Closing Bell - Closing Bell: Overtime: Fundstrat’s Tom Lee On Markets, Bitcoin; The AI Halo Effect For Tech Darlings 1/12/24

Episode Date: January 12, 2024

Averages ended the week higher for the 10th time in the past 11. Fundstrat’s Tom Lee and MUFG Americas Head of US Macro Strategy George Goncalves break down this week’s moves and look forward to earnings season. Our Leslie Picker and RBC analyst George Cassidy react to the first wave of bank earnings. 3Fourteen Research Co-Founder Warren Pies on where he’s positioning. Ben Reitzes, Melius Head of Technology Research, talks AI’s halo effect for tech stocks in 2024. 

Major averages pretty flat but the Dow lagging a bit. That's the scorecard on Wall Street. But winners stay late. Welcome to Closing Bell Overtime. I'm John Ford. Morgan Brennan is off today. Stocks closing in the red today. In between the major averages now higher for 10 of the last 11 weeks though. We're going to get the outlook for stock from longtime bull Tom Lee and his first take on spot Bitcoin ETFs, which began trading yesterday. Earnings season also kicking off today with the big banks. They are mostly lower following noisy results and coming up, Wedbush's head of investment banking and capital markets is going to discuss what those numbers mean for Goldman Sachs and Morgan Stanley when they report next week. But first, let's get to our market panel. Joining us now is Tom Lee and MUFG head of macro strategy, George Gunkovas. Guys, happy Friday. Good to see you. Tom, the Russell 2000 was lower today.

And in tech, even stability seemed to be in favor. Microsoft was higher. Meta doing nicely. IBM, Oracle. What does this week sort of X Bitcoin? We'll get to that eventually. What's the meaning of it for what you expect in January? Well, we're two weeks into the year, and this week certainly feels defensive. I think investors are still debating whether or not this is going to be a market where the Fed is supportive. We had some comments where we've got some inflation reports, some confusion, and some uncertainty about whether the Fed is going to be sort of supportive market making cuts. I think January is kind of a microcosm of what the year is going to be like. I think it's

going to be a very challenging year for investors. But, you know, and our call has been that you make most of the money in the second half. So I think this is what January is reminding us of that, you know, we're going to be a little anxious about the Fed in the first half. And George, what's fixed income doing right now? I mean, valuations, as you point out in your notes, are kind of tied to that quite a bit. Absolutely. I mean, the bond market's not confused. It's made up its mind that the Fed's going to cut rates. We had the two-year note basically move almost a quarter of a point, 25 basis points nearly this week. And the curve is

starting to disinvert. So we're having short-term rates moving faster than long-term rates. Even some long-term rates are going higher slightly. But by and large, this has been a week where the curve has re-steepened. Rates are lower. They've been low all throughout this whole period. And yet, you know, we had some mixed news on inflation. But by and large, I think the bond market's made up its mind that the Fed's going to cut pretty aggressively. And Tom, when you look at this week's data, particularly inflation data, CPI, you don't read it as being hot the way some others do. And maybe the PPI data that we got today supports that, right? Yes, that's right, John. You know, core CPI, which was reported yesterday, came in at 0.3. And I think a lot of folks kind of zeroed in on

the super core number coming in at 0.4. And what we pointed out was auto insurance is over half of that rise. So if you took out auto insurance out of core and super core, you'd be close to 0.2, which is basically at Fed's target. Auto insurance rates are rising because of loss severities over the last two years. It has nothing to do with the Fed keeping interest rates here, and it won't benefit from the Fed keeping rates here. It's really because car prices surged and auto insurers have to make their money back. So I think it's almost a statistical residual inflation number, but it's not really predictive. But George, what would it

take for the Fed to actually message that way? It seems like they just got off of the position of trying to convince people that they still might raise rates. So they're still hesitant to indicate any readable inclination to cut? Look, they pivoted pretty quickly in December. We have a March cut as the first cut we've had since July of last year. Our view has been that the U.S. cannot afford high rates, and they're very restricted, let's be honest. Five and a half percent is very high in the U.S. They've got to take rates down into the threes, and they have to start soon. So it's going to be the setup. Is it going to be a macro force, or is it going to be a combination of a macro force along with some sort of financial turbulence?

If it's purely macro, the data has to really decelerate even further than what we got this week. And it could happen that way. In February, I mean, January data comes out in February and so forth. This Q1 data can be very weak, give the Fed the excuse to start the cutting process, and then watch and see how the economy reacts to it. So we're of the view that it'll come by February. There's a lot of revisions in the data that it might actually revise down a lot considering the birth-death model of the NFP data.

Inflation comes in lower. They have all the information there that they'll need to cut in March. OK. And now let's talk about Bitcoin. Tom Lee, we got the approval of the spot Bitcoin ETFs this week. Big up day on the first day, down today. I think for the week, about even. Is this ETF party that's now begun going to significantly change the way bitcoin trades from here uh i mean it is only two days in john so uh i'm gonna to me i think it's going to make a huge difference because uh instead of having to go to an exchange and then worry about your private keys

many investors can now use use traditional financial markets to access Bitcoin. There's $150 trillion of household net worth just in the US. I mean, allocating just 1% into crypto would be one and a half trillion of inflows. I mean, that's already more than Bitcoin's network value. So I think there's tremendous potential. And I think it's a really important diversification for a lot of folks that have exposure to U.S. dollar assets and equities or bonds. And, you know, Bitcoin is really a good hedge against a lot of monetary risks. Hmm. But, George, I wonder what we use to hedge against Bitcoin. I know you're not going to talk Bitcoin, but maybe risk assets. And given the expectation you have for a cut in March, how do you expect them to behave?

So, look, if this is the turbulent time period where we're trying to get our footings, there's a lot of uncertainty on the macro. Is the Fed going to start cutting or not? What motivates them? We've got bank earnings today. I'm still nervous about bank liquidity and just overall banks into the end of the Fed's bank term funding program in March if they truly do close it down. So I do think that it's going to be a function of just watching spreads in credit markets. Does that signal that there's something going on in lending or lack of? And I think that's really what's going to be what we watch.

All right. Well, I'm going to talk some more about banks right now. George, Tom, have a good weekend. Thank you watch. All right. Well, I'm going to talk some more about banks right now. George, Tom, have a good weekend. Thank you both. Let's turn back to the banks ending the day mostly lower, except Citi after posting mixed fourth quarter results. Let's bring in RBC Capital Markets, Gerard Cassidy and our own Leslie Picker. Leslie, a lot of noise in these bank reports, the numbers and trying to understand if there's any overall message for investors and what to look for heading into next week, and especially for the regional bank earnings has been difficult, at least for me. What's your read? Yeah, no, you're exactly right.

It was definitely a noisy quarter. A lot of that was due to the FDIC special assessment, which was levied on the banks. It's basically what they owe the FDIC insurance fund to make up for the shortfall that they endured as a result of some of the regional bank failures from last spring. In terms of the read-through, I think for the regional banking community, a lot of it will stem from kind of the outlook for net interest income, which was a mixed picture, although largely across the street, very asset sensitive. So when you see rates go lower, as they did in the fourth quarter, that, you know, that is a headwind for net interest income, that profitability metric for loan making. So the regional banks are even more exposed to that trend.

So I think that's something that investors will be acutely focused on as they start to report. OK, so Gerard, I think it was Moynihan who said that higher rates and the stability generally good for them. Does that read across big banks? Is it just for big banks or how should we think about how that affects the regionals? John, I think you put your thumb on it. It's beneficial for all of them. In fact, what I thought was interesting today, just about every bank when they gave their guidance for 2024 net interest revenue, they were using the forward curve as their guide. The forward curve right now is calling for six Fed fund rate cuts. And if we don't see the six Fed fund rate cuts, let's say we only see two or three, that higher for longer scenario then perseveres.

And to your point, John, that's very positive for not only Bank of America and the other large banks, but for the regional banks as well. And so, I mean, I know this is an arbitrary number, but I've been looking and the KRE closed today above 50 bucks. And so that that makes a straight month that it's been there. And I wonder if it stays there through earnings season. Or, Gerard, do you think there are enough smaller banks that have certain types of risk, unique risk, perhaps on their balance sheets where we should prepare for more turbulence? I'm not too concerned about unique risks for the regional banks. Certainly, the risks have been identified throughout this year with commercial real estate office properties. We saw more of that today in

terms of the bigger banks building reserves for those properties. But everything else from a credit perspective remains in good shape. So we're not likely to see any real surprises on the risk side. What we saw in the spring see any real surprises on the risk side. What we saw in the spring, of course, was idiosyncratic to signature Silicon Valley and First Republic. That's all behind us, as Leslie pointed out. And so I think as we go forward into next week, it's really going to be about when does the net interest margin inflect for the banks, and when does net interest revenue start to grow? And I think we're going to see that for most banks, it's going to be within the first half of next year or 2024. Okay. Okay. Leslie, you just spoke with the CFO over at Citi and they're making a pretty

significant cut, right? About 10% of the workforce over the next year plus, I believe it is. Is this the start of a trend? Because I remember another bank CEO saying some weeks ago that there were some expectations of cuts in 2024 because people weren't churning out, weren't quitting at the rate that they expected. Yeah, well, the 20,000 jobs are a combination of attrition as well as layoffs. So some of that will just be people who kind of roll out of the position and then they don't feel that in the future. But the headcount overall, yes, reduction of 20,000 seats and then an additional 40,000, which will be spun out as part of the Banamex IPO.

That's their Mexican consumer business as well. With Citi in particular, they're in the middle of a strategic turnaround. They're looking to refocus the business. They're doing divestitures in some of their foreign markets in order to streamline kind of where they put their focus and where they put their resources. And I asked the CFO, Mark Mason, kind of how they're thinking about, you know, allocating those those limited resources as they try to grow the top line while also controlling expenses. And he made it very clear that they're going to really focus on growing some of the star performers, things like services for them, as well as ensuring that the operations and the risk controls remain in place and remain, you know, in their current size or even, you know, making sure that that isn't something that they cut. So in terms of a Wall Street trend broadly, I mean, we'll hear from Goldman Sachs. We'll hear from Morgan Stanley next week. We saw about just shy of a billion dollars in severance charges at Wells Fargo as well.

So definitely something to keep an eye out for. And I know you will do that for us next week, Leslie Picker. Thank you. Gerard Cassidy, thank you as well. You're welcome. Coming up, 314 co-founder Warren Pies just turned bullish on oil near term after being bearish for a bit. Up next, he's going to tell us why and how much of a comeback crude could make. And retail has been red hot in recent months. But coming up, we will reveal the crucial area of this industry that's starting to show signs of weakness. Overtime's back in two.

Welcome back. The S&P closed in the green today, barely, finishing up a winning week that saw nearly 2% of gains. My next guest says new highs are part of his base case outlook for the year. Let's bring in Warren Pies, co-founder of 314 Research, to discuss. Warren, you say the S&P has gone so long, about a year and a half, since a new all-time high. And you think that there will be new highs, and that's bullish. But it's gotten pretty close. I mean, and it's been a weird couple of years. Yeah, thanks for having me, John. It's been a weird couple of years. Yeah, thanks for having me, John. It has been a weird couple of years. And for our studies, I'd say close is good, but it doesn't count really because we're trying to track these things and classify them. And really, when you look at a list of new all-time highs, when we haven't had a new high in at least a year, this would be the sixth longest drought on record. And if we make new highs, if we go on to do this

on a closing basis, it's historically a pretty bullish development for the market. I mean, the market's up 14% on average in the year following a new high, and it's every case except for 2007. So it's hard for, I think when you make a new all-time high, it's really hard to describe it any other way, but just a bullish development for the market. OK, now you say a soft landing and new highs are your base case. I think that's true for a lot of people right now, but you pay attention to details. So how much help is the market going to need from the Fed in rate cuts to get there and how soon? I think we we think the Fed's going to start cutting in May. And I think the most of the bull market for this year is going to come in anticipation of those

Fed cuts. And this is really going back to the soft landing playbook that we've studied. So the soft landing playbook is to see a 10% rally in the six months leading up to the first Fed cut when there is a soft landing, no recession, Fed cuts. And that's what we see this May. I don't think there's going to be a recession. And I think that's when the Fed's going to cut. They'll probably cut three times this year. And so I think that it's set up, just like you said, we're close to new all-time highs. We're right up against what the average strategist target is for the year, which is 48.33 right now. So there's less than 1% upside really or so for the average strategist. So for the year, which is 48.33 right now. So there's less than 1% upside really or so for the average strategist. So what I think is going to happen during this first part

of the year, we're going to have the Fed at our backs, trends at our backs, and strategists are going to have to upgrade to chase the market. And so I think it's a good first half and a dicey second half for the stock market. So tell me how your bullish outlook for oil fits into that backdrop. I mean, is it demand driven once people accept that the soft landing is going to happen and there won't be a global pullback? Yeah. So oil has been there's been a big macro bet that's been misplaced for oil within the last year, which is that we're about to go into a recession. So you want to get short oil. And we see this in the futures market. We've seen hedge funds, in particular, getting short oil over the course of the last year or so in anticipation

of a recession. And that just doesn't come to pass. And they're doing it once again. I don't see a recession. At the same time, there is a lot of supply out there. So I don't think that the rally that we're looking for and our model is looking for is going to be anything up to like 100 or anything like that. We're looking for mid 80s by the end of Q1 if history holds. And that's just basically from short covering and the fact that we aren't going to go into a recession, that the market's not as big of a mess as a lot of these macro bets are making it out to be. And you do have to price in geopolitical risk premium.

I think the playbook has been to fade geopolitics anytime that spikes up over the last six months or so. And at some point, I think that bet, it's not a probabilities tell us you want to basically at least square your books on the short side in the face of what's happening right now in the Red Sea. And I just saw on our screen there before 2024 is over, you expect oil to touch 55. Is that right? Yeah, that's right. So we're not overall, when you look out over the whole year, we're not overly bullish. I think there's a lot of spare capacity, say, in OPEC. That oil has to come back online. And I don't think that the Biden administration really wants to come down on Iran ahead of the election. So as much as I know there is some geopolitical risk that needs to go back into the barrel of oil right now, I don't see it spiking up into something that's going to truly

curtail supply over the next six or nine months. And so there's plenty of supply. Demand is still strong. So I think this is kind of a muddle through range bound deal. The speculators are going to ultimately push the price around. I think you get short covering here in Q1, but at some point you give back those gains. Okay. I guess you got to be careful. Oil slicks. Warren Pies, thank you. Thanks for having me. Today's PPI report, unexpectedly falling in December. That's welcome disinflation as a signal for the Fed. Let's bring in Senior Markets Commentator Mike Santoli for his take on this report. Mike. Yeah, John, market really did take it to heart as well. Here's one measure of disinflation as reflected in core PPI and the consumer related elements of PPI. So it's it's a very particular angle on this is from Renaissance Macro. And it's also the three year

three month annualized moving average. The point is, this is the part of PPI that helps you figure out what PCE inflation is going to be. That's actually the Fed's target. And you see it's, you know, appears below 2%. A lot of the estimates putting together yesterday's CPI and today's PPI numbers are suggesting you can get the PCE at the core level down below 3% as it's reported later this month. So all that stuff moving in the direction that the Fed and most investors would like to see. Now, the two-year Treasury yield is where this is all registering in a pretty dramatic way. You've seen it really come on the decline. Remember, this was above 5.3% at one point,

and that was pricing in the possibility of that higher for longer backdrop. We don't have that anymore. It's now just above 4.1 on the two year note yield. So that takes you back really to the latter part, the early part of twenty twenty three. And the key here is this is, you know, one and a quarter percent below the Fed funds rate, the overnight Fed funds rate, the target rate for the Fed. It's like five point three percent and change right now. That's one of the biggest spreads you'll see. And it's the market essentially saying, you know, don't get left behind Fed. We've already figured this out. So we'll see if that comes together in March. We have more data between now and then. But it does seem as like the market

increasingly wants to sort of check off the box to say inflation is tamed. So is this the rare reading, the rare month when we can say that PPI, at least the two numbers that we got this week, matters more because Tom Lee argued that there was a lot of auto-related noise in the CPI number. And then lots of people out there are talking about how the rent inflation figure can be misleading. Exactly. I would say in the last couple of few months, PPI has taken on a little more importance because of the way people are able to triangulate it with the PCE methodology, all these, you know, these these initials going around. But yes, it is one of

those months. People are really trying to get a fix on the pace of the decline in inflation. And that is one of the elements that's helping us do that. All right. TGIF by Santoli. Thank you. Burberry shares getting hit after warning of slow demand. Up next, find out if that's a red flag for the rest of luxury retail. And check out shares of Delta Airlines, one of the worst performers in the S&P 500 today. The carrier beat Wall Street's profit estimates thanks to strong travel demand,

but the stock's getting hit after its full-year outlook came in below its previous guidance. Overtime will be right back. We have a news alert on Starbucks. Kate Rogers has it. Kate. John, the Supreme Court agreeing to hear a challenge that Starbucks has made over decision that ruled it violated federal labor law requiring Starbucks to reinstate a group of workers in a Tennessee store known as the Memphis 7. The workers were part of the union movement at the company. Now, the NLRB concluded the company violated the law by firing the workers who were known as the Memphis 7 and it sought an injunction to have the company hire them back.

Starbucks asked the Supreme Court to hear the case in October, pushing for a consistent standard for the NLRB to weigh these kind of complaints. Starbucks telling CNBC in response, quote, We are pleased the Supreme Court has decided to consider our request to level the playing field for all U.S. employers by ensuring that a single standard is applied as federal district courts determine whether to grant 10-J injunctions pursued by the National Labor Relations Board. Now, Starbucks workers united the union, saying in part, quote, with the Supreme Court agreeing to take up the Memphis case. Starbucks just expanded its war on its own employees to a war on all U.S. workers. All working people should be appalled and join our fight to make sure corporations are held accountable to law.

I'm sure much more to come on that. John, back over to you. Yeah, we can count on it. Kate, thank you. Thank you. Now, for the second time in three months, Burberry issuing a full-year profit warning because of slowing global demand. Robert Frank is here. Robert, that does not sound good for the rest of luxury retail.

Yeah, John, a little bit of a scare today for the luxury segment. That's because Burberry announced a 7 percent drop in revenue for the fourth quarter. And it revised down estimates, as you mentioned, for the second time in just two months. Burberry CEO Jonathan Ackroyd saying, quote, we experienced a further deceleration in our key December trading period. And we now expect our full year results to be below our previous guidance. The big weakness was in the U.S., with sales falling 15 percent in the Americas. Asia was actually up 3 percent, Europe and the Middle East down 5 percent. Other luxury stocks like LVMH, Richemont and Kering, they were down slightly today,

but the market is signaling that this is more of a Burberry-specific problem. The company launched a much more expensive line of apparel and accessories this fall, just as global consumers, of course, are becoming more price sensitive. Bernstein saying in a note today, they quote, Burberry will continue to be a difficult story. We would not advise investors to catch a falling knife. So the whole sector, you know, you look at even these big stocks like LVMH, they're down about 20% from their highs last year. So we're looking at a slower growth for all of luxury. But Burberry specifically has an execution problem

in that they came out with this brand new line in the fall that was a little bit wild from a design perspective, but also crazy expensive. I mean, a men's T-shirt for $800 is pricey even in 2022, let alone right now. Yeah, I mean, for me, anything for $800, I got to pause to think about it. For Burberry's customer base, I wonder because their outerwear business seemed to do better than, for example, leather. And does it work within luxury goods where when things are getting a little bit tighter,

things that you're going to use for a long time and you're still willing to spend a couple thousand dollars on, but maybe leather is trendier, you're not, or is that completely off? No, you're absolutely right. Things, not only that you're going to use a long time, but when luxury gets tighter, it's the highest quality. So right now we're seeing Hermes, which is sort of the holy grail of luxury, considered to be the highest level of craftsmanship, enduring value. You can buy a Birkin bag for more than you paid for it. And that's been true for years. So Hermes stock and Hermes sales are actually continuing to grow,

whereas even LVMH and the other firms, which just don't have that level of endurability and quality, they're suffering more. And then when you get down the value chain, people just say these are overpriced regular goods as opposed to a true luxury good. All right. Not quite a flight to value in the same sense that we're used to thinking of in other spaces. Flight to higher value. Higher value. Robert Frank, thank you. All right, time for a CNBC News update with Kate Rooney. Kate. Hi there, John. Tens of millions were at the mercy of Mother Nature today as much of the country was in the path of dangerous weather conditions. Snowstorms moved through the Midwest. Floods

paralyzed the East Coast and tornadoes threatened the South, according to FlightAware. The severe weather forced airlines to cancel or delay more than 5,000 flights across the U.S. NASA, meanwhile, is testing the speed of sound. Literally, the experimental X-59 plane was just unveiled at Lockheed Martin Skunk Works in Palmdale, California. The plane is a joint venture between NASA and Lockheed and is a critical piece to the Quest mission, which will test if a flight can produce a thump rather than the typical deafening sonic boom it is expected to take its first flight this year. And Notre Dame celebrated another milestone towards restoration. The timber frame roofing was completely reconstructed, and earlier today, a large bouquet of flowers was placed on the top

as a symbolic tradition amongst carpenters to commemorate the end of an important project. The cathedral is slated to reopen later this year after a fire nearly destroyed it back in 2019. Back over to you. Yeah, that'll be encouraging to see when that happens. Kate, thanks. IBM shares up 17% in the past three months. Investors hoping Big Blue's consulting business can see major benefits from artificial intelligence. That's something CEO Arvind Krishna told us yesterday in an exclusive interview.

All of the techniques in AI to sort of get rid of many of these people-based, rule-based processes and be able to ingest all of the data, huge market opportunity. I think that by itself is to be measured in the hundreds of billions each year for the next decade, probably. We're breaking down the opportunity with an IBM bull who I mentioned in that interview next. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. Overtime will be right back. IBM finishing the day more than 2% higher despite a flat finish for the Nasdaq. So can this hire for longer talk work for both rates and IBM stock?

Well, joining us now is Ben Reitz, tech lead at Mellius Research. Ben, happy Friday. Your ears must have been burning yesterday because I mentioned you specifically when talking to Arvind. When you heard him yesterday talking about how the year looks, of course, trying to avoid too many financial specifics ahead of earnings, did that at all encourage your view that IBM can pull this off, this AI growth kind of pulled through by consulting? Yeah, I'm encouraged, and it's great to be here with you, John, again. I'm encouraged by IBM. I think that he made a really good point. This data ingestion piece of AI is a big opportunity for them. They're trusted, especially in regulated industries,

and their expertise in this area is very clutch for organizations who need a lot of help. They have actually three modules, Watson X, AI, data, and governance that are all needed for enterprises, especially in heavily regulated industries. And I think they're going to do pretty well, John. Okay. Meanwhile, Hewlett Packard Enterprise, HPE, coming at this from a different direction, looking to buy Juniper, which we think of as a networking company, but has also been not just focused on networking hardware, but software that relates to moving data in the data center. What should investors read from that, not just about HPE and Juniper, but the kinds of assets that some of these tech players are going to need

outside of the language models to win in AI? Well, I think that the HP-Juniper deal was a validation that networking is going to be a real important point, a real important part of the whole AI saga here. And I think that we are really like Arista in this case, because we think Arista is going to be the backbone for clouds, as well as getting more into the enterprise. And there's a really good chip cycle coming on from Broadcom that Arista can take advantage of. But I think that it shows that there is confidence that AI is going to create a halo effect and boost not only chip demand from NVIDIA, but other stuff from PCs to servers to networking. And HP wants to make sure that they have that. It's a higher margin business, higher value.

And if they execute, it should help their multiple. Obviously, there's a lot of risk to execution near term. How comfortable are you with some of the valuations on the AI darlings? NVIDIA has remained relatively strong. Supermicro is above 330, and they've tended to be exciting to people in the same sense as NVIDIA. But as we start to get results from some of the applications players in enterprise, are those and their guidance about AI going to validate the valuations we've seen up to this point? You know, valuation is an interesting animal. I think as long as the fundamentals are getting better and they give AI numbers that extrapolate higher numbers in the future, some of these valuations will continue to hold.

I think where you're talking about an application software, the big concern right now in application software is just whether these things like copilots, Fireflies, Einsteins, you know, all these funny names, whether the take up for these things is as fast as the street wants. So that's really going to be the key. So you have to marry that narrative with valuation. The valuations are anticipating quite a bit. So what we need to hear is definitive take up from these AI initiatives. And frankly, we just put out a note on Monday. I mean, a lot of this stuff is going to be second half loaded. We're still in the early innings. All right. Well, as the game progresses,

we'll keep coming back to you, I think. Ben Reitzis from Elias, good to see you. Hey, great to see you, John. Take care. Have a great weekend. You too. Up next, Mike Santoli's back to look at why the Bulls could have reason for optimism despite the choppy start to the trading year. Overtime will be right back. Welcome back to Overtime. Mike Santoli's back with a look at the global stock market. Mike?

Yeah, just a little thing called the global stock market, John. And we have one measure of just how broad the rally has been across the world in the last couple of months. This is from Ned Davis Research. They track this, the percentage of all world individual country markets that are above their 50-day moving average. It basically just means that they're all in an uptrend. You obviously see it doesn't get much closer to 100 than that, though it did a few times if you go back in early 2020. So this is generally a good forward-looking sign. Now, obviously, you might have to work off some of the excesses in the very short term. That might be what we're doing in the last couple of weeks. But on average, forward returns are better than the norm when you do have one of these bursts of global momentum. Now, a lot of variation among the different parts of the world in terms of how those indexes have performed. If you want to take

a look here, actually, most recently, Japan has stolen the spotlight. It was basically in a 30 plus year trading range. And it has really kind of come out of that in a very aggressive way. This is a one year. So showing Japan S&P 500, of course, with all of our big tech stocks has more than kept pace. Euro not doing a whole lot, but you do see China. So the contrast here is pretty significant, even as the majority of markets are doing pretty well. And this does sort of follow along with, you know, Japan kind of idiosyncratic. The S&P insulated from a lot of the cyclical pressures. We got a soft landing here. And then we know what the issues are with China. And Mike, why is global

momentum seen as such a good forward looking sign? Is it the same kind of reason why you want to see breadth in the S&P 500? Yeah, basically it does. It's just evidence of an urgency of buying. It usually comes after a period where most investors have been too cautious or been underinvested. And so it is just real market evidence that you do have demand swamping supply in the short term. And usually that does have essentially some duration to it. It isn't just a quick burst. All right. All around the world. Mike Santoli, thank you. Now, UnitedHealth is by far the biggest drag on the Dow today after reporting higher than

expected costs. Up next, we'll hear from an entrepreneur who's trying to drive down costs to deliver care and what that means for investors. Over time, we'll be right back. UnitedHealth Group shares dropped 3.3% today after the insurer spent more than expected on patient care as COVID, the flu, and RSV made the rounds. So what does this mean for how investors should think about the future of healthcare? Well, to answer that question in today's timeout here on Overtime, I want to introduce you to Adrian Aoun, founder and CEO of Forward. I met Adrian in Silicon Valley more than a decade ago when he was at Google working on special projects, reporting to then-CEO Larry Page. Adrian's got a background in artificial intelligence, and when his older brother had some health challenges, he looked into technology as a solution. On a Monday, I'm like solving AI. And on Tuesday, I'm like watching like, you know,

doctors in my brother's exam room, like stand over him with like post-it notes. And I'm like, guys, where's the AI? You quickly realize like healthcare is a pile of crap. But worse than that, it's not even an evenly distributed pile of crap. Like there's about 8 billion people on the planet, less than 2 billion of them have access to anything you and I would call real pharma care. So then I said, OK, but this seems solvable. Adrian left Google and started Forward, which up to this point has been a boutique, tech-driven doctor's office. Now, over the last couple of months, though, Forward's begun rolling out a new concept that he thinks could eventually change the cost equation in health care. It's called a

care pot. So imagine a standalone room in a mall or office building, no people in it. Then you walk in, it takes your vitals, gives you a treatment plan or prescription. Seriously. You walk up to it, you unlock it with your phone and immediately it's like, hello, John, welcome to Ford. Please step inside. And as you do, it basically loads up a bunch of different applications for you to play with. Let's say you choose something like the body scan app. This is pretty cool. It tells you to stand still, rotates you in a circle, takes a whole bunch of readings, shows you the results on the screen, explains them to you, and then gives you whatever treatment makes sense, whether it's prescription

or something else. Let's say you choose heart health. This one's pretty awesome. It actually opens a tray and hands you a sensor, shows you how to hold that sensor against your heart. And then again, takes the results, shows them to you on the screen, explains them, and then gives you a treatment, prescription, something else. Okay. I pushed back. Really a prescription from AI. But here's the potentially powerful overall idea. So AppForward, Adrian is trying to take stubbornly expensive services, like an annual checkup, and turn them into tech hardware and software, which tend to get dramatically cheaper over time. So look at the trajectory of the smartphone. The tradable takeaway here, possibly, there's money in using tech to lower the cost of care.

Apple's trying pieces of that with the Apple Watch. Medical device makers are with their products, too. We'll see if the prognosis is good. And here to talk about that a bit, Bertha Coombs, there are a lot of attempts out there to lower costs. What do you think of not just forward, but this idea that devices, if we can offload expensive services and make them into devices, that could expand access to care and reduce the cost. It's something that's really already happening, and I think all of the big players are looking at it. You know, as you look at what they call hospital at home, all of the big insurers, they have home care that they've invested in, whether it's UnitedHealth or

Humana or now, you know, CVS, which invested in a company that they acquired last year in order to do this. And they have devices to help monitor people. So a lot of that is helping. What Forward is doing is great for those of us who are into the quantified self, right? We're healthier. We want to take a look. We want to measure things. But when you're talking about people who have complex issues, older people, and if you've ever cared for an older relative, you know that things can change like that. You know, just a UTI can really upset things very, very quickly. You really need more hands-on. So telehealth is really important. That's really great. And you really do want to talk to a person because sometimes you really

want to be able to discuss and ask questions. And when I talk to my friends who are doctors. Yeah. Isn't the trick here going to be, if it works at all, getting the right balance of when you have to talk to a person versus when you don't, the types of care that you can deliver, you know, through a broadly accessible, you know, cheap location versus even the types of devices that you have to send to older patients or people with specific orthopedic issues and let them use at home. But getting that data on a regular basis to deliver better care at a lower cost. Isn't that part of the trick? That is part of the trick, but you also have to think about the clinician at the center of it.

And, you know, we keep putting all of these desires of what we want to do and to be monitored and to be able to have someone send us suggestions. We're putting that on doctors, on pharmacists, and they're a bit overwhelmed. Now, AI is helping them with that regard. And particularly when you talk about patients who have specific complex needs, they are focusing more on them. But at the end of the day, it's not going to solve everything. There's always going to need to be a human contact there. I mean, you look at issues like maternal health. The thing that really helps in maternal health for women who are underserved is to have an advocate, to have a doula, to have someone there who understands the process and can advocate for them and can also guide them through the steps of what to expect.

You can't do that with an app. If in the meantime, at least the apps and perhaps devices can help, Bertha Coombs, thank you. And now up next, what the state of the capital markets could mean for Goldman Sachs and Morgan Stanley when they present their earnings reports on Tuesday. And if you love this show, of course you do, and you want even more overtime, scan that QR code on your screen. You can follow us on LinkedIn, where we'll post exclusive content. Overtime, we'll be right back. Well, Wall Street got a big dose of bank earnings today from Bank of America, J.P. Morgan, Wells Fargo and Citi.

And on Tuesday, we're going to get results from Morgan Stanley and Goldman Sachs. Here to help us get an idea of what those results might look like in light of the current landscape for capital markets is Burke Dempsey, head of investment banking and capital markets at Redbush. Burke, thanks for coming in. Happy Friday. So Q4 wasn't great for dealmaking, but you see a pipeline building? Yeah, I can say for sure. We were working all during the holidays. We're busy with stocks, bonds.

There's even an IPO today. Securitizations and my talks with my other colleagues on the street were very busy. So it doesn't seem like that much strength is necessarily priced in here, what people expect from the banks. How long is that pipeline, you think, going to be? As far as capital markets, I think you've got to wait for the year-end audits in a number of cases. So you won't see anything until this quarter, like February, March, and then into April. I think you're going to see a very big spring. How's the calculus between do I IPO or do I look to get acquired IPOs versus M&A? Has that shifted enough that the balance is tilting back

to IPOs? There's a couple ways to think about that. Today, we saw an IPO that was priced and went up 15%. And over the years, the rule of thought has been that if you can offer a 15% pop, that's reasonable. So I think we're starting to get back to reasonableness. The other thing to think about, though, is the PE firms have a big backlog of deals. There's like a trillion four of companies they've owned for over four years. And then there's 800 unicorns that are hungry unicorns that need financing too. And that backlog, even if we took just the top 1% or 2%, it would have more than doubled last year's drought. It would have been a much better year.

Has the flirtation with direct listings and SPACs kind of evaporated? I think they're in the future. I think the SPAC is a tool, just like direct listing can be a tool. Yeah, but is it a screwdriver or is it that bandsaw that you only use once i don't know but i the spacs i think got a little bit over their skis um you know they're now we're now in spac 4.0 technology and they'll probably be spac 5.0 technology and they'll get better um but as far as direct listings i think that's a comer because you have all these private companies that have been you know they're grown up.

They're fairly large companies and they're ready. They could be public. They just don't like the valuation. We'll let the market decide. And I think you'll see more of those. OK, now tell me about sectors that you find promising. Biotech, fintech. Why? Well, biotech is sort of a success begets success moment right now. I think that the talent we've got discovering these drugs and the technology available to do the work they need to do, it's spiraling in a positive way. And you're seeing more discovery begets more discovery. And the market's wide open now. So investors are really interested in what we have to offer.

And AI? AI, I think it's coming. It's along the way. I think I'd first take a look maybe at cyber. The bad guys keep trying to break in, and we've got to have more defenses. But AI, we did a survey, and 80% of the companies we surveyed said they found 10 different use cases. So that's pretty significant. From a few years ago, we had a conference, and we talked about it, and everyone was wondering how to do it.

And now they really want to think about doing it. So I think you're going to see a big spend. I keep hearing software companies, AI related, saying they don't think they can get the valuation that they deserve in the public markets yet. Well, I mean, valuation is in the eye of the beholder. And if you look like, OK, let's go back to why last year didn't work. The pop that we expected was more like a fizz. Right. We took the top five or seven IPOs. They averaged only about 5.3 percent. And I was shocked by that, actually, because that wasn't much better

than you could have gotten in a treasury. So why would any investor get off the chair to make an investment like that? All right. Burke, thanks. Burke Dempsey from Wedbush. Thank you, John. What a week it has been. Yet another winning week across a string of them, though the markets were flat. We've got a short week next week, but a lot of important data coming as well, especially when it comes to earnings from the banks. That's going to do it for overtime. Fast Money starts now.