Closing Bell - Closing Bell Overtime: Record Closes For Dow, S&P 500 1/19/24

Episode Date: January 19, 2024

Record closes for the Dow, S&P 500 and Nasdaq-100 as markets shake off a wall of worry. BD8 Capital’s Barbara Doran and Franklin Templeton Fixed Income CIO break down how stocks can power higher in the weeks ahead. Melius’ Ben Reitzes on Apple’s Vision Pro. Citi Global Head of Healthcare, Consumer & Retail Chuck Adams on the dealmaking outlook for those sectors. 

Well, there you have it. A record close for the S&P 500, finishing above 4,800 for the first time that we're seeing the broader market hit an all-time high since January of 2022. We've got new records for the Dow and the NASDAQ 100 as well. That is the scorecard on Wall Street. The action, though, is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Good to have you back. Yeah, tech keeps outperforming the broader market, led in part by Apple today. And so could M&A be a driving force behind the next leg of this rally if it has one? Well, Citi's global head of health care, consumer and retail investment banking is going to give us his merger outlook. But first, let's bring in Bob Pisani for more on this historic close, Bob, along with the major indices. Really strong day for the Sox.

The Philadelphia Semiconductor Index up a full 4%. And who would have thought that tech would be the leader in January of 2024? Everyone thought, well, it couldn't. Two years in a row, you can't have NVIDIA up 200% again. And yet that is exactly what's happening. I just want to show you how we got here. Remember, as you heard earlier, January 3rd, 2022, last time we hit an historic high. It took almost 750 days, but we did it. And here's how we got there. Energy was a big market leader, believe it or not,

up 40 percent, but that's only 4 percent of the S&P 500. Technology was the key to this rally, even in the last two years with a bad move down in 2022, tech up 15%. Industrials also modestly contributing. Health care is flat. Now, when you have big moves like this in tech, a lot of other stuff is going to be down. And that's exactly what happened here. Financials, for example, down 4%. The banks were down 20% in the last two years on the banking crisis. Consumer staples like Walmart, Procter & Gamble, Coke, Pepsi had a terrible time last year. Communication services, even their meta alphabet in 2022 had a very rough time of it. And consumers discretionary in the middle of 2022, Amazon had a tough time. Tesla had a tough time as well. So it wasn't all smooth sailing. But if you look at it in aggregate,

just look at the Magnificent Seven, despite a very rough 2022. Look at this, NVIDIA. This is since the last high, January 3rd, 2022. NVIDIA up 100 percent. Microsoft, Meta, Apple. Meta's at a new high today. Alphabet up a little bit. Amazon's been down and Tesla down 47 percent. That is not a typo. Tesla was 350 a couple of years ago. What is it, 211 today or so? Here's one thing interesting, guys. The we're we today it was two to one declining to advancing stocks and the S&P was up. So look at the equal weight S&P are the R.S.P.

It's down one and a half percent this month. The S&P 500 is up one and a half percent. So, guys, we're back to hoping the rally is going to broaden out again. This is so amusing to me because everyone thought, well, we can't have tech leading again. And yet here we are. That's exactly what's brought us to these new highs, guys. It is pretty incredible. Bob Pisani, thank you. Let's continue the conversation with our market panel. Joining me now is BD8 Capital CEO Barbara Duran and Sanal Desai, Chief Investment Officer at Franklin Templeton Fixed Income. Great to have you both here. Barbara, I'm going to pick up where Bob left off, and that is the fact that it has been those big mega cap tech names that have really led the charge as we see the S&P, the Nasdaq and the Dow all now higher on the week and higher on the year. And Morgan, I think it is a surprise to most of us. And you know me, I own most of these mega cap names. So I think the expectation coming into

the year, there would be normal profit taking after such a big run. We saw the breadth seeming to increase at the year end. And I think a lot of people thought that would continue and tech would take a rest. But I think that what's happened now is in the late fall, you had just a stampede into stocks of all sorts, just making a bet that the Fed was going to stop hiking and would cut rates this year. I think what's happened now is the people are much more uncertain about, yes, they are going to, nobody, I think, most people do not think the Fed will hike rates unless inflation suddenly blew up,

which doesn't look likely. But now it's a question of when and how many cuts will be expected. And that's uncertain. Even if you see, and I happen to think it'll be second half of next year, because the economy is showing, even though we see it slowing and wage growth in jobs, it is still strong. And you saw that in the retail numbers December, better than expected. Jobless claims last week, less than expected. And this morning, University of Michigan consumer sentiment shows a huge jump, the biggest percentage jump you've seen in decades in consumer confidence. I think something like 13 percent since December and almost 30 percent since November, you know, plus, you know, an expectation of inflation coming down now and in the future. So I think you've got such strength. And now it's

like the question of, OK, you know, the Fed does not need to cut rates given the recession. And I think they are going to wait to see like the PCE number next Friday. Is inflation continuing to come down? Yeah. And of course, we know PCE from all the Fed speak we've gotten this week as well. It's going to be very much in focus for the markets. So now it's interesting because even as we're talking about the S&P and the Dow finishing at all time highs today, propelled in part by earnings, propelled in part by macro data, for example, UMSH numbers that we did get this morning that Barbara just mentioned. We've also seen a big move higher in yields here in U.S. Treasuries as well as globally this week. And we have seen this repricing of expectations around Fed cuts as well. I think it's a reality check. Basically, what we're seeing is a market which

got so far ahead of itself in the last few weeks of last year and even going back before that. And Jay Powell didn't actually do himself any favors with his press conference, which really put a turbocharged market rate expectations. I tend to agree it's going to be in the second half of the year. And I think further, we're probably going to see the 75 basis points that the Fed has talked about. Something which is really important to consider is when we see the type of equity numbers that we're seeing, and we have seen now for a period of time, and we see the rally, despite the sell-off in the last few days in the bond market, we've rallied from over 5% to where we are on the 10-year today, which is at around 4.15% or so.

I think that essentially financial conditions have loosened enormously. Financial conditions take us back to when Fed funds was at around 1.5%, 1.75%. So I think the bar for the Fed to cut massively is rather high. And to get 150 basis points, you need a recession. And data is not supporting. Right. So, Barb, how as an investor do you protect yourself with all this concentration in tech and mega caps without selling the tech and mega caps necessarily, because lots of people believe in AI. But where do you go to diversify in case this doesn't continue? Right, because as I said, it looked like the small cap industrials materials,

the cyclical trades were going to start to work. And I think that's going to be much delayed again, because the interest rate cuts are not likely to happen till the second half so. That kind of trade would be I think a little bit early and will continue mega cap stocks you saw what's happened with Nvidia. I mean a lot of these

names are continue to see earnings come up. They will grow into their P. E. so I actually think there's more to go here. And so I am staying long- my mega cap names I've added here and there on any kind of pullbacks, as shallow as they have been. But I think then this is a market that rewards stock

picking. I think it's very hard to rotate into certain sectors because of where we are in the economic cycle, because where are we in the economic cycle? It looks like mid-cycle, which typically does reward information technology, the apples, the MasterCards of the world. It rewards semis. And typically that cycle is long lived. That can be the longest part of all with decent, you know, and history shows like something like 14, 15 percent return. So I think you stay long. You look at idiosyncratic picks like a Starbucks, you know, which is at the low end of its forward P.E. has great fundamentals. It's been hurt by China demand and other things, but that could do well. And so I think that you've got to look for names like that

where you have opportunities. Okay. We're going to leave the conversation there with the NASDAQ 100, to your point, up 2% today. Barbara and Sanal, thanks for kicking off the hour with us. Thank you. Results from this morning's University of Michigan's Consumer Survey

showing consumer sentiment hitting its highest level since July of 2021. Inflation expectations at their lowest level since December of 2020. You could call it a Goldilocks reading. Senior markets commentator Mike Santoli is here to give us his take. Mike. Yeah, Morgan, really does seem as if it was almost a capitulation by some of those respondents in the University of Michigan survey toward just some better backdrop for consumer activity. Gasoline prices way down, stock prices up a lot at the end of last year,

and real wages running positive. And you see here, compared to the conference board's consumer confidence index, it basically represents a catch-up. So when this was down here, it was very conspicuously kind of working against a lot of the hard economic data we were seeing and even some of the other survey work. So it reflects a little bit of relief out there that people are actually feeling somewhat better about the conditions of the job market and inflation and things like that. So that's kind of all to the good. We don't know if it's going to

continue from here. And you see it's not at high absolute levels. It's just high relative to where it had recently been. Now, the market itself has mostly been more confident about the ability of consumers to keep spending. If you look at the equal way to consumer discretionary ETF, this is a two-year chart. So you see it's not far from its highs. It's above this 50-day average. So it's basically still in a positive trend. And it's really been outperforming some of the non-cyclical areas of the market. So, so far, so good on the consumer. Clearly, you know, we got the PCE data next week. We have to be careful about whether these layoffs start

to snowball into a really weakening labor market. But so far, market kind of happy with what it's seeing out of the household sector. And of course, the read through here is that you would be seeing this outperforming, but the staples underperforming. I would imagine they're correlated to each other inversely. Exactly. And so that's one of those things that, you know, you sort of recheck every once in a while to say, yeah, is the market essentially positioned for the economy to hang in there or not? So you look at discretionary and industrials versus things like, you know, staples and utilities. And that usually tells you the macro read from the market. Good stuff, Mike. See you in a bit.

And now tech's big rally to start the year fueling the S&P's record close today. Up next, Melius, head of technology research on whether the sector can keep taking the market to new heights. Plus, health care has been a big part of this year's rally. Coming up, Citi's global head of health care, consumer and retail investment banking on the outlook for more M&A in the health space and more. Overtime is back in two. Welcome back. It's a bird.

It's a plane. Check out shares of Supermicro. You've gotten to know the company watching overtime soaring 36% after hiking at second quarter profit and revenue forecast above Wall Street's estimates yesterday in overtime. We were telling you about that. And that hike is thanks to increasing demand for high performance servers. The stock has been a big AI winner, up nearly 6x over the last 12 months. Last January, it was below 80 a share. Now, AI excitement. That's a wild chart. Yeah. I mean, look at that. Can we put it back up? Can we see the chart? Move over NVIDIA.

I mean, NVIDIA, it can stay where it is because it's the reason why Supermicro is moving higher. But it's got to make room. I guess that is moving over, isn't it? Yeah. I mean, Charles Liang at Supermicro, got to be pretty happy right now. 6X, come on, that's nice. Well, AI excitement has been a key factor in the market's move to record highs. It's not just Supermicro today. AMD, Broadcom, NVIDIA, you can see them there all up more than 4 percent, along with a number of other semiconductor names. Ben Reitzes, head of technology research at Mellius, joins us now. Ben, after the big year last year, not a lot of people would have expected this kind of January. But how sustainable is this, especially given the shortages and some of these chips that

we've been talking about as well? Well, we feel pretty good. It's really hard to predict near-term market volatility, but obviously to the upside is a welcome sight to our eyes. We think that it can continue because we haven't really started. I mean, 2023 was a year of training where we all found out about chat GPT, but really a lot of large language models needed training. They needed NVIDIA and NVIDIA got the lion's share of the profits and was the early winner. We think they're going to win this year, but then the market starts to broaden out. The tricky part is a lot of the stocks have moved ahead of them even getting any AI in their financials of a meaningful nature. But I do

think it continues and we still are really excited and glad that we cover a lot of AI stocks. Yeah. So I wonder, how do you play this? Because we're talking about IBM just a few days ago. That stock is up above 170 now. You know, that was a call that you made. We just talked to Arvind not long ago, the CEO of that company. And then you've got names like, you know, that was a call that you made. We just talked to Arvin not long ago, the CEO of that company. And then you've got names like, you know, your service now is your sales forces that are supposed to be rolling out AI driven applications this year. But as you mentioned, we haven't seen yet how those really affect the financials. So do you wait before you buy in or do you anticipate that depending on how the political winds blow in an election year, the stocks might run even before the results come? Well, I do think that we are you're at the risk if you're not involved of the things continuing to run.

I mean, remember, the U.S. government still has to dole out some of their chips act money and get behind some some folks. That's one of the reasons we have a buy on Intel, who has underperformed a little bit year to date, but could catch up. What we think is going to ensue is an AI halo effect where other folks are lifted up. So Dell is a beneficiary of the same trends as Supermicro. They obviously have other things like PCs. They're a cheaper way to play it. On the more expensive side, AMD is rising to be a number two to NVIDIA, a distant, distant number two, but could be over eight bucks in earnings power. So there's other ways to play it. IBM is another one that is a stock that has been in the doghouse for a long time and now starting

to break out. We put a note out a while ago that you guys covered. It was a thank you. And we think it goes to 210 bucks, gets to an 18, 19 multiple in next year's numbers and feel pretty good there that consulting gets a lift. I mean, on a day where we're seeing the NDX close at a fresh all time high. And to your point, AI has been the propellant for the rally we've seen as of late. I mean, is it AI and everything else in terms of tech and what's going to propel the gains and what's going to drive the earnings story this year? Or are there other factors at play to keep in mind as well? Well, there's a lot of things to keep in mind.

I mean, the main risk is China and tensions and how that plays out. And depending on how the wind's blowing, you know, that psychology filters through the market. I think, though, you know, you've seen the SMH react. It is a good time to be in the picks and shovels of this thing. We're not 100 percent sure how application software is going to pan out yet. A lot of expectations have been put into those stocks. We cover a few like Adobe. We cover Microsoft, who we think everybody knows Microsoft's a winner. And we think they just continue to beat and raise pretty much over the next few years. But there's a lot of unpredictable risks. There's also regulation. We'll see how that filters through and folks licensing data.

But in short, this is the next big tech cycle. Buy, have a list of winners, realize it's going to filter through to other names and buy on dips. OK, so in light of that, with with earnings coming fast and furious and earnings next week, including some of the big tech names, key things to watch, key stocks within your coverage universe that maybe you want to be in before we start to get those prints? Well, I know a lot of your viewers own IBM. It's got a big retail component. We like that one. I think that they're getting on the right track here under the current leadership. A couple of things. I think that Microsoft, the key thing is with their copilot numbers. That is going to have a big implication with regard to the PC market. That touches a lot of stocks. So you want to hear what Microsoft is saying, the adoption of AI.

And when I was at CES, it was really clear. A lot of companies are really praying Microsoft gets this right. So it helps the PC market, the server market, and helps the rally broaden out. So we think those two are really important. And of course, AMD and Intel, you just want to hear the first quarter PC market may be a little weak, but we want to hear about their builds heading for the rest of the year. And of course, anything that has to do with the AI build out. We think AMD is actually going to be one of the key data points for the inferencing phase of AI, which is the next phase that takes us into 2025. Okay. Ben Reitzitz, thanks for joining us. Thank you so much, guys. Take care. Have a great weekend. You too. Wayfair, one of the big winners on Wall Street today after the

online home goods retailer announced it is laying off 13 percent of its workforce. This just today after Macy's announced job cuts. Courtney Reagan has the details. Hi, Court. Hi, Morgan. Yes. So this is the time of year when we often hear about retail layoffs and store closures. This follows the holiday season, right, when they sort of had this one final quarter to end with a bang. And Wayfair has been reducing headcount for some time, to be fair. Today announcing it's cutting 13% of global headcount. Last January, it reduced that headcount by 10%. Wayfair laid off 5% of total staff in August of 2022

and reduced headcount by 7% in December of 2019. So if you put that together, it's a total of 4,820 jobs have been cut since 2019. Now, Jeffries notes that Wayfair continues to take share from this mid-priced home furnishing demand area. But, you know, look, that area just remains challenged, of course, after we all filled our homes during 2020. So it's lowering its fourth quarter sales expectations. Needham, however, actually sees the layoffs as a proactive measure by Wayfair and doesn't think it's reflective of the holiday season. So we'll have to wait and see. Macy's, though, as you pointed out, also confirming it's

cutting 13 percent of its corporate headcount in closing five stores. Now, the department store has also announced layoffs and store closures each year around this time between 2014 and 2020 annually. And then in 2020, it announced this three-year restructuring program. So that went through last year. The newest organization just announced yesterday does come as Tony Spring is set to succeed Jeff Gannett as CEO of Macy's from his previous role as CEO of the Bloomingdale's business. Morgan. Great context that we could only get from you, Courtney Reagan. Thank you. Up next, Citi's global head of health care, consumer and retail investment banking on whether a pickup in M&A could be the next catalyst for this market. And as we head to break, here's a look at the biggest S&P 500 winners this week.

AMD right at the top, along with Applied Materials, Western Digital and Broadcom. Lots of chips. We'll be right back. Welcome back to Overtime. We have a noteworthy deal in the aerospace and defense industry announced today. Command Corporation is being taken private by ArcLine Investment Management for nearly $2 billion, including debt. The deal values the company at a premium of more than double Thursday's closing price. And you can see right there on your screen, the stock rallied 100% on news of this take private deal today. Speaking of M&A, we've seen a surge in deals happening in the health care sector recently. So is this a sign of a rebound in M&A? Well, joining us now, Chuck Adams. He is Citi's global head of health care, consumer and retail Investment Banking. He is also Vice Chairman of Investment Banking. And it's great to have you on the show, Chuck. Welcome. Morgan, thank you. John, thank you. I appreciate you having me on. Happy Friday. So we're going to start right there. What are your expectations

in terms of a resurgence for M&A activity this year after we did start to see green shoots at the end of 2023. Yeah, you're right. 23, a down year for healthcare M&A, a down year for M&A in general, off what was a down year in 22 versus 21. But if you look at how M&A played out over the course of 23, it accelerated towards the back half and really picked up momentum as we got into the fourth quarter. It seemed at the end of the year, there was almost a pharma biotech deal a week. And so we're optimistic about M&A in 24. I'd say cautiously optimistic there's still a lot of things to worry about out there in terms of geopolitical headwinds but as we talk to

clients as and as we look at our funnel of M&A our corporate clients want to do transactions our private equity who's been somewhat out of the market, is going to be back in the market. They have to put money to work. They have to sell things to return capital to their investors. And so I wouldn't say we're euphoric, which was a little bit of some of the reaction that we had noticed at a recent conference here that we all go to a couple of weeks ago as we talked to investors and clients that we met with there. Again, I'd say cautious optimism, but it should be a good year for M&A, given what we saw at the back half of last year and what we think is going to continue into 24. When you talk about geopolitics as sort of a key risk that could derail this narrative this year, in what way?

I mean, you name it. We've got two wars. We've got China that's still a question mark. I mean, there's a lot to, that could flare up that creates, you know, a risk-off approach to the equity markets. And with that as a backdrop, I think that CEOs start to think differently about putting money to work.

Right now, we had it at all time high today that you're flashing across the screen at this point. That creates a very good context and market backdrop for CEO confidence and investor confidence if you're a private equity firm to put capital to work. But there could be a shock to the system from any one of these different, as I mentioned, geopolitical events around the world.

I don't know how to predict which one, but we're keeping our eye out and staying focused on whether or not, you know, on any number of these different potential issues. We're not letting that get in the way of our dialogue with our clients. I don't think our clients are burned out about it at this point, but it is something that's lurking in the background. So, Chuck, educate me on this, because it seems like if we broaden out, just thinking about the possibilities for M&A in 2024 with private equity back in the hunt, as you mentioned, and with larger companies having this stock currency, we've seen, you know, large caps outperform here. Does that set up a situation where to sort of grow into these valuations with them having a lot more control, perhaps over costs than over revenue with rates higher for longer, that actually compels them to do more M&A and then try to

drive efficiency after that scale. I think it's a little different in healthcare, John. In healthcare, pick your sector, services, med tech, life sciences and diagnostics, biopharma, all of the companies are valued on their perceived future growth. And a lot of that growth is they're able to develop organically R&D and how they invest in their business. Some of that inevitably comes inorganically from doing M&A and what's really worked well when you look at just about every sector in healthcare is a disciplined and thoughtful approach to buying growth via M&A.

And if you do that well and you integrate well, it accrues to your multiple and your valuation over time. Okay. And so what would you think is going to be kind of the headline mover for 2024, the way GLP-1s were for so many of the healthcare stocks in 23? There's a pent-up demand across every sector in terms of M&A right now. The GLP-1 factor has not gone away, but innovation and finding growth, as I mentioned, from the targets that many of these companies have had on their radar screen for some period of time, we just see that as, you know, it's been a couple of years now. And I think the catalyst really is sentiment more than anything else, which is, you know, the sellers have been

unwilling to and still doing a little bit of rear view mirror valuation work on where they used to trade. Buyers are still looking and trying to see appropriately what's the right time to approach. And we'll have receptive boards. I think we'll have a lot more meeting in the minds between buyers and sellers relative to valuations. But catalysts, I think, the catalyst, the most important catalyst here is sentiment. And it's, you know, M&A is a really important element of just about every large cap company across, pick your sector of health care. And a lot of these companies have been on the sidelines for some time. Got it. Well, sentiment shifting quite a bit with the S&P touching all time highs to end the week. Chuck Adams, thank you.

Appreciate the time. Have a good weekend. You too. Time now for a CNBC News update with Pippa Stevens. Pippa. Hey, John. President Biden spoke with Israeli Prime Minister Benjamin Netanyahu today for the first time in nearly a month amid Israel's ongoing war with Hamas. The two leaders discussed ongoing efforts to secure the release of hostages held by Hamas, as well as ways to get more humanitarian assistance into Gaza. The White House said President Biden also shares his vision for a two-state solution while maintaining Israel's security.

An Alabama inmate is asking a federal judge today to block his upcoming execution. For a 58-year-old, Kenneth Smith is scheduled to be put to death next Thursday by inhaled nitrogen. Three states have authorized use of the gas as an execution method, but none have actually used it yet. The United Nations Human Rights Office has voiced concerns, saying it could amount to torture or punishment under human rights law. And a small airplane made an emergency landing on a northern Virginia highway earlier this afternoon. The plane landed on the Loudoun County Parkway near Dulles Airport.

It's unclear what caused the emergency landing, though an investigation is ongoing. No injuries were reported. John, back to you. All right. Thankful for that, Pippa. Thank you. NVIDIA's rally showing no signs of slowing with the stock more than tripling over the last year. And up next, Mike Santoli is going to look at which mega cap tech stock NVIDIA is now challenging in the market cap race.

And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We will be right back. Welcome back to Closing Bell Overtime. Check out shares of property casualty insurance giant Travelers, which was the best performing Dow stock today after reporting blowout fourth quarter earnings thanks to a big decline in catastrophe losses and stronger underwriting. Homeowner renewal premiums, for example, soared 21 percent. Auto policy renewal premiums up 17 percent. All of that helping that stock close at an all time high, up almost 7 percent on the day, which, John, is a very big move for an insurance blue chip like Travelers.

I know. Looks like a chip company there today. Well, Mike Santoli returns with a look at the market cap race. Speaking of chips, among some of the magnificent seven names. Mike. Yeah, John, this is essentially the race for fourth place behind Apple, Microsoft, and Alphabet. You have Amazon, but only $100 billion behind Amazon is NVIDIA, just sort of tearing up the ranks right here. NVIDIA now above a trillion and a half in market cap,

1.6 trillion or so is where Amazon is. And you basically see that it was even here. All three of those or those two were even with Tesla as recently as the latter part of last year. What I do find interesting, too, is even though Mark Zuckerberg and Elon Musk never actually fought in the ring, you actually have now seen Zuckerberg outpace Musk's company in terms of aggregate market value, actually on the cusp of a trillion dollars as well. So it's kind of parlor game stuff, but it is interesting to see where the market is willing to capitalize these businesses. Amazon and Nvidia, as it happens for the current year, are expected to have a pretty similar amount

of net income, between $40 and $50 billion. So it's not as if the valuations are expected to have a pretty similar amount of net income between $40 and $50 billion. So it's not as if the valuations are really all that different based on this year's bottom line expectations. What I also find interesting, Mike, is the narratives behind these companies. They all have an AI play to some extent. Elon Musk has been trying to make the argument that Tesla is AI and robotics. You know, Andy Jassy arguing that Amazon has not been left behind by Microsoft

in the generative AI and LLM battles. And then, of course, Meta with Llama as well. Not that that's why the stock was down and then up again. No, for sure. I mean, it really is sort of the animating force here. I guess the only question you might ask is, you know, how much you can attribute Apple's valuation to at the very top end in the $2 trillion range. But everything else, it really has been at least the cover story for why these stocks are working. What's not shown

here but is now ahead of Tesla, at least in S&P 500 weight, is Berkshire Hathaway. I don't think that one is quite yet considered an AI play. Not yet. Not yet. All right. Mike Santoli, thank you. Up next, we'll discuss whether a new tax package making its way through Congress will help fuel more record gains on Wall Street. And as we head to break, here's a check on the sectors driving the S&P 500 into uncharted, previously uncharted territory this week. Technology at the top, followed by comm services.

Overtime, we'll be right back. President Biden signing a short-term funding extension just a few hours ago, averting a partial government shutdown. But the next deadline is just about six weeks away on March 1st. So now what? Joining us is Ed Mills, Washington policy analyst, managing director at Raymond James. Ed, good to see you. So there's also this tax deal that needs to get done and a question of how much goes toward the child tax credit, how much goes toward business. How important is this for the economy? John, I think this is a nice, pleasant surprise. So this tax package is over

$70 billion. It's for three years, but retroactive to last year. If this gets done, that's about a $10 billion a year additional child tax credit and an additional $10 billion a year tax benefit for corporations that have big research and development expenses. They didn't think they were going to be able to write off as much as they would come April 15th. And for these households, especially households below $40,000 and about half of the households in this country below $20,000 of annual income. Between now and April 15th, if this passes, are going to get about $10 billion deposited into their checking account, which I think will help fuel the economy and add to the soft landing conversation. Perhaps we shouldn't be surprised that during a major election year,

politicians can at least agree on handing out money ahead of people going to the polls. But what about kicking the can down the road over and over again on this budget? Now we've got the March 1st deadline looming. The market's ignoring it. Clearly, we've got record highs on multiple averages right now. But is there risk here? There's always risk, John, but I would always highlight what we've told our clients here at Raymond James is that when the government shuts down, the market goes up. On average, we've seen an up of 3.2% in the S&P 500 during government shutdowns. So that's part of the reason why we ignore this. Now, the next six weeks, lots of negotiations. They're

going to see if they're able to get a defense supplemental, a deal on the border. The House Republicans right now are not really on board with that. Speaker Johnson would be former Speaker Johnson if he were to bring that to the floor. But the top line numbers that are being discussed, it's flat on consumer discretionary. It is a 3% or about $30 billion increase on defense. So there was a lot of concern coming into this new Congress that there would be a fiscal drag. And actually, the spigot in D.C. remains on. Lots of hidden stimulus in the background that I'm happy to talk about as well. Yeah, I do want to get into that hidden stimulus in the background. But first, just one more question, because you did touch on defense and the supplemental, which obviously big

question mark. You talk about R&D amortization and changes there. That's actually beneficial to defense contractors, some of the biggest spenders in terms of research and development. But to your point, when you start operating on continuing resolutions that are now extending into March and you have question marks about a defense supplemental, it can't be good for that particular sector. Even if stocks more broadly go up when you about a defense supplemental, it can't be good for that particular sector. Even if stocks more broadly go up when you see a potential shutdown, that particular sector, I would imagine, is going to continue to take it on the chin here, at least in the near term. You're right, Morgan.

And I think when we saw a big push going into the end of the fiscal year, which was September 30th, a big push into the end of the calendar last year to get this defense supplemental, the war between Israel and Hamas. It seemed like this was a done deal. However, the longer this has gone on, the more problems that have come up, especially now on the border deal. We are talking about a national security package more so than a defense supplemental. Getting some of the policy issues fleshed out on the border are very difficult. Now, the defense bill might get a vote in the Senate next week. What I've been telling investors at Raymond James is that if this gets above 75

votes in the Senate, that might be enough momentum that forces a vote in the House. But short of that, that's a really tough hill to climb in the House. And sometimes on issues like the border, you see former President Trump highlighting this. Sometimes it's better to keep the issue than actually get a solution from a political perspective. But unfortunately, that has a market consequence. And we just talked about the child tax credit,

but you did tease the fact that there's other hidden stimulus afoot. Like what? So I think you kind of have to highlight the fact that in the last two years, we've passed a lot of bills like the bipartisan infrastructure bill, the Chips and Science Act, the Inflation Reduction Act. It might seem like old news for the market, but say on the Chips and Science Act, there's $54 billion worth of grants that are about to go out. As of right now, less than $200 million has gone out the door. Almost none of the bipartisan infrastructure money has actually been spent. We've announced it. We're going to start spending it this year. Tax policy has been set on the Inflation Reduction Act. Look for CapEx expense to ramp up this year.

That all kind of helps out in the background, especially if we see a weakening in the economy. That fiscal support starts coming in in an election year. OK, Ed Mills, the timing cannot be denied. Thank you for joining us. Thank you, Morgan. San Francisco Fed President Mary Daly just speaking about the economy and monetary policy. We're going to bring you those details next. Welcome back. We have breaking news from San Francisco Fed President Mary Daly. Steve Leisman has the details. Steve.

Hey, Morgan. Yeah, Fed officials have been using this final day before the blackout period to dial back market expectations for rate cuts. This is the final day before the blackout period to dial back market expectations for rate cuts. This is the final day before the blackout period before the January 31 meeting. San Francisco Fed President Mary Daly just now saying the Fed has a lot of work to do before it gets where it wants to be on inflation. She said, quote, there's a cost of declaring victory. We could end up with inflation getting stuck at 3.9 percent, which is what just printed. That's not price stability. She added, risks to the dual mandate between inflation and unemployment are more balanced than they've been,

that the Fed doesn't want to loosen too soon or reduce inflation too fast. She said the economy and monetary policy are both in a good place, noting today's surge in consumer sentiment numbers. Now, earlier in the day, Chicago Fed President Austin Goolsbee, in an exclusive CNBC interview, cautioned that Mark Asito watched the data to know when the Fed will cut. He would not lay out a timeline for easing policy, only that it would likely be going down this year. The result of all the Fed talk has been to bring down those March probabilities almost to where they were before all that optimism came from about quick rate cuts came following the December meeting.

So the thrust of comments from Fed officials almost to a one between the meetings has been to fairly uniformly agree that cuts are likely coming, but leaning against market expectation, guys, for quick cuts and for deep cuts. John. All right. Steve Leisman, thank you. And now coming up, how one public company stepping up its fight against ransomware ahead of some IPO competition on the horizon. And here's a look at the biggest winners in the NASDAQ 100 this week. We keep talking about the chips. Here it is again, AMD, Applied Materials, Broadcom, and KLA topping the chart. Stay with us. We've got breaking news on the JetBlue Spirit deal, and Phil LeBeau has the details. Phil.

Morgan, they are going to appeal the block that a judge put on the proposed merger between JetBlue and Spirit. Remember, earlier this week, the DOJ was successful in winning its suit to block the merger of JetBlue and Spirit. Remember earlier this week, the DOJ was successful in winning its suit to block the merger of JetBlue and Spirit. Well, now Spirit and JetBlue have announced that they will be appealing that decision. Time frame, Morgan? Generally speaking, most people think this is a four to five month process here. So shares of Spirit up 9% post-market after having a big sell-off earlier this week because many thought unless they appealed, there would be a possibility of a bankruptcy filing. Morgan, I'll send it back to you. Yeah, and what a wild week it's been for both of these names. Phil LeBeau, thank you, with shares of Spirit up about 9% right now after hours. Microsoft, minutes ago, reporting that

Nation-State Associated Hackers got access to some email accounts there, including members of senior leadership. Seems to be linked to Russia. The company saying in an 8K filing that the incident has not had a material impact on the company's operations at this point. Meanwhile, ransomware attacks where hackers break into an organization's systems, encrypt their data and demand payment to unlock it are on the rise. And this week, John takes time out with a CEO who's pivoting his company to better address this problem. Yeah, Morgan, Sanjay Merchandani is CEO of Commvault. That's a $3.5 billion market cap company with roots in enterprise data storage. He joined that company a year before the pandemic, after he had technical and leadership roles at EMC and Microsoft. Now,

on the personal side, Sanjay's used to managing change. Growing up in India as the middle child of a father in the ocean shipping business, the family moved a lot. You know, but my life, we got up, we went someplace and I got to, you know, three, four years there and you made new friends, you got to a new school, new language, and you learned to, you learned to really figure that out. I figured that out. New language? Yeah, because what happened back then was the school system you had, you know, the school system I was in was in English and then you had Hindi and then sometimes you had a third language, the regional language. And so, you know, if I was in Chennai, I had to learn Tamil, whether I'd done it before or not. And when I moved to Calcutta from there, I had to learn Bengali, whether I'd learned it or not.

And so you had to pick up and you became a bit of a survivor. Those survival skills are handy in today's enterprise storage market, where intrusions and ransomware attacks have become so common that the state of the art isn't focused on just preventing criminals from breaking in, but also on making sure organizations can recover and operate after criminals do break in. In November, Commvault announced new tools it says are going to allow customers to practice recovering from an attack. So we give you a clean room. And the beauty of clean room is, as we're getting feedback from customers, is I don't have to use this when things go sour. I use this all the time to practice. And then when things actually do go sour, which you sort of assume it will, we've done this a thousand times. And so we know exactly how to do it. So all of this sort of capabilities built into the platform, that at the heart of it is data protection, but really helps our customers, you know, come back to life with their data. Commvault and its competitive set also are

important to watch right now because two of the startup unicorns that could go public as soon as this year, Rubrik and Cohesity, are in the same business. Both got private market valuations right around $4 billion three years ago. It's a good chance investors are going to be giving a lot of attention to addressable market size, just as these new products from Commvault are looking to gain traction. I don't think we talk enough about that, about the services necessary and the tools necessary for recovery from these attacks at a time where they are coming fast and furious on a daily basis. And you have not only commercial entities, but many government agencies also involved with commercial, with the private sector, trying to thwart some of them, especially when

they are nation state actors like the one we just talked about with Microsoft. It's dangerous because it's like an infection in a way. We can see from this filing at Microsoft, for example, there's not a ransomware attack from what we can tell. But the intruders gained access to their systems a couple months ago, and Microsoft just this week discovered it, and a day later shut it down. But companies have these folks lurking around in their system sometimes for a long period of time before they're even discovered. And of course, you've seen it with the companies that are publicly traded. Those stocks have rallied pretty aggressively just since the start of this year a couple of weeks ago.

In the meantime, speaking of rallies, S&P closing at a new all-time high today, first time in more than two years. And we've got a number of earnings next week, so more regional banks. ServiceNow, Intel at the end of the week. And we have PCE at the end of the week. That does it for us here at Overtime. Fast Money starts now.