fed President Tom Barkin saying that the Fed has forecast additional rate hikes

and no cuts this year, emphasizing that in the speech that he's giving at this hour. He says it makes sense to move rates more deliberately than last year. Deliberately is kind of a code for 25 basis point hikes rather than 50s or 75s. So he seems to support 25 base point hikes. However, he is pretty hawkish on inflation, saying if inflation persists, we can react by raising rates further. He says normalizing inflation will not be easy. It's going to take more time and effort. Then there's a whole bunch of reasons why inflation may be persistent, including excess savings still there. He says a trillion dollars plus on household balance sheets and additional fiscal spending. He says

supply challenges haven't all been worked through. They could still hurt. China reopening, he says, as well as Ukraine could further pressure commodity prices. And workers, he says, will continue to keep pushing wages up to keep pace with inflation. He says this is one of the interesting parts of the speech. He says two years of high inflation has impacted the behavior of companies. So companies now are more willing, he says, to try and raise prices, whereas before you'd say, let's raise prices,

and they would say, no, we're not going to try. Now they're willing to try. He says if you back off on inflation too soon, it comes back stronger, and finally the labor market remains quite tight. So it seems like Morgan, a person who could be convinced, at least to me anyway, to go higher than the Fed perhaps has already indicated it might go. Okay. Steve Leisman, our resident Fed whisperer. Thank you. Thanks.

Coming up, we will get reaction from former Council of Economic Advisors Chair Jason Furman, who thinks the Fed should raise interest rates by 50 basis points at this month's meeting. All right. And we've also got another week of earnings for enterprise software names coming after a big one we just had. Salesforce finished the week up 15 percent as investors cheered CEO Mark Benioff's spending plans or lack thereof. Toma Bravo, meanwhile, is the world's largest tech buyout firm with more than $120 billion in assets under management. It specializes in software. I spoke with founder and managing partner Orlando Bravo today, and I started by asking him what investors should take away

from this week's earnings. The lesson there on these earnings is digital transformation is just at its infancy. It's really just at the beginning. What we saw in our portfolio of roughly $25 billion of revenues in software was a difficult selling environment in Q2, an even harder selling environment in Q3, as you had all these economic headwinds. And then in Q4, you saw a pickup in the buying environment. And I think some of these public companies have been reporting similar results. Why a pickup in Q4? Q4 is always the spike. You do have to acknowledge that. That's kind of the buying season for the customers. And so much happens during the last week of the year, and a lot happens during the last day of the year. So usually when you forecast these businesses,

even though you may have a lot of experience in doing so, you kind of don't quite forecast that spike. But the key is that we have not seen a huge drop off like we might have seen in Q1 and Q2 of 2020, or like you saw during the financial crisis, or even when you saw years ago during the dot-com bubble burst. Customers, the key is customers are buying what they need. They may not be buying a lot of futures. And now what they need as they operate their businesses and they look to take advantage of digital transformation and become more competitive in their fields still produces a good demand environment for these businesses. So let's talk about valuations. And there was

this time period, end of last year, beginning of this one, where, I mean, some might argue things are still kind of cheap. Some things are. But things were especially cheap. And there was a lot of private equity activity. What are you doing or not doing now based on where we were even just a few weeks ago? Are things remaining expensive now? If you hadn't acted, did you miss a window? We bought a lot. So hopefully we did not miss a window. And now we have to make work what we bought.

And our business is we do one deal at a time. And if we see that working, then we can move forward and do others. It's so interesting because what is cheap is very hard to tell in software. Because when you look at this index of public companies, for the most part, and on average, these companies don't make money yet. We have this stat that we say that the index of publicly traded software companies that are the biggest and the best, on average, they have a negative cash flow margin. So when growth has slowed, based on the factors that we've discussed before, investors don't know how to value them on the multiple of revenue. These multiples of revenues

have gone from 17 times on average at the peak to about four now. Now, what that does is much more important than valuation is what it does is it produces an environment where some of the highest quality, largest software companies are looking to go private because they're looking to solve for their investors and for their company, the profitability issue. How do you turn these great innovators into great businesses? And they may be two different things. And one owner with one agenda has a better shot of doing that. And that's what we do in our private equity field.

OK, so maybe a little pitch for yourself there for those who are looking to get out of the public eye and might already be public. All right. Let's talk about the generative AI. A lot of attention coming to this because of the latest version of chat GPT out of open AI. And I'm starting to see a lot of velocity in companies being able to adopt this in ways that they say are going to benefit their end user. Duolingo is a great example. They not only reported some good numbers and strong growth, they said they're going to build this premium tier that allows language learning conversations based on that. They think they're going to be able to charge a premium for it, which is going to make their model look better.

How are you approaching this with the companies in your portfolio? Well, John, first, we're having a lot of fun with AI. Our associates use it. I even use it. We have a lot of fun with it. Our companies are big investors. Think about it. Enterprise software, systems of action, systems of decision-making, systems of analytics, these huge data gatherers that produce workflow software or business intelligence software, our companies have been big investors in analytical AI. Really, I mean, it's a big part of it. Now, large language models just makes, over time, the use case for these data models and these workflows more valuable. Now, it's really, really early in the enterprise. Go back to how customers can consume this. They first have to

dream about how they can implement this new set of technologies, how it changes their workplace, how it changes their organizational structure. And then slowly over time, it should be additive to our space. Are there going to be certain companies, almost like middleware, within certain industries that make this easier and faster to implement? I'm starting to see that, say, within customer service or, you know, to again go back to the Duolingo example, there are certain things that you want to do, the way you want to structure conversation for learning, it's different from the way you want to structure it for customer service or different than if you have the language models creating search queries that are then returning data

from internal search. Are we going to see a market of just companies that sit in between there and help the customer to implement AI strategies more quickly? Big time. We have seen that before in software and other models and use cases, even in the old license model with data integration, integration systems, ETL, APIs. So that is going to be a big opportunity in this space. Does Microsoft with OpenAI have any kind of significant lead over Google and others in this area? Microsoft is just an amazing company. In enterprise software, which is our field, we don't come across Google too much, right?

Their search engine is not in the market overall where we serve our customers through our companies. But Microsoft is in many cases. And they're extremely well run. They have very large market positions in many verticals, many horizontal solutions. And in many cases, they're able to bundle solutions so that they provide products that are free or are given for free to their customer. And that's a big way and a big reason why they gain market share and continue to do well. So their moves in this category are really interesting, and we'll just see. Finally, let's talk macro.

Inflation has been stubborn. Investors have been spending a lot of time, public market investors, focused on what the Fed is or isn't going to do. How concerned are you about either what's actually happening with inflation or how rising interest rates are going to affect your companies and companies that you might look to buy? We are concerned about that. Absolutely right. It turns out, I think most people knew this, that with big fiscal stimulus, inflation was not going to be transitory. And with the rising interest rate environment, it's challenging for these companies that carry leverage to be able to service the ever-increasing cost of debt.

So it is a big concern. Now, we as investors and owners of these businesses, we can't do anything about that. We can't control it. What we can do, and we learned this so many years ago from one of the best operators of all time, is he would use this quote, in difficult times, it is much better to be overly conservative than overly optimistic. So you see what could be ahead of you, both from a headwind in terms of potentially lower bookings than you expected and a higher cost of capital for your companies. And you have to very quickly decrease the cost base of your company so that you're not surprised. And that was something that we really engaged in in the beginning of 2022 in anticipation really for the worst. Guy like Orlando, I always like to hear how he's making decisions because our viewers can then take some notes and take some cues. Bravo talking a bit there about artificial intelligence. We should point out the move today in C3 AI up 33 percent. And we talked to Tom Siebel here on overtime yesterday before his earnings call.

Coming up, we're going to hear from the CEOs of two under the radar companies using AI, both jumping this week on earnings. But first, former Council of Economic Advisors Chair Jason Furman makes the case for why the Fed should raise interest rates by 50 basis points at this month's meeting. Stay with us. We have so much more show ahead. Welcome back to Overtime. Let's get a CNBC News update with Bertha Coombs. Bertha. Hey, John. Here's what's happening at this hour. President Biden had a small cancerous skin lesion removed from his chest during his recent routine physical exam. Before the president left for Delaware this afternoon, the White House released a letter from his doctor saying a biopsy shows the lesion was a basal cell carcinoma, a common form of skin cancer that usually does not spread and no further treatment is needed.

Earlier, the president met with German Chancellor Olaf Scholz speaking in front of cameras before the private session began. Biden praised Scholz's profound support of Ukraine and the German leader said it is important for the two countries to act together. And Attorney General Merrick Garland made an unannounced trip to western Ukraine today to participate in a meeting with President Volodymyr Zelensky and top prosecutors from other allies. They talked about how to hold Russia accountable for the war crimes they believe it has committed. Morgan. Bertha Coombs, thank you. This hour we heard from Richmond Fed President Tom Barkin, who said if inflation persists,

the Fed can react by raising rates further. This follows commentary from Raphael Bostic and Chris Waller just yesterday, both open to doing more if the data remains too hot. Although Bostic's saying he remains in the camp of moving in 25 basis point increments, at least right now. Meantime, Senator Elizabeth Warren saying this week that she's concerned about the impact of rate hikes on the economy. But Jason Furman, a White House economic official under President Obama, taking a different view, writing an op-ed in The Wall Street Journal titled, quote, To fight inflation, Fed tightening should go faster and further. Jason Furman joins us now. Jason, it's great to have you on the show. Break down your argument in this op-ed, which seems to go beyond all of the things we've talked about that have had inflationary pressures

over the years, thanks to the pandemic, like commodities and goods, et cetera, and to really hone in and focus on the labor market. Yeah. So first of all, the economic picture has changed dramatically in the last month and a half. If you just look at the three-month annualized core PCE inflation rate, which the Fed keeps its eye on, that's gone from 2.9% when they last met to 4.7% right now. So you have this big change in the economy. At the same time, a lot of the things we were counting on to take the inflation away have already happened. Oil prices have come down. Microchips are much more plentiful. Schools are reopened, et cetera, et cetera. And yet inflation hasn't come down. So I think the inflation we have is higher than we thought.

It's more stubborn than we thought. And a data dependent Fed needs to take that into account. So you don't see it as a seasonal anomaly. The hotter than expected, the much hotter than expected jobs data we got last month, some of the other data points that we got as well, you think this points to potentially a wage price spiral? How do you see it? Yeah, so I think it was partly a seasonal anomaly. And to be clear, if I thought the economy was like the January data said,

I'd be calling for an extra 250 basis points at the March meeting. The January data was incredibly strong, 14 percent annualized growth and consumption, 7 percent annualized inflation rate, over 500,000 jobs added. So I'm discounting all of that. I think, though, there's some signal in that. It's not just noise. There were large revisions to previous months. You see it in a wide range of indicators, including openings, wages, core capital goods orders, and the like. And in some sense, you know, a 25 basis point above what their previous path was isn't that big a change. And it reflects,

I think, almost an incremental approach to this data rather than an overreaction. Well, with 375 basis point hikes, the Fed, I don't think anybody would argue that they didn't start pretty aggressive. But now do they have to go back to 50 so quickly or should we take a look and see what you know the the jobs data says on friday and calibrate that with what we got a month ago and then you know take this more gradual and pass so we don't take the economy to let me just be clear fifty is what i think based on the data right now we'll get more data before the

meeting and so i don't think they should lock in on 50. I think they should be very much saying this is what we very well may need to do, and we're going to see some additional data. So the market isn't surprised. But here's the issue with the argument around lags. Most of the tightening in financial conditions, whether for example, look at mortgage rates, happened by April of last year. That was nearly a year ago. Much of that has already worked its way through the economy. It wasn't enough to accomplish the goal. And when you think about lags, it says it's very costly to get behind the curve. And that's why, you know, taking into account that it's going to take time for this policy to work, the sooner we do it, the better. I do want to get your reaction. We had Jeremy Siegel on our air in the last hour. He actually weighed in on your op-ed. And here's what he had to say. Take a listen.

I think he's got it wrong. He implies we've made much less progress against inflation than in fact we had. If you look at the on the ground price indexes, commodity indexes are all bumping along the bottom. Case Shiller Index, we saw six consecutive decline in home prices. Rental prices are stable or going down. Shipping prices have collapsed. Your response? Yeah, and that's precisely why I'm worried. A lot of things have gone right in terms of inflation. And even though those things have gone right, we have a three-month rate that's 4.7, a six-month rate that's 5.1, and a 12-month rate that is 4.7. So we roughly have a 5% core PCE inflation rate. And that's even with everything that Jeremy Siegel just said going right. Now, there is one favorable

shoe to drop. The index that we look at does reflect lagged housing costs. Those costs are going to slow over the course of this year. But that's probably worth half a point, certainly less than a point. And there's some other transitory factors that probably will bounce in the other direction. So, yeah, inflation might come down from 5 percent to four and a half percent, maybe even to 4 percent. That's way far from the target. So, OK, Jason, of the data that we're still going to get for the rest of the first half of the year, let's say, what do you think are the most important data points to weigh? I mean, sure, it's all important, but what would you emphasize? I'm looking especially at wages because I think the labor market tightness and the pass through from wages to prices, especially for core non-housing services, which Jay Powell is so

focused on, is central to the inflationary story. Now, the problem with wage data is the monthly data is very volatile and it gets revised, but you do the best with what you can do. We won't be till the end of April that we get high quality data again through the employment cost index. But I'd look to the labor market absent, you know, a real softening of some form, whether in wages or unemployment rate there. I don't think you can get this inflation rate much lower than what we have now. All right. That makes next week another big week on CNBC. Jason, thank you.

Thank you. Up next, Meta making a breakout move higher today, now up around 50 percent on the year. Our Mike Santoli is going to come back and take a look at whether the stock is starting to look expensive right here after the break. Welcome back. OK, Mike Santoli, I understand you're going to look at two mega cap tech movers, Meta included. What do you got? Yeah, Meta relative to Alphabet. This is the last decade, by the way, in those two stocks.

Meta up today, by the way, on a couple of sell side calls about how it's one of the top AI plays at this point, supposedly. So maybe we got another name change for the company coming up. I'm sure that joke's been made. But you see this massive outperformance. Of course, Facebook was brand new in 2013. It was about a year as a public company, much younger company, much faster growth. By the way, both did great. The S&P over this period up about 160 percent. So both massive outperformance. But you see this huge kind of switchback when Facebook had that crash, user growth stalling, all the rest of it, and Alphabet more or less held up. Now, look at the valuation

side of things, because this used to be far apart. Then they tracked each other. And now we have another crossover. So here again, when Meta was very young, very fast growing, it was highly valued. And then they came into parity here for a long period of time. And for the last few years, for the most part, Meta has been cheaper. But just at the end of that chart, you can see nosed above Alphabet. Now, it's not really expensive, either one. It's under 18 times earnings. It's about a market multiple.

But it is interesting to note that that kind of return of investor faith in Meta's longer-term earnings story, Morgan, and the idea that they have under control the ability to cut costs maybe farther along in that process is now being registered in a slight premium over Alphabet shares. Yeah, it's an interesting chart, Mike, because you can almost look at that and say, oh, you know, maybe there's a bottom in looking at these. I'd also be curious to see what Microsoft looks like in the midst of all this, since we are now talking about the AI wars. Yeah, more expensive. And, you know, Microsoft is kind of, you know, people have many reasons to like it. A lot of it is its stability and its franchises and all the rest of it and diversification. So that really has not been compressed as much in the valuation side. It's still in the mid-20s as a PE right now.

So, yes, people think maybe there's a growth kicker from AI coming from Microsoft. But that actually is a real newer part of the story and really just an additional reason or excuse for people to say, let's pay up for Microsoft. All right. We're taking it at face value, Mike. Thank you. Up next, we will discuss the potential impact that this weekend's China GDP targets and National People's Congress could have on Wall Street and also on your money. Stay with us. Welcome back. Let's move beyond the hype in artificial intelligence and talk about companies positioned to benefit from the shift.

Take a look at Samsara and Vera Mobility. Those two stocks up, let's see, 21 and 5 plus percent respectively post earnings this week. We spoke to the CEOs of both in Fort Knox earnings conversations. Samsara uses sensors and cameras in trucks and on factory floors to collect data, drive efficiency in areas like plant operations, fleet management and construction projects. CEO Sanjit Biswas tells me more companies are looking to their platform to glean cost-saving insights and quality data. It is about the data, but it's also about the quality of the data. So you need organized, high-quality data that you can make sense of.

And computers, fortunately, can process massive amounts of it. So when we think about these assets that are out in the field, and it could be a truck, it could be a trailer, a bulldozer, an excavator, doesn't matter. There are hundreds of sensors on these modern pieces of equipment, and they're reporting things like fuel consumption and oil pressure and whether your foot's on the accelerator or the brake. Once you can train AI models based on that, you can start to really surface those insights, and we turn those into actionable insights for the customer. 15% just today. I also spoke to Vera Mobility CEO David Roberts.

Vera's technology handles toll payment for rental cars, red light cameras for governments, and digital parking platforms. He says cities are leaning into this tech, Morgan, to improve safety. It's also nice and stable because it's governments, not enterprises here. Yeah, and we know that the government, government contracting and government business tends to be very defensive in an uncertain macroeconomic environment, especially when it comes to something like this, where, oh, now you can get more people speeding and make more revenue for your city. Yeah. You know, better or worse. Yeah. Worse for us, but better for the government. Yeah. Yeah. All right. Well, up next, we're previewing this week's key government meeting in China, plus the stateside events that should be on your radar in the week ahead.

Stay with us. Welcome back to Overtime. We just closed out the best week of the year so far for the Crane Shares China Internet ETF. You can see they're finishing today up slightly as well and up nine and a half percent on the week. This was partly boosted by some strong economic data this week out of the country. And of course, it's coming ahead of the National People's Congress kicking off Sunday in Beijing. Investors will watch the official GDP target, widely expected to top five percent. And joining us now is Ben Harburg from

MSA Capital, which invests in a number of Chinese companies. Ben, great to have you on. I want to get your thoughts on what you're watching for as an investor this weekend. Obviously, we get these GDP targets, but we also have our own Eunice Yun reporting that there's a whisper out there that President Xi could take this opportunity to essentially entrench Communist Party control over financial and economic planning, technology, private business, too. Do you expect a bigger assertion of power over the markets? It seems to be par for the course since he was anointed for his third term here.

But I think that story is a bit overblown. It won't be a surprise to any of us in the market if there are further kind of golden shares being taken or other party officials being nominated to kind of sit in technology companies. I think this week is much more about what the growth targets will be, how we'll get there, and the efforts that will be taken to stimulate the economy and keep cash circulating. What do you expect in terms of those efforts? Because we know that the country has been reopening in recent months, and certainly the data even just this week has been pretty strong. I guess how is that recovery process going?

And given the fact that the country, the government, has already been so stimulative, how much more can be done? As you said, it's almost a surprise to, I think, even the party officials, how much the market has bounced back since the beginning of the year. Not only did we have those record high PMI numbers, but we've seen, you know, road congestion returning to regular cities, you know, a lot of the subway ridership up to pre-pandemic levels, you know, overall consumption returning to what we expected. So there's a bit of a fear that they might not pull all those levers of stimulus, might not drop

interest rates, and instead will just keep cash in the system to encourage lending and further consumption. So that's the only kind of softening we could expect as a result of this strong start to the year. Well, it certainly seems like on Wall Street that the China risk is not surrounding economic rebound. It's really the risk around these rising tensions between the U.S. and China. Most recently, these concerns of Russian weapons supplies and potential sanctions that the U.S. could put on China as well. How is that being seen, I guess, from that country and that market standpoint? And how real is that risk to an investor? It's material.

I mean, there's a lot of flash, not as much bang in some of these American efforts to curtail Chinese technological growth. So for instance, the previous ban that listed U.S. nationals needing to essentially resign from Chinese chip companies, ultimately really only affected 100 people. But it did certainly create a huge amount of noise online and led to belief that the Chinese chip industry, at least from a talent perspective,

would be significantly curtailed. I expect future efforts, particularly a capital ban to come into place very shortly. We expected this actually prior to the whole balloon gate delaying Blinken's meeting with Wang Yi. So I think you'll see that in the short term. And so that will, again, I think not necessarily stop investment into the country, but create a lot of negative noise, which could further spill over and undermine investors' sentiment about China. How are you thinking about investment into the country? Because at this meeting, it's expected to be semiconductor and tech CEOs in, but Internet and software CEOs out.

Walking around China right now, it's clear that there is a full scale effort underway to develop self-sufficiency in the semiconductor space. Today, they called it kind of a all country effort or all systems firing at once from academia to the public sector to the private sector all in unison here. So there's an urgency around that given the actions taken by the Western governments. Obviously, some of those officials like Pony Ma taking their name off the list of the event that will come up next week. So I do think that some of the more traditional technology companies are trying to distance themselves a bit and assuage some of this negative noise. But overall, this is a whole country effort to build itself self-sufficiency away from America here. Ben Harburg, thanks for joining us.

And next, what to watch in next week's huge slate of earnings, economic data, Fed testimony and much more. We're right back. Stocks finishing the week on a high note. We've got another big week coming up for investors. Monday, the CERO Week Energy Conference kicks off in Houston. Tuesday and Wednesday, we're going to hear testimony from Fed Chair Powell on Capitol Hill. Thursday is GE's investor day. And then Friday, we've got Apple shareholder meeting. We're going to get the February jobs report. Mike Santoli still with us. Hey, I'm curious about CrowdStrike in security because Zscaler was down 11 percent for very little reason. And then HashiCorp is a relatively recent IPO. What's on your mind? Well, I mean, without a doubt, in terms of the remaining results, that's definitely kind of a little bit of an emerging bellwether. I actually think the first thing we're going to

get to that really has the market's attention is Powell's testimony. Now, a lot of times it's very noisy. We don't really get the honed message that he normally gives on a Fed press conference. But he's going to be invited to sympathize with Americans about the still high rate of inflation. And his tone there, whether he's still urgent about getting it down, whether he thinks a recession can be avoided, it'll make headlines. And then in advance of the jobs report, that's what we're going to be paying some attention to. Yeah, it's worth noting, Mike, that we're going to get central bank decisions from Japan, Canada and Australia next week as well. Yes. And Japan in particular, I suspect, is going to be in focus given the impact it's had on the bond market in recent weeks, recent months.

Yeah, without a doubt. I mean, it is a global process. We're further along with it. Maybe that means we can kind of get to whatever destination we're heading for sooner. But no, without a doubt, we're going to watch all of it because the bond market has been, you know, really jolted by the economic data we've gotten, which is why the jobs report next Friday obviously is really going to be somewhat decisive in determining the Fed path. All right. Yeah, he said jolted, Morgan. That makes me think of jolts. We do get the jolts report. You get that report. That's going to be important. All right.

All part of it, yep. Okay, well, you have a great weekend, Mike Santoli, and you as well, John Port. All right, you too. That's going to do it for us here at Overtime. Fast Money starts now.