Closing Bell - Closing Bell Overtime: Massive Sell Off, Fed Cuts Rates & Micron earnings 12/18/24

Episode Date: December 18, 2024

Today’s show features a panel with Jefferies Chief Market Strategist David Zervos and RBC Capital Markets Head of Equity Strategy Lori Calvasina on the markets massive sell off following the Fed’s latest interest rate cut. The Dow falling for the 10th straight day, the longest losing streak in 50 years! Niles Investment Management Founder Dan Niles reveals whether he thinks investors should be buying on this sell off – and where he is finding value right now. Nuveen Chief Investment Officer Saira Malik tells us whether she thinks a year end rally is in jeopardy. And Micron selling off after issuing weak guidance. Wedbush’s Matt Bryson explains why he thinks the stock is a buy on this dip.

Saved by the bell. That's the end of regulation. Standex International ringing the closing bell at the New York Stock Exchange. Granite shares doing the honors at the Nasdaq. Stocks selling off hard during and after Fed Chair Powell's news conference. The Dow just logged its longest losing streak since before I was born. A little bit. 1974. It's 50 years. Low for the 10th straight session. The Nasdaq falling more than 3% with small caps plunging even more, close to 5 on the Russell 2000.

That's the scorecard on Wall Street. But winners stay late to recover. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. We have a great lineup of market experts to break down the Fed's messaging and this market sell-off, including David Zervos from Jefferies, Laurie Calacina from RBC, Sarah Malik from Nuveen, and investor Dan Niles. Plus, two key earnings reports are coming this hour with insight into the chip space and the home builders. We're going to bring you the results from Micron and Lenar as soon as they

cross. But let's get straight to the market reaction to the Fed. Major averages close sharply lower, yield spike, volatility index surges higher. Joining us, RBC Capital Markets Head of Equity Strategy Lori Lori Kalbosina, and Jeffries Chief Market Strategist and CNBC contributor, David Zervos. Lori, it's a genuinely bad day. I mean, sometimes it's hard to keep perspective on what a bad day looks like. But, you know, 1,000 points on the Dow isn't what it was four or five years, 10 years ago. But it's quite a bit. Is it warranted,

given both where the market was and the hawkish part of this cut? So, you know, look, the thing that's interesting about this, right, is our rate strategist warned us that, you know, people were feeling pretty hawkish coming into this. So I would say that the content of the statement, you know, maybe the market reaction is a little bit surprising. That being said, if I think back over the last two weeks, and I've been running around the world talking to investors, and I keep hearing people telling me they're nervous about sentiment, they're nervous about valuation, they think a too rosy view of policy has been taken by markets next year, and everybody I talked to was looking for a pullback in January.

So to see some of that risk come down and just kind of see some profit taking here on this, maybe it shouldn't be all that surprising, just given where we are. Okay. I want to mention Micron is out. We are going through it. That stock is down sharply in immediate reaction. David, some of the names that have risen most this year sold off the most today. I mean, some of that, of course, is interest rate sensitivity, but not all of that. I mean, Bitcoin was down quite a bit from where it was, not necessarily interest rate sensitive. What to make of that and perhaps a sentiment shift coming in the market? No, I think there are just a lot of people thinking about the policies that are going to

come into place. Chair Powell talking about tariffs. There was a big back and forth on that. Being a little cryptic on neutral and sort of not really giving us something to hang our hats on with neutral. I think it was nice to hear some of what he said, which is we're still quite a distance away from where they think neutral is. So policy is still meaningfully used, meaningfully restrictive. But, you know, he's in no rush. The market likes it when the Fed has their back. And he basically said, I kind of I don't have your back as much as I had it for the last couple of quarters. And I think that's that's got people a little nervous. You know, I'll tell you what, John, the one thing that there's something that bugs me about all this when we get these sell offs and we get everybody lathered up about inflation and tariffs and

deficits and interest on the dead and oh my god it's all going on the one word we didn't hear deregulation and i just want to throw it out there i want to get it out to our viewers and say that is great news that is disinflationary and great for growth and i just hope we hear more about the executive orders that are going to come through on january 20th that are all cutting the red tape associated with every sector and every business that's going to make the cost of doing that business lower. And we could transmit that into higher profits and lower prices. Nobody likes to talk about the rosy stuff. We got a lot of haters out there that like to focus on the negatives. I'm going to throw the good stuff out there.

It's getting Christmassy, too. Okay. Listen, it does seem, and this is from my own conversations and my own reporting on this, it does seem like you have an administration that is very seriously going to hit the ground running come January 20th, especially when it comes to executive orders and the possibility of deregulation. Looking at this market right now, Lori, we're down, finished the day down 1,100 points on the Dow. S&P down just about 3%, 58.72 now. I know you've got 6,600 on the S&P for next year.

Is this a buying opportunity? And if so, where would you be buying? So, look, I think at this point in time, right, you know, we had speculated that any pullback would be of sort of 5% to 10%, right? Unless you sort of hit that 5% threshold on the S&P from the peak, you know, you're not really, I think, getting enough froth out. And if we look at valuations for next year, you know, if I sort of piece together some of the things we heard today, higher inflation forecast, dialing down some Fed cuts, those are things that compress P.E. multiples. So we're going to have to work, you know, we're going to have to work through some of that. And, you know, I think just in

terms of like what's baked into the market, or is nobody paying attention to all the good stuff like deregulation, I would beg to differ a little bit on that. Because if you look at the CFTC data for U.S. equity futures positioning, and S&P 500 specifically, what we are seeing is that maybe about a month ago, we were hitting brand new all-time highs, and we were breaking through the prior ceiling that tend to pin in the market.

Guess when the last time was that we did that? January of 2018, late 2017, when we had baked in all the euphoria of tax reform from the first Trump administration. And, you know, we had a little bit more to do. We passed the bill in December. We had a little bit more to do in January. But as I have talked to investors the last few weeks, you know, what I am hearing is there's a concern that we are only baking, you know, it's kind of the market friendly stuff into the market. And you can certainly see it in that positioning data. And that's got some folks nervous. And that goes back to the conversation we've had on this show with you several times in

the past post-election about does this market look more like 2017 or 2018? We've got those earnings out. Seema Modi has the numbers for us. Seema. Morgan, first quarter earnings for Morgan, for micron coming in four cents above estimates at $1.79 versus the $1.75 estimate. Revenue in line with street consensus at $8.71 billion, but guidance for the second quarter is weaker on revenue and earnings. So the outlook perhaps is what's weighing on shares here in overtime as we watch the stock down over 14%. We have comments here from CEO Sanjay Mahotra of Micron saying that this is a record quarter. Our data center revenue surpassed 50% of our total revenue for the first time. He does allude to the fact that consumer-oriented markets are weaker in the near term

and that they anticipate a return to growth in the second half of their fiscal year. He adds that we continue to gain share in the highest margin and strategically important parts of the market and are exceptionally well positioned to leverage artificial intelligence-driven growth to create substantial value for stakeholders. We knew some of the consumer-oriented sectors would be weaker going into this report, perhaps not as weak as the market had anticipated. We'll wait for more on the earnings call, which is going to begin momentarily. It's knocked down about 14%. Yeah, it looks like about a billion dollars light on the Q2 top-line revenue guide, no?

Yes, I think the midpoint was $7.98 billion for second-quarter revenue, so a bit weaker than what analysts were anticipating. And it is somewhat of a surprise, John, especially if you look at the guidance that's coming in from some of the broader semiconductor players. What comes to mind, of course, is Broadcom, which was just late last week, among others. We know competition has been a source of concern on Wall Street, especially with Micron dealing with two big players like Samsung and SK Hynix over in South Korea. The high memory bandwidth chip space, not necessarily. It's one that is becoming more crowded. All right. Well, we're seeing the pressure in shares of Micron down 12 percent right now. Sima Modi, thank you. David, I'm going to go back to you because given this broader conversation we're having right now, what is your outlook for 2025 then, especially as breadth has

been poor for the last, I don't know, call it 12, 13 trading sessions for the S&P after we've been talking about and seeing this broadening out of the rally. MegaCapTech has taken more of a leadership position again here. So how do we go from here at this moment in the next year? So I'm optimistic, actually very optimistic. I think the debate on neutral is going to be the centerpiece of the monetary policy debate. And I think we're going to learn very quickly that neutral is actually lower than people think. And that's a nice tailwind for the equity market. That's a non-consensus view. I love to be non-consensus. Got a lot of rationale for why that is. Some things we've talked about before about

the balance sheet at the Fed not being as stimulative as it has been as they continue QT is a big part of that. But by and large, I think I'm going to go with we're going to learn the idea pretty quickly, especially through the inflation data, that a combination of deregulation and disinflation from that, along with tighter monetary policy through that neutral structure that's lower, is going to give us surprises to the downside. Inflation really opened up the Fed to be able to cut or the market to price that the Fed will cut. The real issue, Morgan, is going to be, does Jay Powell fight with Donald Trump? And we saw it in 18. It wasn't pretty. It ended with Jay having to go too far and then coming back in 19. I don't think

he's going to do that. I don't think he's got that in his legacy, but that's probably a debate for a long, a longer debate for another time. But I think that there will be, and I think we might have seen the beginning of that today, a little bit of the market looking at a setup is this kind of, you know, round two of Fed versus Trump agenda, like what we saw when they were juxtaposed with each other going into the later stages of 2018. And that got a little messy. Nobody liked Christmas of 2018. That was no fun. So I guess I guess the takeaway here is strap on your seatbelts because we're probably in for a bumpy ride next year. And it's sure to not be boring. That I agree. All right. David Zervos, Lori Calacina, thank you so much for kicking off the hour with us on such a big day for the markets and for policy. Now, let's get to Mike Santoli for more on the sell-off and some

moves under the surface. Mike. Yeah, Morgan, so many ways to portray the sort of radically split market that we have had. And that fragile tension really did crack over the course of the last couple of hours after the Fed meeting. So you have the biggest stocks in the market. That's the XLG, 50 largest in the S&P. That's micro caps. So they were both riding high mega caps and micro caps. Speculative stuff on the small end. Perceived defensive thematic secular winners on the large end were just ripping higher, even as the average stock, the S&P equal weight, was getting crunched over the last couple of weeks. Now what you see is a catch down move in some of those areas where there were a lot of short term profits. We'll see if that's just kind of a quick adjustment, a little bit of a reflex to this higher volatility and the higher rates, or if it's more of a longer term reconciliation. Another way to look at this is the market has actually been registering some concern about the real economy for a while. The cyclical areas of the market have been struggling, even as more of the digital economy has been thriving. So, again, this is software and this is the infrastructure ETF.

And they were right in line with each other on a multi-month basis. You go right to the beginning of November and then they diverge. And now we'll see if they if they come together again. Software was considered a place to hide. It was going to be the next wave of AI beneficiaries. So we see the market having tried to sort of separate things out and keep the indexes aloft. And you've seen a little bit of a challenge to that idea that there was a way to sort of safely rotate around. That being said, the average stocks really getting oversold and the cyclicals have already been on the downside. So maybe there's the makings of a little bit of a rebound before long, Morgan. All right. I know we'll be watching for this. I am surprised, though.

I am just surprised to see there's been a little bit of a decoupling between software and the infrastructure stocks, simply because the infrastructure stocks have had such a bid as a, I guess, secondary AI trade this year. It is true, and that was secondary AI trade this year. It is true. And that was one of the big drivers. I guess it's not necessarily the most direct beneficiary for this phase of AI. A lot of that stuff got baked in in terms of, you know,

the earth moving and the building of the data centers and everything else. So right now, it seems if the market's trying to figure out whether we're supposed to be moving on from that phase or not, John. All right. I'll take it. Mike, we'll see you a little bit later this hour. Thank you. If you're just joining us, we had a major sell-off on Wall Street late in the session after the Fed indicated fewer rate cuts may be on the horizon. Next year, it was a hawkish cut is what we got today. The Dow falling more than 1,100 points, notching its longest losing streak since 1974. The Nasdaq shedding more than 3 percent and the volatility index spiking to 28. Well, joining us now is Dan

Niles from Niles Investment Management. And Dan, it's always great to have you on. I want to start with that volatility spike, because usually when you see that, it indicates that there's a flush out happening in the market. Yeah, I think it's more everybody got lulled into this false sense of complacency. And I know everybody, and I'll give you an example of this. Avago, which reported a couple of days ago, they report inline revenues. They guide the inline revenues. Stock goes up 38% over a couple of days. Now, everybody's focused on, well, they did say out several years

that this market's going to be a lot bigger. Who knows what's going to happen in a couple of years? And quite honestly, have you ever met a company that a couple of years out doesn't think their business is going to be better? All you know is near term, the numbers don't change, and the stock went up 38%. That speaks to complacency. So the fact that the market reacted

this way makes next year a lot healthier if people start to focus on the risks as well as the rewards. Micron after the close is another great example of this, where the numbers go down. And they're talking about AI and how they're focused, but revenues go down, EPS goes down, and that makes it a healthier tape for next year if people have to focus on, well, maybe the AI trade is running, you know, 103 before the quarter began to 108. And the fact that we're going to have this fall off from election spend, no Olympics, Easter getting pushed out. So Q1 guides could be tough. Donald Trump is more focused on the U.S. economy. And so maybe that benefits the small and mid names where the multiples are also quite a bit less. And you should see earnings growth, which you haven't seen in the last couple of years. OK. And of course, we know pullbacks and even corrections can be healthy for the market, to your point.

So if this is setting us up for a healthier landscape for 2025, if you will, then where would you be investing? What looks attractive, especially coming off of a 2024 that was the second year in a row of 20 percent plus gains for the S&P led at least for the first half of the year, largely by the mega cap tech names? Well, I said this kind of earlier. If you look at the S&P multiple, it's about 26 times. If you look at the mid cap index, though, that multiple is down at about 18, the small is right around 22 times. And a lot of these headwinds that we're developing are going to abate for some of them next year, and especially the policies that will happen with this new administration that are more

focused on U.S. That should also help those names, because unlike the big, you know, S&P 500 names that have a lot of international exposure where you could have some issues if tariffs are enacted, etc., you get into a trade war, they can't sell into those markets. That's not the issue with a small cap or mid cap name. So that's where I'm focused. And I think you're going to see a big catch up next year in that. And if you look at it, it really is a tail. So given that cash is your biggest position after you sold your mag seven positions, why not buy the small and mid caps now with that? Is it because you expect euphoria to continue in the first quarter and but then go away and you expect a better buying point and position?

Well, cash was our biggest position, but small cap value, mid cap value is our second and third largest positions. And we've been adding to that over the last week. So that's exactly what I'm doing, John. OK, so it's dangerous for those who aren't as skilled in the market as the professionals like you to hold on to cash. So how do you deploy it in a market that's still excited about the future of AI, which might be more years out than the investor at home is expecting based on where valuations are? Well, I think the investor at home and we've been talking about this really since mid-year. I mean, NVIDIA stock is down relative to where it was in the middle of the year. Revenues are up 30 percent. Earnings are up 30 percent in terms of where people were thinking they were going to be

over that period of time. And so my point is this. The AI trade could fall apart next year. And we said this, I think, last Friday when we were on CNBC, that this is the least excited we've been on the Mag 7 for a while. And we think NVIDIA is going to go through an AI digestion phase. I don't think they're going to make the up 50% in revenues that the market is forecasting because their biggest customers, like Microsoft, like Google, like Meta, they're all going

to slow down the rate at which they're spending. So their CapEx is up close to 60% in 2024. I think that number is going to be closer to 10% to 20% for next year. In that environment, it's hard for me to imagine NVIDIA's revenues are up 50%, which is what people are thinking, especially if you've got companies like Marvell or Navago, also called Broadcom, taking some of that share through ASICS. And so I think what you are going to see is a big drift down in allocation to the Magnificent Seven, people taking that money and moving it into other sectors like small and mid, where they haven't

grown earnings over the last two years in combination. With pro-growth policies aimed at the U.S., they should actually be able to grow pretty nicely next year. At the same time, you see growth in the MAG-7 start to slow down. And so I think that combination creates a really great way to invest in the markets. And you can do it through some big ETFs like the IJJ or IJS, which are our personal favorites for our value mid cap and small cap. To keep it focused on U.S., we've been talking a lot about American exceptionalism in the market.

And I ask that knowing that you started 2024 investing in Chinese tech in the K-Web, for example. And yeah, we saw that trade start to ignite a little bit in the second half of this year. But we didn't get the China stimulus to the extent everybody, I think, was anticipating. And we do know that policy is likely to become even tenser between the U.S. and China in 2025. Yeah, no, I think that's absolutely the case. Don't forget the other two of our other picks coming into this year were Amazon and meta and they've obviously done very very well benefiting from both things abroad international margins for Amazon expanding quite a bit it's probably the name if I were to have to you stuck a gun to my head said pick

one for next year the mag 7 that might be the one that I'd be willing to stay with because I do see margins continuing to expand, partly because you've got things like high margin advertising on Prime Video, which just started at the beginning of the year. That's going to obviously add more when you get a full year of benefits. International margins expanding a little bit from just above zero. That should help out a little bit. But you're absolutely right, Morgan. I mean, the good news is China putting in stimulus should hopefully help arrest the falls that they've been seeing. And so if you're a company selling into China,

like the S&P 500 type names, maybe you won't get hurt as badly as you were before. But it doesn't mean that you're not going to get some kind of, you know, slowdown in those markets, especially don't forget what the dollar is doing. The dollar moved up a ton today, and it's been up a lot relative to the beginning of the year, where I think it started at 101. And at the beginning of this quarter, which I think it started about 103, it's at about 108 today. So if you've got 30% of your revenues going internationally, and the dollar's moved up 5%, that's an immediate one and a half percent hit to your top line once you start to guide, not to mention what it does to your earnings.

And so those are things mid-cap, small-cap names don't really have to deal with. We'll continue to watch the action in those. Dan Niles, thank you. Highest closing level for the dollar index since November of 2022. Back to that point and how strong the dollar's been. Time to go shop in Europe. Well, banks getting hit especially hard today, and the regionals were really crushed down about, let's see, 5% on the KRE. Leslie Picker has more on those moves.

Leslie. Hey, John, and if you drill down even further, particularly looking at the big six banks in the U.S., it's those that are more capital market sensitive. Look at Morgan Stanley. Look at Goldman Sachs that saw the steepest declines today. You can extrapolate that to the private credit managers. Looking at Blue Owl, for example, was down more than 6 percent.

Aries down more than 6%, KKR, Carlyle, Apollo each down about 5% or more as well. On what I can extrapolate to mean the higher cost of financing as you see a jump in bond yields in response to today's conference, as well as uncertainty surrounding inflation. When you look at the banks in particular, regionals looking at a list of those, there is a concern among the regionals and in certain pockets of the regionals about credit quality. So higher for longer interest rates could take aim at the credit quality kind of the longer this goes on. Some people who invest in regionals were hoping for more relief with rates declining by a greater magnitude. So any kind of pullback or paring back of expectations there can cause those with more credit quality sensitive dynamics to decline on news like we saw today. had been so sought after in terms of a revival over the last few weeks or so, kind of reversing a little bit in today's moves based on what they saw in the press conference, guys. Leslie, if I'm looking at Goldman, Bank of America, or the KRE,

interestingly, they're all back to their levels of early November. So is this a lot to be concerned about, given that they had been up so much, just really starting in early November? Or does it more speak to just an amount of excitement that's perhaps burned off? I think it speaks to the latter, the excitement that's burned off, this instinct that there was going to be this massive deregulatory shift. And therefore, the banks were kind of kind of have this pressure lifted from them. They were going to be able to truly lend in the way that they were meant to be lending, thanks to a deregulatory posture in the Trump administration starting next year.

And now this is kind of more of a reality that's set in in the aftermath, this idea that the macroeconomy still matters for these businesses, that the rate of financing still matters, that loan demand still matters, that capital markets revival. Yes, the FTC is very important there. And yes, the regulatory structure is important. But you also have to have companies that have a visibility into their future and know that inflation is under control. And therefore, they can plan for that before they really buy and sell things, because without that, it makes it very difficult to value assets. And it's very difficult for a buyer and a seller to agree on a price.

And so all of those things kind of play a role. And I think today and the last few days have really been kind of a reminder of the basics of bank investing. All right. And you gave them to us as well. Leslie Picker, great to have you on. We've got DoubleLine Capital's Jeffrey Gundlach, who joined Closing Bell last hour, gave his outlook on what the Fed might do next year. Looking forward for 2025, I would say that two rate cuts would probably be, I would say that's kind of on the maximum side right now. Because I didn't hear anything really from that press conference that suggested that we're looking at rate cuts. I think you opened up by

saying you might interpret what was said as there's a pause coming. I would say that that's absolutely the case. Let's bring in Nuveen Head of Equities and Fixed Income and Chief Investment Officer Sarah Malik. Sarah, it's great to have you on a day like today. And I want to get your reaction to what we just heard from Jeffrey Gundlach, especially since, A, we know it was a hawkish cut. That was pretty well telegraphed going into this rate decision and this meeting today. But the market does seem to be pricing in, perhaps, as of right now, post-meeting, less than one cut next year. I mean, less than two cuts next year. Yeah, it's great to see you.

I think that there's three reasons the Santa Claus rally ran out of steam this week, and that's because of the Fed, also inflation and also market breadth. So let's start with the Fed. Markets did expect that 25 basis point cut today. What they didn't expect was the Fed to signal only two cuts next year. I think the reason for that is because of inflation. That last mile of battling inflation and getting it to the 2 percent target is going to be very challenging, especially with some of the policies that may come into play with the new administration. And then technically, this market has been looking weak for quite a few days now. Just looking at market breadth, as of yesterday, only 45% of S&P companies were trading above their 50-day moving average. The last time we saw that level of weak participation was in July, where the markets dropped almost 10%. So technically,

there's already been a flag saying, you know what, this market is running out of steam. So is it a buying opportunity then? How do you think about it here as we do have this pullback and as we do have a Fed? We were talking about don't fight the Fed. I mean, what does that mean now? I think, first of all, you're going into the low liquidity end of the year. I don't think this is the time to be rushing into buy. Second is that there's a lot of variability around that forecast for two or a little less than two rate cuts next year, because first of all, the economy looks strong right now. So given that the Fed's saying strong economy, sticky inflation, we're going to cut rates less than what the market's expected. But on the other hand, we're now going into year, you know,

multiple years here of the consumer and employment markets fighting that inflation battle and at some point that consumers in the employment market are likely going to lose that battle if inflation and high rates stick around so you could have this other side of the mark of the coin where where the economy finally weakens in the second half of next year and then rate cuts accelerate i think that's the challenge for investors is how do you invest in that we personally like small caps for 2025, strong dollar positives for smaller domestic companies, tax cuts good for small companies and spending there. Well, you mentioned what's best. Let's zoom out even further. What do you do with fixed income here, perhaps for tax advantages? Talk about munis. Talk about credit quality.

Sure. Well, definitely credit quality over duration. Munis are a great example of strong fundamentals here. States are very strong. Strong economy leads to strong rainy day funds by the state. So I think munis, you know, it's a buying opportunity because the total return in a higher rate environment can be very strong for those. Fixed income, you need to look at in areas where such as senior loans, floating rate loans, which are areas that are less dependent on the Fed cutting rates like the market had been counting on. Is it harder to get investors excited about fixed income, given what equities have done over the past few years, and a year where despite a day like today, we're still up, I mean, it's got to be what, 25%, 27% on the S&P?

I think it depends. Are you looking in the rearview mirror or ahead? Equities are coming off two years of back-to-back 25% to 30% return. So a lot of that hasn't baked in. If you look at the multiple for the S&P 500 trading at about 23, 24 times earnings for next year versus median multiples that are around 18 times, even earnings growth for next year versus median multiples that are around eighteen times even earnings growth relaxed next year looks optimistic for us markets markets expecting fifteen percent earnings growth in twenty twenty five median historical earnings growth for the S. and P. five hundred is about seven eight percent so a lot of optimism going into equities now in fixed income in a higher rate environment you can lock in some

strong total returns there so if I'm looking forward, in fixed income, in a higher rate environment, you can lock in some strong total returns there. So if I'm looking forward, I think fixed income looks a little more attractive. But pick your places in equities that have lagged, like small caps. Got it. OK, we got it there on the screen. Twenty three after today percent on the S&P year to date. Sarah Malik, thank you. Thanks for having me. Well, it's time for a CNBC News update with Julia Boorstin. Julia. John, an international war crimes prosecutor says the mass graves uncovered in Syria show a state-run machinery of death under toppled leader Bashar al-Assad, in which he estimated more than 100,000 people were tortured and killed since 2013. Former U.S. War Ambassador at large Stephen Rapp told Reuters the grave shows some of the worst abuses, quote, since the Nazis.

Assad, who is now in Russia, has repeatedly denied committing human rights violations. A bill failed in the Senate today that would have allowed local law enforcement agencies to track drones, which have baffled residents in New Jersey and other states in the East Coast. Senate Majority Leader Chuck Schumer tried to pass the bill through unanimous consent, so only one senator needs to object to kill it. It was blocked by Kentucky Republican Rand Paul. And after four seasons with Formula One, team Red Bull, Driveo Sergio Perez is out. Red Bull said today it was terminating Perez's contract two years early and that a replacement would be announced in due course. Perez started the 2024 season with four podium

appearances but failed to make the top three since. Back over to you. All right, Julia Borson, thank you. Lennar earnings are out. Diana Olick has the numbers for us. Hi, Diana. And yeah, Lennar's Q4 results came in short. EPS of $4.06 a share versus estimates of $4.16, revenue of $9.9 billion versus estimates of $10.08 billion. New orders fell 3% year over year and were far short of guidance. Deliveries fell 7%, gross margins of 22.1%, just a tiny bit shy of estimates. Lenar chairman Stuart Miller said in the release, in the course of our fourth quarter, the housing market that appeared to be improving

as the Fed cut short-term interest rates proved to be far more challenging as mortgage rates rose almost 100 basis points through the quarter. Even while demand remained strong and the chronic supply shortage continued to drive the market, our results were driven by affordability limitations

from higher interest rates. He added that Lennar adjusted sales price incentives and margin in order to reignite sales and actively manage inventory levels. For Q1 guidance, new orders were well below estimates while deliveries came in above estimates. Back to you. OK, Diana Olick, thank you. Shares of Lennar down almost 5% right now. Up next, Y1 analyst thinks Micron has upside as that stock gets crushed on soft guidance. And check out the biggest decliners in the Dow during this Wall Street sell-off. Amazon, American Express, Goldman Sachs, Sherwin-Williams, and IBM all finishing sharply lower. We'll be right back.

Welcome back to Overtime. Boy, what a session it was. The Dow closed down more than 1,100 points. That's 2.5%. I mean, 10 years ago, it wouldn't have been that big a raw number. But here we are with the Dow above 40K. S&P was down nearly 3%. The Russell fared, worse of all, down more than 4%. A lot of the interest rate sensitive names taking a hit on the back of the Fed decision.

And really the hawkishness around how many cuts there might be next year. And this stubbornly, this inflation has been sticking around. Meantime, Micron down sharply in overtime after reporting earnings at the top of the hour. Guidance for the second quarter, missing expectation. Joining us now is Wedbush Senior Vice President Matt Bryson. He's got an outperformed rating, $140 price target on the stock. Matt, this guidance whiff, I mean, looks like a billion dollars in the top line. Am I seeing that right?

No, you're absolutely right. Memory has gotten more difficult, particularly gotten more difficult in the month of November. I don't think street expectations or at least street numbers really changed to show how much more difficult things are in the near term. But that's what you heard from Micron, seeing your numbers and their numbers, you heard in their preparatory remarks. So why should investors believe that things get that much better in the second half? Yeah, so I think there's a couple of things. One is memory is always supply driven.

So when you see these big swings in cycles and particularly into down cycles, it's because we have too much supply coming on. What Micron told you is they're cutting back NAND production. In terms of investment, they're cutting back NAND investment. And they're really not investing in anything except for high bandwidth memory. So the memory that supports AI. And that was the one bright spot for them. The second thing I think is a lot of what's going on in the memory industry in terms of softness is tied to inventories. So I think there was a bit of inventory that got built up in the system. I think in calendar Q3, calendar Q4, calendar Q1, that's getting worked

down. Once that gets worked down, demand to customers comes back. And I think you end up with a much better setup starting in Q2 and in the back half of next year. That's exactly where I was going to go with you, Matt, because whether this is a macro reflection of the environment writ large, or whether it's a reflection perhaps of the competitive environment of Micron versus some of the Asian semiconductor makers. Yeah, so I think it's macro in the sense that this inventory that got built up, it wouldn't have been as much a problem if you were seeing strong consumer demand right now. So if lots of PCs, lots of handsets were getting bought, then you're holding less inventory because you're

selling more product. That certainly hasn't helped things. But I think that the OEMs have been working down inventories since the Q2, Q3 timeframe. And so I think that gets worked out. In terms of Asian competition, yes, there is a bit more competition from china i think than people expected but at the same time those chinese memory vendors are relatively small so cxmt is maybe mid single digits percentage of the market ymdc is only high single digits and they really can only sell into china so at the at the margin i think that's having some

effect on the market but i don't think it it's a longer term concern, given those those companies can only sell to China and they're less advanced than Micron and its Korean peers. OK, Matt Bryson, thanks for joining us. The shares of Micron down almost 14 percent right now here in overtime. Up next, Mike Santoli looks at why the latest economic surprise index could be signaling a red flag for the economy and the market. Plus, much more on Lennar's results, which are sending shares of the home builder tumbling lower here in overtime, now down 7 percent. And check out how Tesla finished the day, closing down 8 percent. Second worst S&P 500 performer today, giving up some of those post-election gains. We'll be right back.

Back to overtime. The Fed may be injecting some uncertainty into the market today, and one indicator might be flashing a warning signal on the economy. Let's bring back Mike Santoli for a look. Mike? Yeah, John, I've been pointing out for a couple of weeks that the U.S. Economic Surprise Index has been rolling over from pretty healthy levels. What this means is economic numbers have been coming in right on target or a little bit below expectations as opposed to beating expectations. To my mind, this is one of the reasons that the market didn't take the Fed's message too well. If the investors had great confidence that the U.S. economy had a lot of acceleration potential in there and was really getting a good bit of momentum up, it wouldn't so much mind rates being higher and maybe fewer rate cuts next year. So it's not to say the economy is in a rough spot. GDP is tracking at a pretty strong level at the moment.

It just says that maybe we're worried about deceleration, things like housing and manufacturing and employment, and maybe there's not going to be as much help from the Fed. And that's what we're seeing here as the surprise index migrates back toward the zero line. Okay. It certainly seems like the market is adjusting to this new reality as well here today. Mike Santoli, thank you. Up next, a top housing analyst reacts to Lennar's earnings and how a less certain rate picture could impact the homebuilders. And crypto taking a major hit today. Bitcoin falling around 5%. MicroStrategy, Coinbase both finishing deep in the red today, as you can see right there.

Stay with us. We've got some breaking news out of Washington on the spending bill. Let's get to our Emily Wilkins on Capitol Hill. Emily. Hey, John. Well, vibes definitely shifting here on Capitol Hill. It looked like earlier today we knew the bill that was going to pass. We just didn't know when. Now there's a huge question mark whether anything is ready to be passed at all. You have seen after a day-long campaign from Elon Musk and Vivek Ramaswamy against that 1,500-page bill.

Now, lawmakers are considering maybe perhaps just passing a very slimmed-down government spending stopgap just to get them into the next year. You're also now seeing a tweet from Donald Trump and J.D. Vance calling for not only a slimmed-down spending bill, but to also raise the debt limit as a part of this package. Now, that is something that usually takes a great deal of negotiation, compromise and negotiations. And for them to ask it to be a part of this package, I mean, to do something like that by Friday night, when the government is set to shut down, is just an absolutely Herculean task. And so at this point, there's just a lot of confusion up here about Capitol Hill. Members aren't quite sure what's going on. No one seems

clear on exactly what they're going to be voting on. Although Speaker, sorry, rather Minority Leader Hakeem Jeffries, the leading Democrat in the House, has made it clear that if Republicans want to go with a slimmer down bill, Democrats will likely not be helping them get that across the line. And with a shutdown looming only a little more than 48 hours away, there are some serious concerns on Capitol Hill about exactly what's going to happen come Friday evening. Guys, sounds like the possibility is growing, Emily, that lawmakers are going to be staying in Washington and working through the weekend come Friday evening. But we will be seeing and you will be monitoring and bringing us the headlines as they come. Emily Wilkins at the Capitol. Thank you. Shares of Lennar are lower after

reporting fourth quarter results than missed expectations. Joining us now is Alan Ratner from Zellman and Associates. Alan, it's great to have you on. Want to get your initial thoughts on this report that we just got at a time where we know there's been a lot of discounting. There was an expectation that we'd see margin pressure, but that housing is perhaps expected to start to turn the corner here any day, maybe. Yeah. Hey, Morgan, thanks for having me. Listen, it was a soft quarter. I think we knew coming into the print that there was going to be some choppiness, some noise. The company gave guidance back in mid-September when rates were pretty much at their near-term low, close to 6%. They increased about 100 basis points through the quarter.

We picked up a lot of, within our checks, a lot of examples of aggressive incentives throughout the industry, discounting mortgage rate buy-downs, which we expected to result in some margin pressure. We actually cut our numbers coming into the print, and I would say the results were even a bit below what we were looking for in terms of our reset expectations. How meaningful is the news that the company is looking to spin out its land into a separate entity? It's very meaningful. You know, it's potentially transformative for the company. I think a lot of home builders in the last few years have shifted towards more of an asset light land strategy, including Lenar. And this spin is really taking that strategy to the next level, you know, pretty much going 100% off balance sheet land, which we think is going to really

dramatically improve their returns, improve their cash flow, allow them to buy back a lot more stock, and I think just create a general more consistency within the business. That often is not the case when a company owns a lot of land and goes through a lot of kind of ups and downs in terms of land acquisition. So we think that longer term, this is going to be a really big positive for the company. Alan, how much of the message of this report is if mortgage rates don't come to the rescue and they haven't been responding really to Fed rate cuts anyway, this affordability issue for the prospective home buyer is really going to come to a head in 25? Yeah, it's definitely a sign, but I would be a little bit reluctant to read too much into this quarter. You know, there were a lot of, a lot of kind of moving pieces within the quarter. First of all, this is a seasonally slower time of year for the housing market. It's a time where you typically do see more incentivizing, more discounts

to begin with. You layer on top of that the fact that home builders entered this year with a lot of optimism. They thought rates would be a lot lower this time than they are today. So they started a lot more homes earlier in the spring in anticipation of that. So we kind of had this perfect storm of building inventory during a seasonally slow time of year. And the builders had to respond to that by increasing incentives and discounting. The good news is I think that they're making progress and moving through some of that inventory. And as we get into a seasonally stronger time in the spring, we think the supply demand picture could look more attractive than it does today. We just need to see a little bit of stabilization in the rate picture to

result in that. So I guess we need a strong, continuing strong job market as well to fuel demand for those homes? Absolutely. I mean, it's all contingent on the economy staying strong, the job market remaining strong. That's going to fuel any potential upside in housing, for sure. All coming back to the things that Powell was talking about today. Alan Ratner, thank you. Thanks for having me. Well, a nuclear startup backed by Sam Altman, inking a major deal to provide power for AI data centers. We've got details straight ahead. 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. Nuclear power company Oklo giving investors whiplash today. The stock surging at the open after signing a deal to supply power to data center operator Switch, but closed lower by nearly 4%. Pippa Stevens is here with us. She has the details. Pippa. Yeah, so the stock surged at one point as much as 20% on the heels of this agreement, which would see Oklo providing 12 gigawatts of power for Switch's data centers via small modular reactors. And that is a massive amount. That's enough to power all of New York City and then some. Now, under the framework, Oklo would build, own and operate the plants and then sell the power to switch via power purchase agreements. This is a really common model because tech companies don't really want

to be in the business of owning power plants, so they instead just buy it. Now, the goal is to deploy the full 12 gigawatts by 2044, although this is just an agreement and is non-binding. Oklo, whose chairman is Sam Altman, has yet to deploy any SMRs, but is planning to have one online by 2027 at the Idaho National Laboratory, of course subject to regulatory approval. Now this, of course, is just the latest example of big tech turning to nuclear, with Amazon, Alphabet and Microsoft all inking nuclear deals. Earlier this month, Meta also putting out an RFP for nuclear,

so just, you know, the latest example of this partnership. We are seeing a lot of these headlines about, you know, companies using new technology or old technology to provide power for all this expected demand for AI. I mean, but software moves really fast. Capital projects don't. There's got to be some danger here in somebody getting their chair pulled in those musical chairs. There definitely is. And I'm hearing more and more from people that I speak to, there are just too many SMR models out there. And it actually makes the regulatory process more cumbersome because the NRC is evaluating all these different types of models. And one person said it's kind of like EVs. There's all these different EVs out there. There's only going to

be a few that end up being the winners. And so that's what we'll probably see with SMRs. Now, when you have different fuels and different cooling technologies, they all have their own advantages and drawbacks. And so that's why we are seeing all these different companies come to market with models. But it's really going to be, you know, the winners are going to be the ones that rise to the top. And some of these companies probably won't be around by 2030. But for the ones that do make it, and assuming that regulations are handled in a way that is perhaps smart from an economic standpoint for some of these projects to actually be realized, are consumers actually going to see some of the benefits as well? Do we know yet? Do we have a sense, for example, of what Trump policy is going to be on this? Well, so interestingly, Chris Wright,

who's the nominee for DOE, he's actually one of the directors at Oklo, and so he is very much clearly in favor of nuclear energy. But I think on the point of consumers seeing any advantages, you do have to think that if big tech with their deep pockets is now backing nuclear, some of that learning can then be applied to utilities who might want to deploy commercial scale reactors. And so that cost curve does start to come down. And so if tech is the one that's taking on that first of a kind risk and taking on that technology risk, it could ultimately mean that for consumers prices come down. However, they are using an enormous amount of power. And so there is the risk that in the interim, prices do go up for consumers. And that's something that regulators are looking at very closely now

because you don't want consumer power bills to surge thanks to, you know, chat GPT and all these AI tools. Yeah, They've already been surging the last couple of years. Pippa Stevens, thank you. Great reporting as always. On a day where we had a hawkish Fed cut, but we also know that the economic forecasts for next year were revised slightly higher and the forecast for cuts was revised lower, and the market has plunged in response to that. It's hard to know what to make of this market. You know, we got this statistic, this factoid at least. You know, first time we've had 10 down days in a row on the Dow since 1974, so 50 years.

But at the same time, we're still about where we were on Election Day. So it's not like it's been a bad year for the S&P overall or for the Dow, for that matter. Yeah. To your point, it's right now it's very much a pullback. It's the end of the year. It's lower volumes. It's some profit taking. It's preparations by funds perhaps looking to 2025. But the Dow did finish down more than 1100 points. The S&P almost 3%. The NASDAQ 3.5%. So we'll continue to monitor this market. And also what rates and what bond yields do on the back of this Fed decision as well.

Well, and what Congress does if you want a little bit more uncertainty. Yeah, we've got until Friday for that continuing resolution. Lots to monitor. That's going to do it for us here at Overtime.