Closing Bell - Closing Bell Overtime: S&P 500 Closes At Record High After Tech Bounces Back 3/12/24

Episode Date: March 12, 2024

Big tech and chip stocks bounced back today, bringing the Nasdaq just short of a record close. But the S&P 500 managed a new record. Vital Knowledge’s Adam Crisfulli talks the market action while T. Rowe Price tech portfolio manager Dom Rizzo on the path forward for big tech and chips. Cowen analyst Helane Becker on how to trade the airlines while Boeing problems compound. Morgan Stanley’s Lisa Shallet on hedging AI exuberance. Plus, Ken Griffen on Trump and previewing retail earnings. 

All-time closing high for the S&P right around 51.75. The Dow and Nasdaq also ending the day in the green. The Russell's flat. Ouch. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, technology, communication services, discretionary, the top performing sectors today. Utilities, real estate, materialsary, the top performing sectors today. Utilities,

real estate materials lagged, but coming up, we'll hear from top tech portfolio manager Dom Rizzo of T. Rowe Price, how he's navigating the AI trade and where he sees the mega caps headed from here. And Morgan Stanley's Lisa Shalit is back, breaking down how she would hedge the AI exuberance we are seeing in the market right now. Speaking of, let's get to today's action with Vital Knowledge founder Adam Crisafulli. Adam, looking at what got us here to these levels. Tech sectors up, what, better than 2%. Oracle, a big gainer on earnings. NVIDIA, ServiceNow, CrowdStrike, IBM, and Meta. It's a

mix of what some would consider big old tech and these AI and SaaS players. Yeah, I think Oracle is probably the most important catalyst for the entire market. They had a strong report last night, more than the reported revenue and earnings. It was the bookings number and then just the qualitative commentary around what they're seeing with cloud demand and demand from AI providers. It's very, very bullish. And that reignited the entire tech ecosystem. So software, chips, internet, it all ramped higher today. Tech by far did a lot of the heavy lifting in the market. You know, the EcoWave S&P and Russell 2000 both badly underperformed the NASDAQ and S&P. So, you know, I think it was kind of the CPI versus Oracle,

and Oracle won, you know, hands down as far as influencing markets. NASDAQ up 1.5%, the Russell flat. I mean, when's the Russell going to catch a break? Yeah, you know, definitely a big discrepancy in the two markets today. It was all about tech. And so I think the CPI did influence rates. You did see a hawkish reaction in treasuries. Yields rose because of the CPI.

Also, there was a slightly underwhelming auction result. The dollar took tires. So non-equity markets certainly had a hawkish reaction to the CPI. But for stocks, it was more than overwhelmed by all the tech optimism. And it's not just Oracle. Remember, there's a big NVIDIA conference coming up next week. There's going to be a keynote on Monday. And that's another factor that's just kind of fueling all the tech optimism.

So, you know, tech definitely won. I think for the equal weight S&P and the Russell, you're going to have to see more of a dovish reaction in yields. And, you know, I think over time we will see that, but certainly not today. Yeah, I'm glad you brought up the CPI print because because the core CPI print was a bit hotter than expected. To your point, the market largely shook it off. At least equities largely shook it off. Yet some economists noting that the three-month, six-month trends could actually push this first Fed cut further out than even June, perhaps. And then others saying, no, no, disinflationary narrative is still intact. It's almost like a Rorschach test here. Your thoughts? Yeah, I think as far as inflation is concerned,

expectations have been pretty steady now for a while. Three to four cuts this year in total with the process starting in June. And if you kind of listen to the Fed rhetoric, it's not so much that they need inflation to get better. They need it to stay at present levels going forward. And so you are still seeing disinflation. It certainly slowed a lot. But you did see core disinflation today, just barely. You had poor disinflation in the recent PCE. And so I think so long as that process continues, the Fed is justified in cutting rates at a gradual pace. And I kind of think that's the reaction to the CPI today was relatively in line with expectations. You know, nothing too disruptive to really kind of dramatically alter the Fed narrative. And as we get into the meeting next week, you know, I think Powell will echo a lot of what he said during his recent testimony, specifically that the Fed is kind of

getting close to the point where they are confident in inflation being on a sustainable path back to 2 percent. You know, but there's going to be a lot of data between now and that June meeting. You get three more CPIs and you get three PCEs. So, you know, we're getting a lot of inflation figures for Powell to digest. I think that's another reason. If the Fed were expected to cut next week, there would have been a much bigger reaction. But since it's not until June, it was pretty calm for the most part. Yeah. We also had JPMorgan CEO Jamie Dimon saying that he wouldn't take the prospect of a recession in the U.S. off the table and basically said these probabilities around soft landing that the

market is pricing in at 70, 80 percent right now, he said it's probably more like half of that. And I guess it raises the question. We have this debate all the time, but it does raise the question about especially as the Fed stays at these higher rates for longer, whether we are risking the possibility of a much harder landing further out. No, absolutely. There's a big lag effect to all the tightening. So between the funds rate hike and the balance sheet shrinkage, it's a lot of pressure that's being placed on the economy. And it's not instantaneous. So we're going to be dealing with the effects of that for a while going forward. And I think if you go back over the last couple of weeks with economic numbers, you are really seeing some red flags in employment. You know, the

job report on Friday, huge downward revision, soft household survey, both ISMs, the employment component is below 50. You have elevated continuing claims, the weekly continuing claims. And then the airlines today, airlines have been an enormous driver of employment creation over the last several years. And you've had now Southwest today said that they're going to be halting hiring pilots and flight attendants because of the Boeing issues. United has said they're halting hiring for a couple of months. So, you know, the airlines really seem to be putting a brake on their hiring activity, which is going to have a big effect on employment. And, you know, that's sort of what the Fed would like to see. Obviously, they want to see a sharp inflection point lower in employment. But I do think you are starting to see more of

an effect on growth in jobs from what's happened with the Fed in terms of policy tightening. Yeah, I'm glad you brought up the airlines. It's a good preview of a segment we have coming up with another guest later this hour. And of course, the comments about the consumer that we continue to get from these retailers reporting this week are key to Adam Chris Foley. Thanks for kicking off the hour with us. With a rally in the major averages. Well, speaking of rallies, checkout shares of 3M had its best day since October, leading the Dow higher today. The industrial heavyweight tapping Bill Brown as its next CEO. That starts May 1st.

Current chief Mike Roman to stay on as executive chairman. Brown is an external hire. He's a well-regarded, longtime aerospace and defense executive, former chairman and CEO of L3 Harris, who, with Chris Kubasik, who's the current CEO there, merged Harris Corp and L3 Technologies in really an industry changing deal five years ago. 3M has been more challenged. It's really a turnaround story. That stock is down some 50 percent since Roman took the helm in 2018. RBC writing today, quote, the challenges at 3M span stemming the company's slipping fundamentals to addressing all the multi-year, multi-billion dollar litigation overhangs and making the near term decision on cutting the dividend.

On the to do list, ongoing PFAS or forever chemicals litigation, carrying out that military earplug settlement and fundamentally restoring organic revenue growth and profitability amid a tough macro economic backdrop. Now, 3M, as we've seen with other conglomerates, is simplifying the portfolio as well. The Solventum health care spinoff is scheduled for April 1st. But there is, John, that growing expectation that this is a company that not only could, but arguably should cut the dividend and reset financial expectations. And maybe there is an increasing argument to be had that with a new CEO coming in and taking the helm, that that is something that in fact will happen. That's rough to do in this environment, though, you know, when when dividend payers are already competing with the yield that you can get

on some some pretty safe debt. I wonder if maybe they should have done that before announcing the new CEO to give him a different kind of base to start off with. But then again, he doesn't take the reins until May, so maybe there's still time. He doesn't take the reins until May, and this is a company that, as I mentioned, is simplifying the portfolio so you can make the argument to trim the dividend from that standpoint. And then also just the fact that, to put it in perspective, organic sales at 3M were higher in 2018 than they're forecast to be this year. But they do.

They have tough end markets in China, tough consumer end markets. We've talked about the sluggishness in electronics as well. This is a company that feels that. So it'll be interesting to see how this plays out. I think bottom line, though, turnaround story, not going to happen very quickly in terms of a potential fix. All right. We'll see if the new strategy sticks. Time to bring in senior markets commentator Mike Santoli for his first dashboard. Mike. Yeah. Hey, John. So another record high for the S&P 500 today.

Here's how we got here. This goes back a full five years. And you see these two waves higher. Of course, that's the little 20 something percent bear market in 2023. Wanted to show this because while it seems like we've really blasted off and gone at a steep angle higher, and in fact, we have, it's been a great five months or so for the stock market. We really only are, let's say, 8% above that level. It's around 4,800. It was set the very first couple of trading days of 2022. So this would argue that you actually have a little bit more headroom before it gets truly overdone,

although I've been anticipating that we should kind of flatten out and chop around, and we're doing it to a degree below the surface. But because of the strength in things like NVIDIA or yesterday in things like NVIDIA or yesterday, things like Apple, the overall index is benefiting. Now, here is the average number of new highs in the S&P 500 in the first full year after the index makes its first new high following a bear market. So essentially, we did that in January of this year, about two months ago, we got to a new high over the 2022 levels and we've made 17 or so new highs since then. So obviously we're well on our way. But this shows that basically strength tends to persist after you've broken higher after a long period without one. Now, this is basically 70 new

highs. This is after the covid crash and recovery in 2020. So while it seems like there's a lot more to go, we're only two months since that new high. Remember that. So 17 in two months. We've got another 200 trading days left in the year, in the first year. That would suggest that we're ahead of the game in terms of how fast we're piling these up.

And then there's that warning there in 2007. We did hit the first new high in seven years in May of 2007. You only got a few more before the fall of that year. That was the peak before the financial crisis, John. Mike, looking back like this and considering this rally, it's changed the market math in a way, hasn't it? I mean, for the longest time, I remember hearing about seven and a half percent is what you can expect, you know, gain wise from stocks year over year on average. Now, is it 10? I don't know that you could say that you've really torn up the historical patterns in terms of what you can expect from a going forward basis.

I think high single digits, though, is where things have generally settled out. I'll just say every time period going back, you go back one, two, three, five, 10, 15 years. I believe all of those are now above 12 percent annualized total return. So in that sense, it feels as if we are sort of loading up the gains here and maybe don't have as much left looking ahead. And, you know, that was the case, by the way, from like 1982 to 2000. You know, you're way ahead of the game and then you had a lost decade. So who knows if something like that is hovering distantly on the horizon, perhaps. All right.

Well, I know you'll be watching for it. Mike Santoli, we'll see a little bit later this hour. Up next is the end of the AI trade near. I feel like we were just talking about the start of it. Well, tech portfolio manager Dom Rizzo is breaking out his playbook following a concerning couple of days for some of those mega caps. And later, Boeing shares sinking in today's session and the airlines getting crushed. Southwest closing down 15 percent. A top analyst, Helene Becker, is going to break down how Boeing's issues could impact the airline stocks further ahead.

That's coming up on Overtime. We'll come right back. Welcome back to Overtime. The NASDAQ closing 1.5% higher today, falling just short of a record close. Chips and big tech stocks bouncing back today too, though. This comes after those names were hit hard in the prior two trading sessions. Joining us now is T. Rowe Price Global Technology Portfolio Manager Dom Rizzo. Top holdings in his global tech fund include NVIDIA, Apple, Microsoft and AMD.

It's great to have you back on the show. Thanks for having me back, Morgan. So we saw some pretty dramatic moves in some of these big names. NVIDIA, for example, from start to finish in trading on Friday. I mean, it was a 10 percent move in that stock. And then we saw that extend into the beginning of this week. Is it safe to say that at least within tech we're seeing coming off of lofty valuations that we're seeing maybe rolling corrections start to sink in here? Or is this the start of something deeper in terms of a correction or pullback? Well, if you go back and you study market history and you look at kind of bull market consolidations, what happens is

they're usually short and vicious. And I think the question all technology investors are asking themselves right now is the price momentum reversal that we saw Friday and Monday, is this the beginning of the end for the AI trade? I've just been on the road for the past two weeks meeting companies all over Asia and Silicon Valley. And I have to tell you, the AI spend is strong right now. It's very, very robust in the data center. There's pockets of weakness, sure, in PC, smartphones, networking, a little bit of telco. But in general, I think that AI spend is more than overpowering the rest of that weakness that we may see. So I think between the valuation still actually remaining relatively reasonable and the fundamentals being strong, we still have a ways to go.

Yeah. And of course, you can make that argument that with the earnings that we got from Oracle and the big move in that stock today, it continues to maintain that narrative. It does raise the question, though, where the leading indicators are in terms of where companies are putting some of this investment to work when they do think about future AI capability. notes and you talk about AWS and growth numbers at AWS as potentially, I think, an indicator of consumption revenue accelerating as well on the software side. Yeah. No, that's right. I think what we saw last quarter was the acceleration in AWS growth rates, right? We saw AWS grow 13% last quarter. I think it's very likely that we see sequential acceleration from each quarter from here with AWS. And what does that mean? That means that the consumption revenue stocks, a Datadog or a MongoDB, should have improving fundamentals as well as we go throughout the year. You know, John had that great interview with Lisa yesterday, and she talked about these

hyperscalers being willing to spend before demand comes back for AI, right? That's really a unique thing in history. We haven't really seen that before. And I think that's because AI has the potential to be the biggest productivity enhancer for the economy since electricity. So these hyperscalers are willing to spend. If we look at the hyperscalers' spend this year, it's going to grow roughly 25 percent across all the different hyperscalers.

And look at Oracle's numbers last night. They got it to 40 percent growth in CapEx next year. Hey, Dom, speaking of AMD, I tried to test Lisa Su's optimism yesterday. It seemed pretty firm. I asked her what part of AMD's portfolio we might be underestimating. Take a listen. Most underestimated piece, John, is how all of these pieces come together. So it is not about just what you do in the data center or just what you do at the edge or what you do in the PC.

It's the fact that we are one of the very few companies that have all of the pieces. So we have all of the compute engines that you need to optimize for your application. But Dom, is that integration already priced in or do you dare more, buy more AMD here? Well, John, let's take a step back. First off, I love the interview. It was a really great job. But if we look at what Lisa's done at her time at AMD,

it's really incredible, right? When she started as CEO, the stock bottomed around $2 a share. That was a $2 billion market cap. Today, we ended over $200 a share and well north of a $300 billion market cap. And when she's talking about the portfolio, she's really talking about AMD's unique breadth and depth, right? So best in class CPUs, both in the PC and in the data center. The GPUs, the new MI300 chip that's coming out with great win at El Capitan, but really strong adoption across the rest of the hyperscalers. The DPUs, the

Pensando acquisition that they did, that was brilliant. And then finally, the FPGAs and the Xilinx acquisition that they did. And then now what they're doing is they're taking their Rockum software stack and they're integrating that all together. And that's what's so exciting about the breadth and depth of AMD's portfolio. Not only that, they have the best advanced packaging technology today. That's those chiplets. So we can get combo chips. That's what's happening with the new MI300A, the CPU-GPU combo chip. I think that's going to proliferate whether it's in the data center or at the edge. And so AMD's in a unique position between the breadth and depth of the hardware,

the software, and the chiplet technology. You put it all together, I mean, it's really only them and NVIDIA who has that type of positioning. Okay, so quickly, across chips, you know, data, software, and applications, where's the best growth to valuation mismatch right now? Well, I actually think the Magnificent Sevens still look relatively attractive. So let's take a step back and look at the Mag7 multiples, right? Mag7 is trading at roughly 25 times two years out, EPS. The rest of the market is trading at 17 times. But the MAG7 grow earnings at least two times the rest of the market. So if you growth adjust for those PEs, the valuations are very reasonable.

NVIDIA is trading at roughly 30 times if you look out two years. There's been other periods of market concentration like this, right? I think about the Nifty 50 and I think about the dot com boom. In the nifty 50, those equivalent stocks that had high market concentration traded at roughly, you know, 30 to 32 times earnings at the peak. Okay. At the internet bubble, those traded at roughly 50. Cisco traded at 100. So if we look at NVIDIA at roughly 30 times earnings, if we look out two years, I think that's very attractive. All right. Well, Dom, thanks. Optimism reigns. Thanks for having me, John. Great to have you. Well, here on Overtime, we continue to track this AI ecosystem, keep score on how its impact is showing up in companies' financial results. Yesterday,

I spoke with Confluent CEO Jay Kreps about the company's approach to real-time data and how it's getting a boost from AI demand. If you're an organization that wants to provide some chatbot for customer service, either internally to your team or externally, of course, you need all that world knowledge from a year ago. But you also need to know all the details of your customers, including what they were just doing before they called in everything about their account how they're using your service and so a lot of the problems that companies need to solve to take advantage of this is how do we take our data you know which is secure and not everybody's allowed to see everything and is spread across many

systems how do we get that indexed and ready to combine with a language model to be able to really harness some of these new capabilities and make that part of the business and try and drive efficiency and just make life better for customers? And so there's kind of a new pattern around these. It's called retrieval augmented generation, applications that bring together the enterprise's data and the language model to really be able to bring the best of both worlds. Now, when Confluent reported Q4 earnings a month ago, operating margins improved 27 points. Jay's saying this is going to be their first full year of non-gap operating profitability.

And this is the data capability that, in theory, drives demand for enhanced AI applications, Morgan, which drives demand for the AI chips. We were just talking to Lisa Su about here on Overtime yesterday. Sure seems to me like you're mining for the next super micros, potentially, with some of these conversations and some of the reporting that you've been doing. Always on the lookout, yeah. All right. Well, coming up, a brutal day for Boeing. That stock ending the day down more than 4%, as you can see right there.

Touching a five-month low today. We're going to hear from a top airline analyst, Helene Becker, with how concerns over Boeing's planes might weigh on some already struggling airline names. We saw some big moves in the airlines today as well. That's going to be coming up after the break. Overtime, we'll be right back. Welcome back to Overtime. Boeing shares touching a five month low and Southwest having its worst day in four years down double digits. That's after announcing that it will trim its capacity plans and ree-evaluate

financial forecasts, blaming delivery delays on Boeing. Other airlines also taking a hit in today's session, as you can see right there on your screen. Joining us now is TD Cowan analyst Helene Becker. Helene, it's great to have you on the show. And I do want to start right there because we know there's been capacity constraints. There's been supply chain issues for years now coming out of the pandemic. And of course, now all of these safety issues with Boeing, which is in the middle of three different investigations for its MAX aircraft and for its manufacturing processes right now. Just how much is this stymieing Southwest and just how much is this holding back capacity at a time where travel demand still continues to be soaring for the industry writ large? Yes, exactly. Thanks, Morgan. You summed

it up really well, probably better than I could. The demand is very strong and it's across the board. Since the domestic airlines kind of corrected capacity in Orlando and South Florida earlier this year. And late last year, we've seen really good results from the airlines. And I think most said that today. I listened to all the webcasts. And what I heard from everybody is that demand is still very strong. Southwest said they're seeing some weakness in some leisure markets. But then when you look at the amount of capacity they have in some markets, that makes sense. But when you think about what's happening with spring break and the forecast the FAA put out for traffic in March, demand is very strong. Pricing has improved. There is physically no

place to grow at the busiest airports. And this is really, to your exact point, what is stymieing so much growth, because the airlines have to use bigger aircraft in places like New York and JFK, so those three area airports. And yet the OEMs are delayed in bringing aircraft to market. And also, you didn't mention this, but the airlines have, they've stopped hiring pilots and flight attendants, which I find very interesting as well. Yeah. Yeah. How much of an implication is that when you do have an airline like Southwest basically saying that, I guess a silver lining, maybe I'll call it for the airline at a time where they've been cutting some forecasts. The stock is selling off today and and now they don't have to worry about hiring and labor costs to the same extent that had been originally priced.

And actually, we're going to I think we just had a technical difficulty. So we're going to see if I did you hear the question. I can hear you. OK. OK. Apparently it's my apparently apparently it's on my side. How much of a silver lining is it when you have airlines not hiring as aggressively as what was factored into their financial forecasts? No, I mean, I think from a wage rate perspective, the absolute wage rates go up at a slower rate. And it also means that as you think about, I mean, we just had airlines negotiate with pilots and are still negotiating with flight attendants. So we're talking about the next level of contract negotiations, which is kind of 26 and 27. The wage rates won't go up as much because you're not going to be where the industry won't be where it thought it was going to be

unless Boeing catches up somehow. So I think that's the way to think about it. All right, Helene, thank you. Thanks for joining us in overtime. We've got a news alert on Coinbase. Kate Rooney has that. Kate? Hey there, John. So Coinbase is just announcing a proposed private offering of a billion dollars in convertible notes.

So doing a fundraise here announcing a private offering. Yeah, $1 billion of convertible senior notes. Maturity here is 2030. And they say here that they intend to use the net proceeds from that offering to repay at maturity or repurchase or redeem prior to maturity. At the same time, there's also a filing here that Brian Armstrong, the CEO, is selling about $64 million worth of Coinbase shares. It is hitting shares, you can see here after hours, but doing some fundraising here in the form of convertible notes, guys. Back over to you. All right. Perhaps not surprising seeing what we've seen in the price of Bitcoin and the price of Coinbase stock over the last two years. Kate Rooney, thank you. We're getting some

news on GM as well, and Phil LeBeau has that for us. Hi, Phil. Hey, Morgan, take a look at shares of General Motors, the company announcing a new head of manufacturing. Why is this significant? It is a former Tesla executive, Jens-Peter Klassen. He goes by JP. He was at Tesla from 2015 to 2019, helped stand up the first Gigafactory. He will now be coming into General Motors, taking over for Gerald Johnson, the former head of manufacturing, who will be retiring after 44 years with the automaker. The significance here cannot be lost on people. The fact that General Motors will be developing more EVs and EV development, as well as really improving its manufacturing of next generation vehicles, that's going to be front

and center. And that now will fall on the shoulders of J.P. Clausen, who comes in after previously being at Google and then before that with Tesla. Guys, I'll send it to you. All right. Look forward to further analysis from you on that on CNBC. Coming up, hedging AI exuberance. Morgan Stanley's Lisa Shalit's breaking down the safest way to play the AI boom with the sector's best positioned for success. She's going to join us next. 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. Time now for a CNBC News update with Kate Rooney. Kate. Hey there, Morgan. Representative Ken Buck of Colorado will resign from Congress at the end of this week.

The announcement comes after he said he wouldn't seek reelection in November. His departure shaves off even more from the thin majority the Republicans currently hold in that chamber. President Biden, meanwhile, met with the Teamsters Union earlier this afternoon as he tried to gain the endorsement of one of the largest unions in a closed-door meeting at the Teamsters headquarters. The president emphasized his record of supporting unions. The meeting comes six weeks after that union met with Donald Trump in his attempt to win their support. And just hours before the Uvalde City Council was set to reject the report that found police officers were cleared of wrongdoing during the Robb Elementary School massacre. The city's police chief, Daniel Rodriguez, resigned effective April 6th. While Rodriguez was not in Texas the day of that shooting,

he did assign the acting chief position to a lieutenant who failed to act at that school. Guys, John, back over to you. Okay, thank you. Now, hedging your bets, our next guest says investors should consider seeking out value in U.S. equities to hedge against excessive exuberance. Think AI. Joining us now is Morgan Stanley, Wealth Management CIO, Lisa Shallott, also head of their Global Investment Office. Lisa, great to have you. Starting more broadly, you say you guys are skeptical that aggressive earnings projections based on the idea that margins are going to expand, that that's going to work out. How big of a risk is that for equities overall? Well, I'm not so sure that

it's a big risk in the very near term. It's really just a question of where do we think investors should be focused to exploit what I think the potential of generative AI is. And so one of our, you know, pieces of advice to clients is to acknowledge that many of the stocks that have, you know, formed leadership for this market have been among the generative AI, what we would call enablers, right? The NVIDIAs of the world that are helping deploy the infrastructure that allows large language models to run. But from where we're sitting, the focus should really ultimately turn to those companies that are going to be the adopters of the technology. And that's really where the margin improvements are going to come from, not inside tech, but outside of tech. So

where we believe in software and services, financial services, health care services, media services, business services, payroll processing services. These are all areas that are ripe for massive reengineering. But it may take a couple of years, but we think the payoffs are going to be huge. Okay, I hear you, but FOMO in the market is a heck of a drug, right, especially on a day like today where you've got those names like NVIDIA powering the S&P to an all-time high close and the Russells flat. So strategically, how do you move without missing out on some of these tech bets that are still soaring? Yeah, look, I think investing is always an exercise in risk management, and that's what we always encourage clients to focus on. If you're going

to take risk through rich valuations, you have to really have an idea of what you're going to ultimately get paid for that risk. From where we sit, many of these high-flying names, while they have produced extraordinary performance, are richly valued. And as a result, they may be dependent in the long run on lower interest rates to sustain those valuations. And data like today, you know, where we got hotter than expected inflation numbers, perhaps not as bad as feared, but still numbers that were sufficient to push out the probabilities of an imminent Fed rate cut. They were sufficient to show a backup in yields. We're surprised that markets were pushing to expand margins on the frothy parts of the market. And we just, you know, prefer to take the long view and focus on some of the names that are underappreciated. They're still growth names.

I want to be really clear. Things in health care, things in software, you know, these are growth areas of the market. They're just not priced to extremes. When I hear you talk about the CPI report, are you pushing back your own internal forecast of when we can start to see rate cuts? No, we're not. Look, we have always been in kind of the May-June camp. We're now, you know, kind of leaning more into June. But the reality is, is that these the data today are not supportive of a Fed narrative that says we've got to cut immediately. Just isn't. Yeah, it's going to make the commentary we get from the FOMC next week that much more important to listen to.

I feel like we say that every Fed meeting. Lisa Shallot of Morgan Stanley Wealth Management. Thanks for joining us today. Absolutely. Up next, market experts, market expert Mike Santoli heads back to the dashboard with a look at why one firm says corporate sentiment is at a record high. He's going to break that down. We'll be right back. Welcome back to Overtime. Mike Santoli returns with a look at corporate sentiment. Mike. Yeah, Morgan, earnings forecast as given by companies right now.

So the guidance has actually been somewhat muted after the first quarter, fourth quarter reporting season. tries to figure out what's really being said on earnings conference calls by using this natural language processing program and gauging whether it's more or less positive than normal. So this goes all the way back to 2004. You see basically a record high. Now, what does a record high mean to me? That's the least negative ever because it's only on a negative scale. Executives tend to try to manage expectations and point out potential risks. But we're less negative than we've been in this 20-year history.

So B of A is trying to make the case that things look relatively bright on the corporate outlook side of things. They have raised their S&P 500 earnings forecast collectively for 2024. And this was used to buttress that case after we came out of a year where, you know, it started last year with a lot of executives expecting a recession we didn't get. So maybe they feel as if things are moving in a better direction right now, Morgan. There was some interesting data, very similar from FactSet that I was reading as well. It said of the S&P 500 companies that had held fourth quarter calls through March 7th, only 47 mentioned recession, that that was the smallest since the

fourth quarter of 2021. And that soft landing references had actually risen to 37, which was the highest in at least three years as well. So at a time where we're talking about caution from Jamie Dimon, it would seem others in the C-suites are feeling a little more, to your point, a little more hopeful or optimistic. It does sound that way. And in fact, you know, we also see that in contrast with the NFIB, the small business gauge, which, you know, took a leg lower. That's super small businesses, I always like to point out.

It's like, you know, owner-operator stuff. But I guess the other question is, from that stuff that you were mentioning, do we now consider it a contrarian data point? Because maybe CEOs don't always see the bad stuff coming. I don't think we're ready to say that at the moment, but something to keep in mind. All right. Mike, thanks. Our market expert. Yes, always. No, please don't expect any expertise here. Somebody's probably trying to put a hex on you. All right. Coming up, your retail rundown, dollar tree and dollar general earnings, both on the docket later this week, though the sweaters earlier looked a little fancy to be from there. We got your setup with a top retail analyst after this break.

Overtime, we'll be right back. Welcome back to Overtime. Sarah Eisen speaking exclusively to Citadel's Ken Griffin in the last hour. Griffin, a backer of Nikki Haley, did not officially confirm he will be backing Trump in the U.S. election, but he did have this to say. Do you think Trump's going to win? Right here, right now? Elections tomorrow? Yeah. He wins it.

But we'll be up late. I think for investors overall, a Trump administration's good for our capital markets. It encourages the sense that government's aligned with you and not opposed to you. You can watch the full interview on CNBC.com. Up next, we are getting you set for the retail earnings reports this week and what they might reveal about the health of the consumer.

Over time, we'll be right back. Welcome back to Overtime. This week, we're going to get some clues on how the working class consumer is doing as inflation continues to be sticky. Dollar Tree reports tomorrow morning, and on Thursday, we'll get results from Dollar General. Joining us now is Deborah Weinswig. She's CEO of CoreSight Research. Deborah, I couldn't help but notice that when TJX, a discounter, reported a couple weeks ago, muted guidance, the stock fell, but neither Dollar Tree nor Dollar General responded in sympathy. Is that OK? Or might the guidance expectations be high? It's a great question. And if we go back a year in time, right, we saw the rolling back of SNAP benefits in February of 23 and March of 23. So we're going

to start to cycle those. And so we're actually seeing, we do a whole predictive model that while food volumes have been negative since the beginning of 23, we believe that that will cross in a positive territory in the next week or two. So how high is the bar then for these two names based on where they're valued here? It's right. These are the tail of really two very different companies and serving similar customers, but for different items, if you will. So Dollar General is still very much a blocking and tackling story. They are literally opening in the United States one third of all stores in 2024. So it's very much about, and they're moving 80% of those into rural markets. I think they have over 2,300 real

estate projects focused on supply chains. So very much blocking and tackling. Whereas Dollar Tree is opening far fewer, under 100 stores this year. And they're really focusing on this kind of surprise and delight if you want stores. So adding more higher margin goods and also really kind of focusing on shrink. And I would say some of their value added areas and, you know, kind of thinking about how they may reallocate some of their spend and, you know, give some of that back to investors. Yeah. And of course, we've got two names that we're talking about that both have relatively new CEOs or new old CEO, I should say, in the case of Dollar General at the helm, too. How is the competitive landscape changing? And I ask that because they're not just competing with each other. They're not just competing with the other off-price brands and retailers. They're

also competing with the big box retailers, with the Walmarts and the Targets of the world, but also some of the Chinese e-tailers increasingly, too. Yeah, it's a very good question. And going back to Dollar General, a greater percentage of their mix are kind of consumables like OTC, HBA and food. And they're moved to more rural markets where you have less competition. Right. You have stickier customers, more loyal customers. You know, they're putting more labor back into the stores. So really trying to drive that customer relationship. So I would say that with Dollar General, going back to basics is really

where they're at and probably will have a little bit less impact than right with Dollar True, where they're selling, you know, maybe the unexpected, not necessarily always the basics. And, you know, when you have these kind of cross-border retailers, you know, where you are, it's very easy to price compare. They may be more impacted on that more discretionary merchandise in the near term and it could be longer term, too. When you see others across the industry, Costco saying last week they're going to take price reductions where they can. Ikea's slicing, cutting prices as well. Just in general, it's not just disinflation that seems to be like setting in with some of these goods, with some of these retailers, but also

straight deflation. Is that is actually a good thing for these dollar retailers or is that a double edged sword? It's well, you saw right dollar tree increase right there, price from a dollar to a dollar twenty five. You can always shrink package sizes and whatnot. So if you're kind of strictly at that dollar dollar twenty five price point, that could be more challenging. The you start to look at where you have a greater range of pricing and for a while you usually benefit when prices are falling. And so I think that there will be that's why I'm very both of these names and twenty four, I think, should benefit from that. And for the most part, right, from a CPI perspective, we're still in the disinflation range. And I think, you know, Walmart came out and said, right, you know, the deflation trends

have slowed. So I do think that we'll see that. I just think it's coming slower than what everyone had expected for this year. Quickly, any impact of family dollar temporarily closing almost 400 stores? Anybody benefit? I mean, I think that the, you know, certainly dollar general, we looked at kind of geographic overlap. You know, certainly a dollar general will benefit and, you know, five below as well. So we are definitely seeing this rationalization of stores across many retailers, the drugstore sector as well. And once again, going back to Dollar General, which has more of that HBA over-the-counter, they will be the beneficiaries. I think that's why they are really very focused on, I mean, like I said, one-third of all stores in 24 are Dollar General.

That is a huge, in addition to remodels and opening larger stores. You know, it goes back to and they're very focused on supply chain, right? Keeping this store, you know, shelves stocked, et cetera. So I think that for the most part, Dollar General is the beneficiary here. OK. In the short and long term. All right. Deborah Weinswig, thanks for joining us.

And thank you. Those retailer earnings that we're going to get over the next couple of days here s p 500 51 75 we closed at a record high up 1.1 rebounding from the south we saw in the last couple of days more action tomorrow and then we got adobe later too that's right and tech leading the charge back in charge that's going to do it for us here at overtime fast money starts now