Closing Bell - Closing Bell Overtime: Mercer CIO On Top Ideas; What To Do With Nvidia 6/21/24

Episode Date: June 21, 2024

The Nasdaq and S&P 500 notched their third straight positive weeks; Unlimited Funds’ Bob Elliott and Cantor Fitzgerald’s Eric Johnston break down their top trades. Olaulu Aganga, Mercer US CIO, on the playbook for the second half. Ben Reitzes, Melius analyst, on why he’s upping his Nvidia price target again, despite the stock’s decline this week. TD Cowen’s Riu Baral on Sarepta Therapeutics’ huge move on FDA’s expanded use approval for its DMD drug. Plus, a cyberattack is forcing car dealerships back to old-fashioned pen and paper. 

That was a little higher for the fourth straight day. The S&P 500 and NASDAQ are a little lower, and that means a two-day losing streak. That is the scorecard on Wall Street. But winners stay late. Welcome to Closing Bell Overtime. I am Jon Fort. Morgan Brennan is off today.

Nvidia, once again, a big factor in tech's underperformance. It's now down roughly 7% in the past two days. But we will hear from one analyst who thinks this is a huge buying opportunity. He just hiked his price target on the stock. Plus, Mercer's U.S. chief investment officer thinks most of the market is starting to look expensive, but will reveal where she does see some bargains. Now, let's bring in our market panel.

Joining us now, Eric Johnston from Kenner Fitzgerald and Unlimited's Bob Elliott. Guys, happy Friday. Bob, you think this expansion can go on for a while, even if it's paused today, because we don't have a persistent situation where yields are up, stocks are down, slower spending. Why does that mean this can go on? Why is disaster not like right around the corner? Well, I think from a real economy perspective, we're seeing a situation where income growth remains relatively healthy. You know, you're seeing good wage growth. That's translating to good nominal spending growth. And that's keeping the economy going and powering on.

The trouble is it's a little too much in terms of inflation, which is a bit of a concern for the Fed. And it's also probably not quite strong enough to meet those sort of extreme earnings expectations that are being priced into the equity market as we move to the back half of the year. But do you think this is a good situation still, relatively speaking, for stocks? Well, I think in general, as long as we continue to have decent nominal growth continue, you're going to have certainly a range of sectors where we'll continue to see, you know, continued earnings growth, continued momentum. The real question is, where are those extremes in terms of pricing in very, very high earnings expectations? And how are those going to really be achieved? How are you going to get stocks with 20, 30, 40 percent earnings growth expectations in the context of a 5 to 6 percent nominal GDP growth?

That's a little more questionable, and I think we're starting to see maybe some questioning about how extreme those expectations are relative to what the reality might be. Okay, speaking of questioning, Eric, you seem to be calling a top in this AI hype, and you think stocks are going to move sideways from here at best? Yes, I think we're at a short term sort of tactical top in this frenzy that we've seen over the past month where the upside is really accelerated. If you look at the largest cap names that have reported earnings in May and June, you've seen a situation where estimates have risen by anywhere from zero to 7 percent, yet you've seen stock prices in these mega names rally anywhere between 15 and 50 percent over the course of the last

month. And we think it's gotten a little bit ahead of itself in the short term. So we look at some short-term indicators. If you look at the RSI and the QQQ, it's gone above 80. We've back-tested it. It happens very infrequently over the last 25 years. But when it has happened, about half the time you've seen a meaningful downside, meaningful sell-off over the next month. If you look at the narrowness, even within the NDX, the equal weight versus the cap-weighted NDX, that's also gone to extremes. We're not a big believer in breadth being an indicator overall, but the extreme nature of what we've seen over the last month is causing us some concerns.

So this is much more of a tactical call. As you know, this has been the part of the market we've liked relative to cyclical, small cap, and everything else. Yeah, say more about that. But we just think in the short term it's a little bit extreme. Because some people are going to remember that you were bearish for a while at the end of last year, I guess through last year. That wasn't quite the right call. You adjusted and said, actually, I like the mega caps, relatively speaking.

But now you're adjusting again and seeing even those mega caps have gone to extreme? Yes, exactly. I mean, the part when we think about the market on a market neutral perspective, you know, for the past year, we've liked those big secular AI levered names and have said to be underweight sort of everything else in particular are cyclicals and more mid cap names. And, you know, the reason why we have concerns around the cyclicals and mid caps is because and small caps is because they've got more leverage. They don't have the secular tailwinds that are much more subject to, you know, the actual economic growth and the headwinds that Fed policy is putting on this on this market. But now we just think from a tactical perspective, as we look out the next

month, we think there's risk of a decent reversion in a lot of the very loved names. And if you look at the money that has piled in over the past month into growth funds, you look at some of the declines in short interest, it seems it kind of creates risk right now that I think we all need to be worried about. OK, so, Bob, talk to me about portfolio design and construction from here based on the concerns you see in the back half of the year and just where you expect the overall macro environment to go. I mean, on a personal level, for my long term, 18 months ago, I started building more of a tax advantaged fixed income position. I'm actually happy with that, even though a lot of folks say, oh, stay away from bonds. Like I feel like, well, maybe now is the time if you've got a time horizon. Well, I think the main question is, you know, if you're thinking

sort of six, 12 months from now, in order to get a lot of juice out of those bonds, you're going to need a meaningful weakening of the economy or a slowdown in inflation. And there's not a lot here that is suggesting that we're going to go to an acute slowdown, right? This is more like slowing but growing, which is not particularly great for the bond market, particularly for a Fed that's still concerned about inflationary pressures and is certainly indicating for the next six to 12 months that they're going to take their time before entering that easing cycle that so many are hoping for. But for people with a longer time horizon, how should they be positioned as we head further into the decade?

Even, you know, for people who aren't, like, rebuilding everything every couple of quarters. Well, I think two things. First, when you look at the bond market, you know, bonds are down, have given up 10 years of gains. And often that causes people to be concerned about an asset. Whereas, typically, if you look back through time, after lost decades, that's a pretty good time to start moving into those assets. So from a strategic perspective, it's probably not time to give up on the bond

market despite the mediocre returns of late. I think the real question is, what are the other diversifiers that you want to bring to your stock portfolio so things like gold and commodities waiting for the gold which always are uh are good diversifiers particularly through a range of different uh economic outcomes in an olympic year gotta go for the gold bob elliott eric johnson thank you well nvidia and other high momentum stocks have seen their performance reverse but is this a threat to the overall market? Well, senior markets commentator Mike Santoli is here with an answer. Hey, Mike. Yeah, John, I'm going to look for a potential answer in recent history. And whether it's a longstanding reversal or just a quick little gut check, that remains to be seen. But

NVIDIA's year-to-date stock chart, kind of amazing to behold, but it hasn't literally been straight up. There was a moment in early March where you had this huge crescendo of buying in Nvidia. It sort of had this huge short-term acceleration right into that level. And then it broke very similar to the way it did yesterday. And by that, I mean on a single day on March 8th, it gapped up by 3% and then ended up down 3 percent on the day. That's what pretty much it did yesterday. Well, what happened thereafter?

It kind of flattened out. Eventually, you got to a 15, close to 20 percent pullback based on intraday prices. Who knows if that happens from here? But then, of course, you got the next earnings report, and it was off to the races again, eventually starting in May. So that's one model for how it might go. Who the heck knows? But take a look at the broader picture here, which is the momentum basket within the S&P 500. That's this ETF SPMO, which basically had a similar trajectory here against the equal weighted S&P 500.

Again, this was that early March period. And again, it flattened out against the equal weight. Equal weight kind of does some catch up. You have some other groups like industrials and consumer discretionary find their footing. By the way, it also happened here. That was in early November. So they had that big ramp off of the low in October and you had a broadening of the rally from there. As you can see, though, John, much steeper climb over this last stretch. And that has a heck of a lot to do with NVIDIA and the 50 percent plus weighting in tech that this momentum ETF has right now. So, Mike, what has me concerned, we've been talking this week about

all these levered bets on NVIDIA and people trying to two and threex their benefit from any moves higher. But that also means that 2 and 3x pain from moves lower. And NVIDIA is right up there, one of the biggest stocks in the market. Could a move in NVIDIA change the way people feel about the market overall because of just how heavily they're betting on it? I think it could change the way the short-term fast money type traders feel about it because that really is what you're talking about. It's just people doubling down and doubling down in those leveraged instruments. The thing that makes me less concerned about that is for as fast as those things have grown, whether it's the options volume in NVIDIA or the two-times leveraged single-stock version of NVIDIA or that, you know, the two times levered single stock version of NVIDIA

that has gotten to like four billion dollars in assets is it just dwarfed by the size of the actual market cap of the company and the broader market itself. So I think it's a lot of fast money bets around the edges of the market. Yep, it could absolutely short circuit something and cause a greater unwind and margin calls and all the rest of it. But I don't think we're quite set up for that type of a vulnerable situation to unfold, at least not yet. As we saw earlier this year, NVIDIA could go down 15 percent and the overall market can hang in there in an ideal circumstance. Very true. Mike Santoli, we'll see you again in a bit. Well, a cyber attack is causing

chaos at thousands of car dealers across the U.S. Eamon Jabbers has the latest details. Eamon. Hey, John, that's right. Today is the third full day of fallout for auto dealerships across the country after a cyber attack at retail technology and software provider CDK, which makes the software that powers many dealers across the country. Now, CDK says this was a two-tiered attack hitting the company on Tuesday and Wednesday. The company told the Reuters News Service that it's working to reinstate its services and get dealers' business back to normal pretty soon. The company says it works with more than 15,000 retail locations across North America.

Not clear at this hour how many of those have been impacted, though. We've asked the company for comment, haven't heard back. Celebrity motor car company owner Tom Maioli described, though, what dealers are facing out there. It's a disaster. I have to tell you, customers are coming in, consumers are coming in. You know, we're selling cars, but we can't book the deals. We can't finance the deals. We can't get them to the banks. Now, in a statement, the National Automobile Dealers Association said dealers are very committed to protecting their customer information and are actively seeking information from CDK to determine the nature and scope of the cyber incident so they can respond appropriately.

So far, John, no word at all today from the company on who may have been responsible for the attack, whether any ransom has been demanded or when dealers will see their services restored. Back over to you. Yeah, so we don't know if this is a ransomware attack, if they were after the data or after money at this point, it seems you're saying. Yeah, that's right. And what we saw here is that CDK shut down a lot of their services themselves in order to protect their customers from any further fallout from this. But we don't know if they are in negotiations right now with a

ransomware actor somewhere around the world or exactly what the prognosis is for getting everything back up and running. So a lot of information still to come. A lot of blanks here still to fill in. All right. Eamon Javers, thank you. Well, we referenced NVIDIA earlier. The question is, is NVIDIA's two-day sell-off a warning sign for investors? Our next guest doesn't think so. Actually hiked his price target on the stock to $160. He's going to make the bull case for NVIDIA straight ahead. Plus, biotech company Sarepta having its best day in more than a year after the FDA approved expanded use of its gene therapy treatment for Duchenne muscular dystrophy. We will get reaction from an analyst who thinks the stock will keep rallying. We're back in two. Welcome back to Overtime.

Shares of NVIDIA under pressure once again today, ending the week lower by 4%. But our next guest just raised his price target on the stock for the fifth time this year, this time from 125 to 160. Let's bring in Mellius Research, head of technology research. Ben writes this. Ben, happy Friday. The other two $3 trillion stocks in the market right now had to go through these transition periods, most recently for Apple from iPod to iPhone, for Microsoft from Windows to being a productivity company overall. What's the transition that you think NVIDIA has to and can make to maintain and grow this $3 trillion market cap to $4 trillion? Well, I think that they're the closest thing to nailing it in AI so far,

obviously, by creating an ecosystem that developers love. And they know they can be relied upon to grow. And that's a really big thing. We are in a paradigm shift. And, you know, this is the Microsoft and Apple of those past regimes all combined into one in NVIDIA. And that's what you really have to think about really just starting. So they may have the most runway of all the big ones. But what they need to do is transition more to software, which we're going to see. And also, I think what's really cool, and we wrote about this today,

is they could generate over $270 billion in cash over the next three years. And nobody talks about that. That's something that can come back to shareholders and really keep the multiple pretty high for a long time. So, you know, we like what we're seeing, but eventually people are going to be talking about this massive cash pile. Well, arguably, Ben, only two companies became mega caps out of the mobile revolution, right? Apple and Google. And then only two became mega caps out of the cloud revolution, Amazon and Microsoft. How many mega caps are we going to get or maintain out of the AI revolution? Well, we're not sure. I mean, right now, we still think, I mean, obviously software has had a few good days, but NVIDIA is doing

something amazing here. They are creating AI factories, which is really code for software factories. And their output is software. It's applications. It's stuff that we take for granted today in a different form. And NVIDIA's end goal is to create software on the fly. That's their product that they're going to create with these AI factories. And that's just a ton of value, John. If they get this right, there are trillions of TAM that should go to them, not just the trillion that Jensen talks about.

If you're creating software on the fly, eventually, that's very valuable. Obviously, NVIDIA, we've been talking a lot about Broadcom lately. You probably saw our report there. A lot of folks are looking for the second one. Broadcom's in a really good spot with the CapEx for the custom silicon. They're probably the closest one in terms of thinking about who can be next. And then AMD is the dark horse here. On the hardware side, you know, we've been pushing Dell really hard. You know that. Yeah. What kind of software companies get

destroyed when you're creating software on the fly like that? Well, the kind that don't talk to me anymore. So, you know, that's really a joke that some of my clients will like. But, you know, I think that the software companies had it really good for many years. They really nailed it. And they were the big beneficiaries of the cloud. And then they transitioned to SaaS. And they sort of right now are in the early innings of seeing they just can't, you know, price forever. They've been raising prices on everybody since COVID and beyond, and now they want to charge extra for AI. Let's see how that goes for these guys. Other than Microsoft, it's really hard to pick a winner. Of course, you can have some trading days. Salesforce is a good company. Adobe is a good company. But we think it's pretty tough. AI allows a lot of startups to get going that maybe wouldn't have otherwise. And then a lot of competitors get stood up. But in general, where we're going is applications are going to be stood up quicker than you ever thought. It may take several years, but that's the end game. Okay. Well, Salesforce certainly helped hold up the Dow a couple days this week. Ben Reitzes, thank you for joining us.

You got it, John. Take care. Well, we're going to have much more on the state of the chip industry and AI on Monday when Armholding CEO Rene Haas will join us in a first on CNBC interview. But still ahead, Mercer's U.S. chief investment strategist on the areas of the market she thinks are starting to look expensive. But first, Sarepta soaring after a big gene therapy approval by the FDA. Up next, the top biotech analyst on why she thinks the stock can still rally another 20 percent. We'll be right back. Welcome back to Overtime. Shares of Sarepta Therapeutics popping 30% on news the FDA expanded the approved usage for a gene therapy designed to treat patients with Duchenne muscular dystrophy, a disease that deteriorates your muscles. The widened approval gives diagnosed ambulatory and non-ambulatory patients who are at least four years old access to the treatment.

The company estimates that 80% of diagnosed people with Duchenne muscular dystrophy are eligible for the treatment and is working to expand that number. And joining us now is T.D. Cowan, senior biotech analyst, Ritu Baral. Ritu, how big a deal is this approval? How unusual is it?

Great question. It is a really, really big deal for peak market share. This drug was previously approved only for four to five year olds. And that was only 10 percent of the overall 10,000 ish DMD patients in the U.S. This expands that to at least two thirds of patients, if not a full 75 to 80 percent of patients. It's expensive. How much of a concern is that? It's important. It will hit the insurance company's cash flows net price of about two point four million. However, there are economic analyses that especially if you treat these boys early enough, you will manage costs of care over the course of

their 20 to 25 year old lifetime. And you could end up with cost of care savings in the long term over their lifetime. Does this change the way that investors, the industry, are going to think about gene therapies and the possibilities? It will. This was an accelerated approval. It's probably one of the most flexible, accelerated approvals that we've seen by FDA. It was based on a biomarker, a very scientifically rational biomarker, closely related to how these boys function and how they may survive. But usually the FDA wants to see data on feels, functions and survives rather than a biochemical marker. And this expansion was purely on a biochemical marker, which could be important for future gene therapies. So what other companies have potentially similar therapies

that might fall under the same type of scenario? Well, unfortunately, not for DMD. Pfizer's trial recently failed. But as we look at rare genetic diseases, there are a couple companies, Rocket, Tenaya, that go after rare genetic heart diseases that have very, very logical biomarkers. There's another one called Regenexx, which is going after another rare genetic disease with a very logical biomarker related to disease that FDA is considering to see if it drives the potential for approval. When you see a stock move like this, what should investors take away from it? Very often people chase volatility, right? Movements up or down.

That can be a fool's errand. But is this an indicator of what's going to happen longer term? Should investors who are interested in this area wait for a while before looking for an entry point? This is a great entry point for a stock such as this. You can see on the message boards, on the patient boards, on patient messaging, that this is a community that's very enthusiastic about uptake of this drug. So now would be the time and it should result in sales over the next four quarters. Approvals are usually a big deal, especially if there's messaging in the patient community that a drug or a therapy will be in demand, such as in this case. All right. Ritu Baral from Cowan helping us break down

this important moment. Appreciate it. Anditu Baral from Cowan helping us break down this important moment. Appreciate it. And don't miss Fast Money's interview with Syrup's CEO, Doug Ingram. That is coming up at 530. Well, now it's time for a CNBC News update with Contessa Brewer. Contessa. John, at least two people have been killed, several others injured today at a mass shooting in Arkansas. It happened at a grocery store outside Little Rock in the town of Fort Ice. Police say seven people were injured, including a law enforcement officer, and were told officers critically injured the shooter and took him into custody. No word yet on the motive.

The Justice Department has yet to make a decision whether prosecutors will go after Boeing for violating terms of a settlement related to two fatal crashes of Boeing 737 Max planes. That's according to Reuters, which reports the Justice Department sent an email Friday to lawyers for the victims' families. Neither the Justice Department nor Boeing has commented. And the IRS said today that it's reviewed a million claims from the pandemic era employee retention credit program, totaling $86 billion. And the agency concluded the vast majority of those claims may be improper, that 10 to 20 percent show clear signs of being false. The credit was designed to help keep businesses, keep their employees during the pandemic, but it just really quickly became a

magnet for fraud. So it looks like the IRS is tipping the hat. We'll see what happens from here, John. Indeed. Contessa Brewer, thank you. Well, up next, Mike Santoli is going to break down another round of encouraging inflation data, what it could mean for the Fed and for your money. Check out shares of Palantir. They are under pressure after Monash Crespi downgraded the stock from neutral to sell, saying valuation has now reached a gluttonous extreme after a more than 40 percent rally this year. Overtime. Mike Santoli's back with a look at some encouraging inflation data we got just this morning. Hey, Mike.

Yeah, John. The latest actual piece of data that was pretty reassuring about inflation since the Fed meeting about 10 days ago. This came in the form of the S&P Global PMI indexes. It's composite of manufacturing plus services, meant to kind of look forward to the ISM measures. And this is the price output gauge within that report, and it's plotted against the CPI year-over-year change. So you can see, obviously, they kind of rhyme over time.

And what we have here is the PMI pushed forward four months to suggest that maybe it's leading to where the CPI will end up, in which case that is certainly suggesting we have further potential downside to CPI. Of course, the Fed fixates on PCE inflation. It's a different measure. But it sort of underscores to me that the market itself has been taking all this in and acting a lot less concerned with the inflation outlook relative to the outlook for continued U.S. economic growth as we've decelerated and had that downside in the U.S. economic surprise index over the last few weeks. So this speaks, it seems to me, correct me if I'm getting this wrong, to the price of supply, but I guess the question remains about the strength of demand and what the consumer does in the last two quarters of the year.

Yeah, we don't know quite the interplay here because, you know, we see in some consumer areas where consumers are pushing back or they're a little bit stretched and you're having to see prices come down. So it's good, again, from from a Fed friendliness standpoint. But maybe if it implies that there's just a little bit less spending power moving through the economy, we have to be alert to that. We're still at full employment. We still have pretty good consumer balance sheets in aggregate. But obviously, it's the rate of change that always matters.

But does this in particular imply anything about the consumer? Or is this more? Not really. Yeah. OK. No, this is PMI stands for Purchasing Managers Index. So it's essentially what the companies are seeing in terms of the prices they're out. But obviously it reflects ultimately consumer behavior, but that's not mainly what it's measuring.

Gotcha. Thanks, Antoli. Thank you. Up next, a look at whether investors might be overlooking opportunities in smaller cybersecurity companies right now. And shares of Hertz revving higher after it hiked the size of its bond offering to a billion dollars that's a 25 increase the rental car company planning to use those bond offering proceeds for a vehicle fleet refresh over time we'll be right back I think from a career perspective I think it's really important that you find a place that also nurtures and understands.

And while that might be a difference, it's really celebrated as a strength. What can you really bring, you know, using the queer experience to, whether it be customers or whether it be media, and how you can use that as a strength because it's part of who you are. Welcome back to Overtime. This is a bifurcated market where mainstream consumers are under a lot more pressure than the wealthy and mainstream companies are under a lot more pressure than the mega caps. Today, let's take time out with a CEO who's providing cybersecurity software to mid-market customers. Wendy Thomas is the CEO of SecureWorks. It's a public company with a half a billion dollar market cap that spun out of Dell eight years ago.

Stock is suffering like a lot of small software names. It's off about 75 percent from pandemic highs and about half of its IPO price from 2016. But Thomas points to 10 percent revenue growth, 70 percent gross margins in the earnings report earlier this month. Even before Thomas was a software executive, she was working on keeping transactions honest as an auditor at the Chicago Board of Trade. I actually spent time on the trading floor monitoring the opens and closes. At the time, it was all physical. It was hand signals and handwritten trades, you know, run in and out of the pits. And that can create a lot of miscommunication and disconnects. And when the market moves, the price moves, and people disagree

about whether they did a transaction or not. There's quite a few disputes to resolve and unfortunately some opportunity for fraudulent activity that it was my role to help investigate and arbitrate those kinds of things. Well, right now, much of the attention of the cybersecurity world is focused on the largest players. Palo Alto Network, CrowdStrike, Zscaler, market caps ranging from $25 to $100 billion. They're building platforms to consolidate enterprise spend. Thomas argues that SecureWorks is benefiting from a different kind of security consolidation as smaller companies look for simpler solutions that fit their operations. Now what we see particularly in our space is that our customers are looking to consolidate security software vendors and not as much out of a budget play as they are of a simplicity and focus type of play. We've got growing regulatory

requirements on organizations. Their need to have visibility and provide transparency to the market of any security concerns has only gotten shorter. And so for us, that's a pretty important tailwind with our focus in the mid-market, pretty solid position there. Being able to serve customers who don't have unlimited budget, but need step function security to meet the needs of both their customers and the regulators. Car dealers for the downstream impact, as we mentioned earlier. So the timeout takeaway, smaller cyber. It's possible that investors are overlooking opportunities in smaller software companies that serve small and medium businesses as the biggest players

suck up the oxygen in the room. Question is whether those smaller players lock up share before the big guys move down market. Well, up next, Mercer's U.S. chief investment officer on where she sees opportunities right now as the market hovers around record highs. And because you love overtime and you want even more, you can scan the QR code. Where is it? It's right there. Follow us on LinkedIn. We post exclusive content. Overtime will be right back. Welcome back to Overtime. The major averages were split as this holiday-shortened trading week comes to a close, with only the Dow and the Russell closing in the green. Here to share the areas where she's finding opportunity in the current market

is Olalu Aganga, Mercer's U.S. Chief Investment Officer. Olalu, great to have you here again on a Friday. So setting the scene, technology arguably kind of expensive but you're overweight equities. Why? We're overweight equities. I mean call it as you may that that's where we're seeing a lot of the growth and opportunities. Now to your point valuations in a lot of U.S. sectors, especially technology, is just multi, multi, multi-year highs. There are areas that have been beaten down, as it were. We've talked about real estate for some time.

We're seeing that play out also in REITs. So the attractive valuations for us, some of the places that we're looking at, if you were to look outside of U.S. borders, so emerging market ex-China, some of those fundamentals are incredibly appealing. So we're looking there, Japanese equities as well. Emerging markets ex-China, just across the border, particular markets? We've seen India, Korea, Taiwan, some of those other areas. Let me pause you on India there, because we saw that big reaction initially to the election results there and then a rebound. Did you take any action there when that happened or how did you respond? So we weren't really surprised in the sense that usually when there are elections, there's a lot of uncertainty, initial volatility, but it dissipates.

So country by country, of course, you know, we're headed into a major election ourselves. This is a year of big change. So usually during those periods, short spike dissipates. It's par for the course. We saw something similar in South Africa. But is there a lesson there for investors? Are there opportunities around that region? So it's not the elections themselves, frankly, that happens. It's the ability for either the policymakers or whoever is in place to be able to enact any kind of long-term decision. So for us, we stay, we watch, and then we see what policies can actually be put into place, similar to what we have here. So what's really at stake in Europe for investors as we watch the, well, what's called the far right, but some are arguing is more centrist than it's been in the past, rising to power in France and flexing elsewhere as well?

So I think back to the point I said, this is a big election year for many, many countries. So what we're expecting to see, like everybody else, is the uncertainty. Geopolitics has a place in markets, right? You can see all of the different, as soon as the different political parties come into play, what policies they interact or what policies they enact, rather, is what could affect long-term growth. So we're just watching a number of these areas. So you mentioned real estate. The market has come to terms with the idea that there aren't going to be even as many cuts as people had adjusted to a quarter ago.

What's the impact on opportunities out there, asset prices? So the Fed keeping rates on hold, we expected that. Of course, they changed their outlook. So it went from three to one expected rate cut this year. That was sort of the camp that we were in. For 25, they've taken it from three to four. So we're expecting to see that movement. Now, it is, for rate-sensitive areas, opening up a number of opportunities.

We are seeing the rate cut implications really because of inflation and inflation data that's coming and dissipating much lower. If you were to take a step back, though, something that we've been looking at ourselves, not just the rate cuts and inflation, but all of the new segments that we've been talking about are seeing the Fed balancing both inflation and then employment. But if you take a step back, just the average individual is not necessarily seeing that coming through in cost of living, for example. But we were talking about real estate on this program yesterday and talking across retail, industrial, et cetera, not as much residential. Where is the opportunity really given that office is still a mess beyond class A, retail is reliant on a consumer who at the mid to low end, there's questions about how strong the demand is going to be into the end of the year and what the implications are going to be for rents. So like everything else, when the valuation,

some of these areas are depressed, there are opportunities for us if we can withstand the time holding. So office is a bit more challenging, but warehouse and those types of areas within real estates are actually offering attractive values and valuation. Are you taking advantage of office opportunities given that? We have managers that are looking for those types of opportunities to rehab and bring some of those buildings up to some of the newer standards. So even within office,

the newer types of developments are still attractive, but it's more of the older buildings. So rehab and bring up to newer standards, is that more lead certification? Is it that full redesigns for the flexible work? Is there all of that stuff? I think it's all of the above. It's all the above, John, that we're seeing. So just in general, with regards to real estate, the valuations that we've seen over the last few years has created such a bifurcation, such opportunity. So for us, we're working with managers. This is one of the

places that you need to make sure that you have specialists that are in place to be able to sift through that, because some could be valuation traps. Back to equities. When it comes to health, health care, we've been talking about that quite a bit, too, and not just GLP-1s, finally. What are the more durable trends that you think investors should pay attention to? I mean, health and health care is one common trend that's been persisting for some time. But one that we've talked about, just bigger trends, even in your program, has been AI and how you use AI across all of the different sectors. So AI within health care, AI within finance. We have an AI survey as well that we've been using with our clients and seeing the uptake, even ourselves at Mercer. Yeah, drug discovery, all of it.

Alalu, always great to have you here. Thank you. Well, this year's top state for business could be decided by a new battleground for the annual study infrastructure. Scott Cohn is in Baltimore to explain why. Scott. Yeah, hey John. Really what's going on here in Baltimore three months after the Key Bridge collapsed is what's going on in every state in every city just on a much bigger, much faster scale. So we came here to see how that works. They want to rebuild this bridge fast, but they also want to try and improve their infrastructure. Some of those same issues at the heart of top states this year.

We'll take a look coming up. Welcome back to Overtime. CNBC will reveal this year's top states for business in just a few weeks. And for the first time ever, infrastructure is the heaviest weighted category in that study. Our Scott Cohn is in Baltimore with the details. Scott. Yeah, John, we're here because Baltimore has come face to face with all kinds of infrastructure issues, the very issues that we looked at after the Francis Scott Key Bridge collapsed in March. They did get the channel reopened last week. That alone was a massive undertaking. Now comes the hard part.

From an unimaginable disaster comes the chance to reimagine a critical piece of American infrastructure. This is going to be an important opportunity for our state to look at all of our infrastructure, our roads, our bridges, our tunnels. Our critical infrastructure is imperative for our economic growth and development. The port of Baltimore is reopened for business. With the harbor now reopened, they're collecting proposals on how to rebuild the bridge, a key link not just for Baltimore, but for the whole eastern seaboard. Transportation Secretary Pete Buttigieg says the new bridge will be better than

the old one that stood for 50 years. We know things that we didn't know in the 1970s about how to put up a bridge. It does bring an opportunity and I would say a responsibility to get things right for the future. A bridge that's not only sturdy but sustainable in the face of climate change, all at a reasonable price. Well, we need to get the right bang for the taxpayer buck. Upwards of two billion taxpayer bucks, price. Well, we need to get the right bang for the taxpayer buck. Upwards of $2 billion taxpayer buck, state officials say, with plans to rebuild the bridge in four years, record time. But in many ways, this is just a fast motion version of what every state is dealing with. Not just roads, bridges, ports and airports,

but connectivity and utilities in the race to rebuild U.S. manufacturing. I don't think the fix is going to be a short-term fix. I think it's going to be, you know, five plus, ten plus years before we really get it to a point where we feel good about it. In our top state study, we also look beyond roads and bridges. We look at things like the power grid, broadband, shovel-ready sites. You can read all about our study, how we're going to figure this out this year, and follow all of our reporting on state competitiveness at topstates.cnbc.com. John? Scott, you've done this for a lot of years, and times change, emphasis changes. Why infrastructure and the heavier weighting this year in particular? Well, I mean, some of it you can see going on. There's so

much government money out there. And the first thing that we do, we've done this since the beginning in 2007, we go through and we look and we see how the states are marketing themselves. And what they're saying is how we weight the different categories. So for a long time, it was all about taxes and incentives and the cost of doing business. And for the last 10 years or so, it was all about workforce. All of these are still big issues. But in a way that I haven't seen before, states are talking about infrastructure, again, because there's money available, but also because there's so much need and companies really

want to go to the place where they can get stuff built the fastest. Scott, how does an issue, a topic like rural broadband that has been on a lot of people's minds and certainly talked about at the government level for a long time, it affects states and where their workforces can be productive. How will something like rural broadband figure in? Yeah, we do look at the broadband, various broadband issues in every state. It's part of that infrastructure category. So we're looking at broadband speeds, we're looking at affordability, and there really

is a big difference from state to state to state. And this again is some of what's in some of these packages, the infrastructure bill in particular to try and get that to where it needs to be. So that is definitely something that we look at among all of our different metrics. 128 metrics overall this year in our 10 categories. Well, good to see you there in Maryland, Scott. Close to where I grew up in the D.C. area before prom we went to eat in Baltimore. So I appreciate that.

Scott Cohen, always look forward to top states for business. And coming up next week, I mean, for the markets, things go on. Some important earnings, Carnival and FedEx coming up on Tuesday. On Wednesday, we got General Mills, Paychex, and Micron. And then on Thursday, McCormick, Walgreens, Boots, and Nike. So, of course, all of that. And I will continue to be on NVIDIA as it's become such an important weighting

in this overall market. For now, that's going to do it for overtime. Fast Money starts right now.