Closing Bell - Closing Bell Overtime: Tech Tanks, Let's Make A Deal and Reddit Co-Founder On Crypto & AI Outlook 01/04/24

Episode Date: January 4, 2024

The Nasdaq closing lower for a fifth straight day amid more weakness in tech stocks. The major averages now on pace to snap an 8-week winning streak. Canaccord Genuity's Tony Dwyer discusses whether there's more pain ahead for the bulls or if investors should buy on this weakness. Citi Head of Investment Banking Tyler Dickson gives his outlook for deal making in 2024 and which sectors look the most ripe for mergers. Reddit Co-Founder & Venture Capitalist Alexis Ohanian just made a big investment in a bitcoin related company. He weighs in on the outlook for cryptocurrencies as well as the other areas of the market he sees opportunities in, including AI. Eli Lilly announcing plans to sell its popular weight loss drugs directly to consumers. A top pharma analyst tells us what that could mean for the stock. And Apollo Global Management Chief Economist Torsten Slok on what the Fed's December pivot could mean for the job market and the economy.

Well, stocks finishing mixed as the 10-year Treasury kissed or re-kissed 4%. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Port. Another rough day on Wall Street as the Nasdaq falls for a fifth day, and the major averages on track to snap an eight-week winning streak. And coming up, yeah, will dealmaking pick up the pace in 2024? Citi's head of investment banking tells us which sectors are most ripe for M&A.

Plus, we'll get the outlook for cryptocurrencies with Reddit co-founder, venture capitalist Alexis Ohanian, who just made a big investment in a Bitcoin-related company. Let's break down today's action with our first guest, though, Tony Dwyer, chief market strategist at Canaccord Genuity. Tony, it's great to have you back on the show here. I do want to start with, I mean, the Dow eked out a small gain today, but the S&P and Nasdaq finishing the day lower again. I mean, you had been on CNBC, what, late December, and you had said we were prone for a pullback. Is that what we're getting right now? Yeah, really coming into this week, the note I wrote, and thanks for having me, Morgan, and happy New Year to you and John and all the viewers, of course.

So coming into this year, we call it the first note of the year opposite day. You know, when you look back at October 27th, you came into the market with rates spiking to 5 percent, with the S&P historically oversold, with the VIX historically oversold or overbought, sorry. And the dollar was very strong. And it is absolutely opposite coming into this year from that scenario. So the market is very positive historically to have the kind of breath move that we've had that came with the Fed pivot, dovish pivot last year. But all the data that we have suggests it just got too extreme. What are your thoughts on Treasury yields as we do see the 10-year back at 4% now?

So the technical side of it, technical side of it would suggest a bounce. As I said, Morgan, if you looked at the weekly stochastic, I call it my trusty weekly stochastic, when we look away from the macro or the fundamental data. What's been amazing to me is how extreme the moves have become and how quickly they've become extreme. So you've gone from an extreme overbought when interest rates on the 10-year got up to 5%. Now down at 3.75%, it got extreme to the bottom side. So it's just a bounce. Coming into this year, you had the market anticipating seven rate cuts. When we were talking about more, we called it higher for shorter. When rate expectations coming into October were for only maybe three cuts this year, it's seven cuts.

You're kind of, I don't know what data you're going to come out with this month that's going to make yields go down. So I think that was the setup for a bump higher in yields here. OK, so overall, the stage is set for a pullback and we're getting a pullback. But what about sectors? Do you rotate into something, out of something? I mean, health care seems to have been performing particularly well thus far in the first days, first hours of 2024 compared to 23. Yeah, John, it's like it's the inverse of what started last year. You take all the prior year's losers and you ramp them in the beginning of the year. And that's kind of what health care,

small cap, equal weighted over S&P. And I do think that'll be a more prolonged theme. But that's where you go first is you go to the most oversold areas that you can get the lift out of. And I think that's what the market's done. I mean, when I look at the small cap or equal way, when I got into the business in 1987, not to date myself too old, the debate was you can't use the Dow Jones Industrial Average anymore because it's just 30 stocks. So portfolio managers and institutional investors, pension plans, they transitioned to using the S&P 500 because it was a more broad representation. Well, today, those top 10 stocks of the S&P 500 are a third of the market, literally 33% of the market. So when I talk about the market, I talk about the more of an equal weighted S&P or small versus large. And I think both of those are going to outperform for,

I think, years to come, potentially not just over the next, you know, because it's coming into this this year like that, John. So along those lines, then for 2024, what does a balanced portfolio mean, whether you're including fixed income, whether you're talking sectors or whether you're just not relying on just an index and index funds to be safe. Well, the issue that has come into the market is it's structurally different, because it used to be if you don't go into, if you're coming out of bonds, you've got two options, stocks and cash. Well, as you guys know, that has changed dramatically. Not only is it that, usually it goes into passive, but now you have the option of private,

whether it's private credit, private equity. So when I talk to investment committees and endowment funds or pension plans, they're not talking about, OK, let me go find the best fund manager out there for domestic equities. They're talking about how to get into private credit or increase or add to their exposure, private equity and venture. And those locked-up investments, I think, is what's helping create some of the volatility and the asset allocation shifts that we've seen over the last, you know, maybe five years. All right.

Tony Dwyer, good to see you. Thanks for joining us on Overtime. Great to see you guys. Happy New Year. Happy New Year. Now, Mobilize shares plunged today, hitting a 52-week low after issuing a revenue warning. Christina Parts and Avalos inventory issues not done yet, huh? Yeah, especially with Tier 1 customers.

They are pretty much setting a negative tone among auto semis right now with this massive guide down. The autonomous driving assistance company expects, to your point, a 50% drop in revenue for the first quarter of this year because of excessive customer inventory issues. So they've got to work through it, which means they won't buy as much. And keep in mind, too, that 30% of Mobileye's business is also exposed to China. That's why Mobileye had its worst day since going public just last year in October 2022. Bank of America also downgraded the stock today to underperform given this weak outlook. Intel owns roughly 88 percent of mobilized shares, but its stock is off the lows that we saw earlier today when it dropped over 1

percent. But that's not necessarily the case for auto exposed chip names like STM, NXPI, analog devices, for example. They all fell around 3 percent or more. And this is really the first negative pre-announcement from a chip company in 2024 and could be isolated to Mobileye. That's what Bank of America thinks. Or could set the tone for auto exposed names like OnSemi or NXP as they meet with investors at the Consumer Electronics Show in Vegas next week. And then we have earnings, of course. The thing that jumped out to me here is that it took this long for Mobileye to realize how much inventory had been stockpiled throughout the year. And they said that it was because of a hoarding mentality that these automakers picked up during the pandemic. But they're taking the hit up front, most of it.

In Q1, it sounds like maybe that's a consolation. So do you think that's a bold move then about maybe setting an example for other companies that they're doing this, you know, take the hit right now. And then they said that sales would be relatively flat through Q2 to Q4. So it could be a strength. And would other companies, you know, OnSemi, for example, or NXP follow suit? with the autonomous driving systems as opposed to the other parts of the vehicle that may not be as dramatically hit compared to Mobileye. All right, Christina Parts-Navlas, thank you. Thanks. Now, 2023 was all about the comeback of growth stocks, but what will the story be for this year? Let's ask Senior Markets Commentator Michael Santoli.

Mike? Yeah, John, seems like there's at least a tentative consensus that non-MegaCap growth stocks should actually be able to perform here. On a two-year basis, Russell 1000 growth versus Russell 1000 value have actually ended up being in a pretty similar spot, as you can see right here. You've got a little bit of outperformance here from growth over this last little bit. Wait a second. This is a week to date, I think, right here. Trust me, on a two-year basis, you have them coming together and you've had this massive catch-up. Now, Russell 1000 growth ETF, shockingly, of those magnificent seven stocks that we know dominate the S&P, they're also like 47 percent of the market cap of the Russell 1000 growth. You've got 900 plus 990 plus stocks worth, you know, just over half of it.

So it's clearly a bet on that. I did want to take a look, too, at the Apple versus Microsoft, the two top weights in all of these indexes out there and how they've sort of fractured just a little bit. This is over a two-year span. You see they really were in sync for most of this period of time. Microsoft, again, proving to be the more defensive one. It's the more universally owned and loved and believed one. Apple, we know about all the downgrades. We know about the issues with struggling with top-line growth. Really not much outperformance over the S&P over this two-year period. I think it's also worth a reminder, over this long iPhone

era run in Apple shares, which has been just monstrous gains, it has taken these 18-month to two-year sideways pauses along the way. So the fact that you don't get a lot of net progress in Apple doesn't necessarily mean that in an enduring way the story's over. And Microsoft not necessarily the same with those pauses. Does that account for some of the different drives? Well, I mean, you could argue that Microsoft paused for more than a decade, you know, after the year 2000, in which you get into the early 2010s. But, you know, a little bit less so.

It has somewhat tended to be a little more trendy, so to speak, and be able to perform in different environments. Apple, I guess, just has these sort of accelerated moves, and then it has to digest them. Yeah, you've got the before Nadella, the BN era of Microsoft, and then... Yeah, that's right. Yeah. All right. Mike, thanks. Speaking of Microsoft and Apple in particular, that leads in to the latest installment of my On the Other Hand newsletter. This week's debate is will Apple lose its status as the most valuable stock given the rocky start to the year? I weigh both sides of the argument.

You can scan that QR code. Yeah, that way. On your screen. It's like a mirror, right? When you put writing up in front of a mirror, you've got to take a moment to figure it out. CNBC.com slash OTOH. If you don't want to take out your camera on your phone and do that, you can just type. Old school.

Although that QR code, it's a fancy QR code. I'm liking it a lot. I like those. All right. Well, on the other hand, the end of 2023 saw a whirlwind of dealmaking in the pharmaceutical industry. Up next, Citi's head of investment banking tells us which sectors could experience M&A mania this year. And later, Reddit co-founder Alexis Ohanian on his outlook for cryptocurrencies, social media, and the environment for venture capital. Overtime's back in two. Welcome back to Overtime. Global M&A volume fell 18% in 2023 to a 10-year

low. But we've already seen a few deals in the start of 2024, including today's announcement from APA. It will acquire rival Calon Petroleum for about $4.5 billion. That's part of a recent spree of deals in the energy sector specifically. Joining us now is Citi's head of investment banking, Tyler Dixon. Tyler, it's great to have you on the show. Great to see you. Happy New Year. We did start to see more deal making in the final months of 2023. Is your expectation that that just sort of kicked the door open for more of it to happen in 2024? What are you expecting?

Look, I think we certainly like the way 2023 finished with equity markets at highs, with credit markets at lows, meaning rates and also spreads, creating some positive backdrop. We liked the second half of the year M&A activity. We certainly liked the way the year finished at about $3 trillion in value. It was very much a second half story, where about nine of the 10 largest transactions were announced in the second half. So we think that has set up a foundation for the start of 2024 with a lot of that momentum carrying through. The conversation I've had so many times in the past year, particularly the past six months, both on camera and off, has been that the divide between bid and ask was still too wide last year and that the ask side was going to

have to fall further to see more deals actually come to fruition. Has that happened? I think we're getting there. I think three dynamics that we like is first, some more certainty around the interest rate outlook. Second, that buyers and sellers have had time in order to have their views of valuation coalesce. And third, I also think we're helped a bit by a little bit more clarity and a little less uncertainty around the regulatory environment. That's created opportunity, as you've mentioned, in places like healthcare, industrials, energy, and technology. We see those opportunities continuing in 24.

Do you expect, Tyler, to see more take private deals or public companies perhaps hunting other smaller public companies? The CEOs and boards who we're talking to are interested in all opportunities. So I think confidence is building. I think it's off a low base, so it's difficult to predict the future. And I think it'll be evolutionary rather than revolutionary. When we look at activities, we think we'll see more of the same from last year with respect to corporates repositioning portfolios, selling off subsidiaries that aren't attractive, or illuminating value through carve outs. We think on the sponsor side, we will see some monetizations of their portfolios. Their limited partners want a return of capital, and we also think they have capital to invest. And so we will

see some take privates and some new LBO activities. And of course, given that activists are in the market and that's been a value creation strategy, we think that'll be a catalyst as well. I think about Mark Benioff of Salesforce and Pat Gelsinger of Intel, because Benioff got in some trouble in 23 over the track record of his M&A and that working out. And Pat Gelsinger has been spinning off more and more things from Intel trying to make this turnaround happen. Do you think investors are feeling OK about letting the Benioffs of the world as if there's more than one get back in and start buying stuff? I think so. I think there'll be a balance of buying and selling activities. The strong will

probably get stronger. The weak will get stronger by pairing off portfolios into the market that they don't think are consistent with their overall strategy. You just mentioned LBOs. We know 2023 was a challenging year for leveraged buyouts. Credit tightened last year, particularly on the bank side. It raises the question, are deals going to be able to get financed this year? And how much of that hinges on a new normal being absorbed in terms of where rates end up? Well, look, I think a bit of stability in the outlook for rates helps a bit, and that can create a foundation. I think the cost of money is obviously higher than the environment where we had interest rates low forever, but the absolute

rates give us a foundation where we would expect activity to come forward. And so when we look at it, I think deal structures will be important, which is we think safe deal structures that'll work for the syndicated bank market in the big banks will have a place. We also think private credit and direct lenders will play a role in some other parts of the market. How much do politics matter here? You know, the Biden administration, particularly FTC, hasn't been too friendly toward dealmaking. But if it looks like things are swinging in a different direction in this election year, will that influence the eagerness to get deals done? Look, I think deals will get done in either scenario. I think it's important that as 2023 unfolded, the regulatory outlook got a little bit more certain rather than less certain. And I think

that helps at the margin. I think what I'd also point you to is generally we see constructive equity markets when we see the outrate for interest rates more likely to be cut than going higher and in president election years where stock markets usually perform well. When we see that foundation, we certainly see the ingredients for some M&A activity to unfold. Okay. The ingredients are there. Thanks, Tyler. Tyler Dixon from Citi. Up next, Reddit co-founder and venture capitalist Alexis Ohanian on his crypto investment, his outlook for social media, and what he thinks

of his new cyber truck. On the other side of this break, Overtime's right back. Welcome back to Overtime. Bitcoin popped through $45,000 at the start of 2024, now trading at just over $44,000, up more than 160% over the last year. Meantime, Bitcoin rewards app Lolly, recently raising its Series B, securing more than $28 million to date. Investors include Alexis Ohanian's VC firm, 776. Ohanian and Lolly CEO, Alex Adelman, join us now. Guys, welcome. Alexis, so you first invested in Lolly, I think it was about three years ago or so, pre-Series A. What does a crypto investment, crypto-related investment mean that's different in 2024?

Well, John, look, you know, I've been investing in crypto for over a decade now. Three years ago, was floored by what Alex and the team had built. And we love early stage investing. We invest on the potential. And what's been really exciting is the last few years, more and more people have continued to, I mean, you showed the numbers there about Bitcoin, more and more people have continued to seek that as an asset that they believe in. And it all comes back to user experience. And what Lolly's proven is that if you can make it delightful and easy as heck to save money in all the places you already shop and earn Bitcoin, it's a win for consumers. Alex, so running Lolly now versus three plus years ago, it used to be people were saying cash is trash.

The interest rates that you would get on cash back and saving in cash, not so good. But things have shifted a bit, haven't they? So how do you frame or do you reframe the value proposition? So we actually give cash back and Bitcoin and we really let people choose. And I think now with credit cards,

people are spending through the roof in credit card debt. People are looking to save money now more than ever, especially in these inflationary times. And so we often encourage people to learn about Bitcoin and earn Bitcoin very easily from over 25,000 locations. But yeah, we're having fun on the Bitcoin side for sure right now with it more than doubling over the last few months. So Alex, I mean, Bitcoin, we've obviously seen it rally. It was up 160% last year. How, I guess, enthusiastic has the uptake been for your product? And how are consumers who are

accessing it thinking about it? Are they thinking about it as a store of value or as a means to a mode of transaction, which is not really what we've seen the adoption of Bitcoin take on in a meaningful way yet? Yeah, so, you know, Bitcoin, you know, 15 years after its inception is still predominantly used as a store of value and an incredible one at that. Our shoppers are using our service now more than ever. We're up 30% year over year. We have way more merchants now than we did. So we have a lot of adoption, not just on the obvious side, on the consumer side, but also on the merchant side. A lot of merchants are reaching out proactively now to join the platform because it's really easy for both consumers and merchants to

get involved in Bitcoin now. And then on our new card-linked offer product, people are earning five times more rewards with that product than the previous product. So a lot of really good things happening both internally and then, as all mentioned on the macro with Bitcoin adoption as a whole. Okay. I want to shift gears a little bit. Alexis, I want to talk about AI, which obviously was another big theme of 2023 and continues here in terms of the next chapter for this year. How are you investing now? And also, how are you putting it to work within your own firm? Yeah, it's been an exciting time. And over the last year and a half, we have been heralding to our portfolio as well as internally to our team that these tools are going to help us do takes of press releases for our sports teams. We're using it to help draft first takes of content that we post on social media, talking about our portfolio companies.

And what's been exciting is we're still at probably the least interesting version of this technology, right? Sure, it's helping us write code a little faster. It's helping us write copy a little bit faster. The way that these things get integrated, whether it's in the proprietary tools like our firm's Cerebro, or the way that portfolio companies like Lolly are using it to better deliver just more delightful user experiences to their customers is going to start to compound. And sure, there's going to be some big winners here. And you know those names who have already from NVIDIA to Microsoft. But there's a chance here for nearly every business to find efficiencies thanks to this tech. And it's an exciting time. I've been

in tech for a minute. I've not been this excited really ever before. Alexis, governance related question for you. You've been an advocate for opportunity for underrepresented board members, entrepreneurs, et cetera. Right now, there's a backlash against the ideas of diversity, of inclusion, to the extent that some people feel they've gone too far. What do you think is the right direction to take in this environment? What message, if any, do you have? You know, we have always couched this language, whether it was thinking about how we were hiring at Reddit back early in the turnaround in 2014.

I brought on Caitlin Holloway, who was our head of people there and who joined me now in this endeavor, building 776. The way we've always framed the decisions we made were around excellence first and foremost. And where it actually really matters is the intention that you put into the practices, the culture, the things that you're doing. I think a lot of well-intentioned people put forward some ideas that metastasize into something much, much bigger. And I think in a lot of ways, in some cases, less effective than originally intended. Look, those values, I think, are bottom line, the way to win, the way to get towards excellence. And I think when companies, organizations are trying to

sort of check a box, even well-intentioned ones, it's not going to create an outcome that anyone would be happy with. And so, look, it's evolving. I think the pendulums continue to swing. And my hope is, look, these are values. I think the pendulums continue to swing. Um, and my hope is, look, these are values I obviously believe in, but they, they start always with greatness as being the reason why that underpins all of this. And, uh, the good news is I know there are a lot of folks who are continuing to build their companies in these ways. Um, and they're going to continue to find success. Uh, and you know, we, as a society are going to have to keep figuring out where, you know, that pendulum is going to going to stop next.

But I'm cautiously optimistic. I think, you know, some of the most effective companies I've ever built, some of the most effective companies I've ever invested in are companies that from the very start were super intentional about the way that they were building their teams, knowing that having a diversity of viewpoints and experiences actually helps you lead to better outcomes. But, you know, I guess we still need more time to keep putting points on the board and showing folks that this is the right way to do it. Not because it feels good, but because it's actually just a way to build a better organization. Okay. I'm going to do a little bit of a lightning round with you here, Alexis. Speaking of companies you built, co-founder of Reddit. Is Reddit going public this year? No comments, but if you read what I read, it seems pretty likely. Okay. We also teased it ahead of the interview, and that's the fact that you are one of the early customers of the Tesla Cybertruck. Do you have it? Do you like it? I was very lucky to be, I guess, the third. I had pre-ordered a long time ago, and I got a nice text from Elon's chief of staff who was like, hey, do you want to come pick it up early?

And you just got to come to Austin. I said, sure. It's actually a lot of fun to drive. I just need something large enough to be able to get kids to school and a couple of hundred-pound dogs in the back. So I'm not working on job sites with it, but I do love driving it, and it is a lot of fun to move. What is, Alex, the state of fintech right now, do you think? What are the biggest differentiating problems that can be solved right now and move a company ahead of the competition? I think one of the most fun things is the intersection of Web2,

FinTech, and Web3 onboarding people into crypto. It seems to be one of the biggest ways that these companies can make money. I mean, if you look at Square, or Block now as a public company, and their balance sheet, I mean, they became, I think, pretty wildly successful by offering Bitcoin and really leaning into that. Many companies are following suit. And then as we go into this bull market, I think more and more companies are going to be looking for those solutions that bridge Web2 fintech with Web3. Okay. Alexleman of lolly and alexis ohanian of 776 thanks for joining us it's time for cnbc news update with julia borsten julia iowa police said at a press conference minutes ago that a 17 year old student at perry high

school acted alone and was responsible for today's mass shooting there. One sixth grader was killed. Five others, including an administrator and four students, were shot. All of them are expected to survive. Police also say they found an improvised explosive device while searching the school and disarmed it. New York City Mayor Eric Adams is suing the bus companies that helped to transport migrants sent from Texas. Adams accuses 17 bus companies of violating state law for not paying the migrants' cost of care in the lawsuit. The city is seeking $708 million in damages to recoup costs since Texas Governor Greg Abbott began to bus migrants out of his state in 2022. And a public transportation problem in New York City this afternoon. According to the

Transit Authority, one subway car rear-ended another and caused a derailment on Manhattan's Upper West Side. Police say at least eight people suffered minor injuries and that several subway lines that run through the city are seeing major delays. Back over to you. All right, Julia Boorstin, thank you. Eli Lilly announcing plans to take its weight loss drugs directly to consumers. Up next, an analyst who thinks this could be a strong tailwind for that stock. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back to Overtime.

Drugmaker Eli Lilly launched a new website today called Lilly Direct. The new service is going to provide an end to end health care experience that allows patients to get weight loss, migraine and diabetes prescriptions through a telehealth provider. Joining us now to discuss is Evan David Seegerman of BMO Capital Markets. Evan, what does this mean for the industry overall? Because Novo Nordisk is up almost 4% today. Lilly closed slightly down. WW, which is also trying this access to weight loss drugs thing, was down 11%. Is that a reaction that's meaningful? Well, I think Lilly's been up, I don't know, 7% or so year to date. So Lilly's doing quite well. The reaction to Weight Watchers is probably because Lilly's stepping in, offering a telehealth platform to get patients access to these medications.

What I think is most interesting and most important in this space, especially in obesity, is that there is a lack of obesity healthcare providers. So patients who even want to get on these drugs are having a tough time finding the right provider. So this really starts to eliminate some of that friction. And of course, it allows Lilly to ship essentially the drugs right to the patients who need it. So they're not having to hunt around for the specific dose that the physician is prescribing, which is a big challenge. So do investors need to prepare for the middleman to get cut out here? I mean, are all of those stocks more at risk and the benefits going to accrue more profit wise to the makers of these drugs and treatments? Well, I think there's still going to be wholesalers. There's still going to be PBMs

because remember, Lilly is not giving away the drugs, right? The drugs still have to be covered by insurance. So the, you know, the care marks, the CVS care marks away the drugs, right? The drugs still have to be covered by insurance. So the CVS Care Marks of the World, the Express Scripts, are still involved in that process, from my understanding. It's just that there's no retail pharmacy where a patient is having to go hunt for that particular dose that's being shipped right to them. Okay. So what does this mean both in terms of the evolution of the price of these drugs and what consumers or patients, I should say, will be paying? And what does it also mean in terms of the costs for Lilly on the back end? So a few things. One, you know, it's about $1,000 per patient per month list cost. Lilly offers $5.50 per month if you have insurance, but no coverage and if you have insurance, it's $25 a month.

None of that changes, right? Those pricing stays the same. In terms of the back-end cost, yeah, they're probably going to have some sort of, you know, cost to run this pharmacy. But they're going to allow patients, you know, many, many more patients to get the product. So I think that's a real benefit here. Excuse me. So do you buy the stock, given the fact that it's come off a little bit from the big run we had in 2023? Lilly is still our top pick in major pharma for the year. We think the Zephan launch is going to

impress. We're really focused on February 6th, which is Lilly's earnings day, where they're going to set the stage for 2024 and talk about their expectations for Zephan, not only financially, but also maybe even from the manufacturing perspective, which will get a lot of folks excited. But where's the danger, though? There's been so much hype around GLP-1s right now, so much attention. It reminds me of AI in a way. It seems like disappointment is in store for somebody. Are you worried about that? There's always risk with investing. I think what's key here is that, you know, our bullish thesis is based on the fact that there are a lot of patients with obesity who

have a serious medical condition and need a GLP-1 plus drug to treat their medical condition. And that's where the bullishness is. I actually really appreciate that Lily came out with an open letter today talking about that this is not for aesthetic reasons. This is for patients who need help. And I think that's what sustains this market. Yes, there could be some rotation into cheaper names. We recently upgraded Amgen to outperform on the basis of their obesity products. But we still think that Lilly is well poised to succeed in this market.

All right. Evan David Siegerman, thanks for joining us. Thank you, guys. And up next, Mike Santoli is going to look at whether a bond recovery could be in the works. And later, Apollo Global Management Chief Economist Torsten Slocke on whether the Fed's pivot could last month could give the economy a big boost. Stay with us. Welcome back to Overtime. Mike Santoli returns with a look at whether the odds are in favor of a recovery in bonds.

Mike. Yeah, Morgan, at least from a long-term basis, this look at how long bond investors have been underwater is pretty unique. It's from Strategist. Todd Sohn at Strategas shows on the bottom the number of consecutive months that in aggregate bond values have been below their all time high. You see, we've never been anything like this. Forty one months. It's like three and a half years. Now, of course, you've had bad bond bear markets in the past, but they

always began with starting yields much higher so that over time you're collecting that yield. And it sort of eventually bolsters returns and gets the overall aggregate total return to a new high. So that hasn't happened in a while. And at least it suggests that with yields right now well up off of zero, you know, mid single digits, depending on the maturity and the type of bond you're talking about. And, of course, the Fed at the end of a tightening cycle, maybe going to ease again. It suggests that bonds can again start to do their job within a portfolio. Last year was a bit of a comeback from that sort of balanced approach.

And, you know, at least right now, the odds are at least no longer against you to the degree they were, let's say, two, three years ago. I mean, we had almost 15 years of very, very low interest rates. Is there a point at which we're going to point to bonds and fixed income and say, OK, we're back to a historical norm in terms of how this asset class is performing? Yeah, it seems like we're probably in that zone of being back to normal. The question is, is this just a little phase? I mean, I know there's a contingent out there that feels as if this economy as structured is disinflationary and it's going to, you know, drag the Fed back towards zero again. They don't want to do it. I don't think a lot of investors would like to see it. We certainly hope the economic conditions aren't there for a quick

return to emergency rates. So, yeah, I do think that's kind of the way to think about it. Even if you don't have great appreciation in bonds, they can kind of at least play a decent role in terms of income and buffering a portfolio. All right. Mike Santoli, thanks. Up next, ahead of Jobs Friday, Apollo chief economist Torsten Slauch on how the Fed's pivot could impact employment growth and the economy. And shares of microchip technology under pressure today, despite winning $162 million in grants from the Commerce Department to increase production of chips for the auto and defense industries. It's the second company to receive investment as part of the CHIPS Act. Shares, though, finished down 1%.

Stay with us. Welcome back to Overtime. Investors' perception of a Fed pivot helped power the rally into year end. But should they worry about an economy still digesting the lag effects from the hikes of the past almost two years now? Joining us now is Torsten Slock, Apollo Global Chief Economist. Torsten, great to have you back on the show. We're going to start right there with that question because I know you've been mulling it and putting research together around it. Yeah, no, and I think the critical thing really here is that should we put weight,

exactly as you're saying, Morgan, on the fact that the Fed has been tightening credit conditions and raising the cost of capital for a very long period of 18 months up until what happened in December? That would all argue for a slower economy over the coming quarters. That is still what the consensus is expecting. That's still what, broadly speaking, we have been hearing from a number of different analysts in terms of what's coming in 2024. But I think what is very important in that discussion is now to begin to put weight on trying to quantify, well, what are actually the implications of the Fed pivot? Chris Waller, the FOMC member, said in November that the easing of financial conditions that came in the second quarter after Silicon Valley Bank, that was enough to create 5% GDP growth in the third quarter, in other words, a boom in the economy.

So why wouldn't we now today come to the conclusion that the pivot that we saw in December is likely to also begin to create a boom, potentially in the labor market, lower rates also in the housing market. And all that is just complicating a lot the Fed's path of getting inflation back to 2 percent. So we've seen a Fed pivot. It's loosened financial conditions. And what you're saying now isn't soft landing, but the possibility of no landing. Yeah, I think that the pendulum has simply swung too far, because if you put into the Fed's own model of the U.S. economy purpose and try to quantify what does it mean for the U.S. economy if you have 100 basis point cut in the Fed funds rate? What does it mean if credit spreads on IG tightened by 60 basis points? What does it mean if you had $20 oil prices?

And what does it mean if you have one standard deviation less in VIX? All that means that GDP growth over the next several quarters could grow as much as one and a half percentage point more than what it otherwise would have done. So I think the key risk going forward is that the housing market is already showing signs of a recovery. We saw last week a 5% increase in Case-Shiller. Remember, housing has a weight of 40% in the CPI index. If we have both housing beginning to stage a recovery at the same time, the labor market is still tight. We saw ADP today. We saw also jobless claims. Still no signs of a strong slowdown. All that argues for potentially also wage inflation, according to the NFIB, also getting some tailwind. So housing and wage inflation taken together. The risk is, Morgan, to your point here, that we might actually get a swing back to the almost no landing scenario where we begin to see more risk that the economy is just

not slowing down the way that the Fed wants us to. So it sounds like you think no cut in March, maybe not more than three cuts overall. Is that priced into equities? Well, I think first of all, that I think the market in rates is getting way ahead of itself. So for futures, exactly as you're saying, I'm pricing six cuts, that I think the market in rates is getting way ahead of itself. So for futures, exactly as you're saying, are pricing six cuts. So I think we are more into the camp of three cuts of where the Fed is probably right, that we will get a slower pace of cuts relative to what the market is saying. But to your point, I think for equities, the risk really is that the pendulum for this Fed has swung from hawkish, hawkish, hawkish last year to now suddenly swinging over in a much more dovish direction after the pivot. And I know I think that the pendulum will begin to swing back towards having to be more hawkish because we're simply not out of the woods. Several FOMC members

have come out and also said this after the pivot meeting, saying, no, no, this was overinterpreted by the market. So I think the Fed is trying to anchor expectations at three cuts. But I do think with that will come more downside risk to equities as a result simply of that we are just not out of the woods when it comes to fighting inflation. So what are the risk assets that you see that have particularly gotten ahead of themselves at this point? Well, I think that the stock market, in particular tech growth, venture capital, things that have really gotten a significant tailwind as a result of the Fed pivot. You have also seen in the last few days

significant IG issuance, significant high yield issuance, a lot of emerging signs of credit markets really coming back to life as a result of the pivot. And I think all that is tailored to essentially provide a boost to growth and is at risk of providing a boost that's so significant that we might again come back soon and talk about the economy. And we'll see the employment report tomorrow. The forecast from the consensus is just below 200,000.

That's not a bad economy. So if we do get still a labor market that's strong, if we do still get a rebound in the housing market, which is already playing out as we speak, I do think that the Fed will have to step back to the more hawkish tone as we get through the next several months. Of course, it also raises the question, rather ironically, if this is what happens and we see growth staying strong or even reaccelerating, what that's going to do to Treasury yields, particularly at the long end. Absolutely, because there's already a very significant debate about with a soft landing, you can both argue that that means lower long rates, because if you have a soft landing, inflation is coming down, everything is fine, the Fed will be cutting and therefore long rates should be going down. But you could also argue that if you have a soft landing, it increases

the risk of an acceleration on its own. And if you have no recession and risk of acceleration, that could argue also for rates going up. And on top of that, we have the added issue for this year, namely a significant supply of treasuries. We will have a 23 percent increase in the supply of treasuries and coupons over the next four quarters. And that's a very substantial risk also that we may have to come back and debate again to cover ratios in auctions. What might also then ultimately result in more upward pressure, both on the belly and also the long end of the curve. So, Morgan, to your point, there's a lot of debate and a lot of disagreement among forecasters. In fact, there's a record high level of disagreement among forecasters in terms of the standard

deviation of what people are saying will happen to long-term interest rates by the end of the year. All right. Torsten Slok from Apollo. Thank you. Thank you. Thank you. Now, Microsoft has the key to AI, literally. Up next, we're going to discuss whether the new co-pilot button on Windows keyboards is a game changer or a gimmick. We'll be right back. Welcome back to Overtime. Microsoft announcing the biggest change to Windows keyboards in decades by adding a copilot key,

giving users quick access to AI. Steve Kovac joins us. Steve, it seems like if AI is an app, like a browser, then it's good to have a launch button. But if it's a feature like spell check, it makes no sense. Right. But this is an indication for Microsoft that they see copilot as just as fundamental as the start menu. So that you've mentioned it's been decades since they changed the keyboard like this. That's when they added the Windows button that launches the start menu. So that's how we interact with Windows PCs. But more important than the Copilot, let's put that aside because this is not just for these new PCs. Copilot runs on older PCs, as long as it's a Windows 11 machine. It's the AI PC. So

Yusuf Mehdi, who's the executive in charge of Windows and consumer products at Microsoft, he said, this is 2024. This is the year of the AI PC. Unclear what that exactly means, other than some better chips in there. What I really am curious from Microsoft throughout 2024 is, besides this co-pilot stuff, besides the open AI relationship, what does this AI PC thing really mean? What are they going to do on the Windows side, on the platform side, to really juice up the AI capabilities of these devices to meet that promise and the hype that they're already starting to do? Dell today just had their own AI PC that they just announced. Again, it has a great chip in there.

I'm sure it's faster than last year's chip. But what can those computers do that they weren't able to do before? No one's answering that yet. So what does this mean? So what you're basically saying is that we don't know yet whether this is going to create a new cycle for PCs coming out of a pandemic where we saw all the pull forward and demand to begin with. That's the hope. And a Candlestick analyst had a note, I think it was at the end of the year, saying basically

this AI PC can resurge a new boom in PC buying. Like you said, pandemic, you know, everyone took a break from buying gadgets. This is what Apple is dealing with this now, too. Mac business is just really down right now. But they don't have this AI PC magic. So game changer or gimmick? Right now it's a gimmick because I literally don't know what these computers can do

that they couldn't do before. They just call it an AI PC, but you would open it up, you would have no idea anything was different than the one you're using now. Reminds me of 20 years ago when Intel tried to make the 3D browser a thing. That didn't really... I would say we don't know what happened there.

For me, it reminds me of Internet PCs. We've got to go, though. We've got to go, Steve. That does it for Overtime.