Closing Bell - Closing Bell Overtime: Wave of AI IPOs Coming? Roger Goodell Takes The Stand In Sunday Ticket Trial 6/17/24

Episode Date: June 17, 2024

Pioneering cloud VC Byron Deeter of Bessemer Venture Partners breaks down the recent dramatic moves in software and if he sees an upcoming wave of AI IPOs. Clocktower’s Marko Papic on where he is finding opportunity outside the US while JPMorgan’s David Kelly and US Bank’s Eric Freedman break down equities in the US as the S&P 500 closed at a record. Zelamn & Associates co-founder Ivy Zelman on the state of the housing market and this round of earnings in the sector. Plus, our Julia Boorsitn on today’s testimony of Roger Goodell in the Sunday Ticket antirust lawsuit.  

A record day for stocks with the S&P and Nasdaq closing at new highs, the Dow snapping a four-day losing streak of its own. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. And tech just keeps driving the marketing to uncharted territory. Consumer discretionary and industrials also big outperformers today. Coming up, Bessemer Venture Partners' Byron Dieter on where he sees the biggest opportunities to invest in tech and AI right now. Plus, we are awaiting earnings from homebuilder Lenar and Zellman and Associates co-founder Ivy Zellman will be here to break down those results and what they could mean for KB Home, which reports tomorrow. But first,

let's get straight to our market panel. JPMorgan Asset Management Chief Global Strategist David Kelly and U.S. Bank Chief Investment Officer Eric Friedman. Guys, it's great to have you here. Strong start to the week here for all the major averages. Continues to be risk on. Eric, you're overweight equities. You're also overweight real assets like commodities. Why is that the place to be right now in this market? Morgan, we still think there is, despite a slowing tone of the broader economy, a decent environment for both consumer spending and business capex to continue. So we think that being involved in both business to business software as well as tech is where you want to be.

We also think that while there's a little bit of a lofty expectation for earnings growth next year, at least in the U.S., it's still a decent environment. Again, we have a lot of noise coming in the back half of the year, whether it's the Fed or the election. But we still think those two trends, consumer spending and business capex, continue. That's why we're still bullish. Okay. We want to bring Mike Santoli into the conversation as well. Mike, we didn't close on the highs here for the S&P, but we did jump 1% in trading. We finished up about, looks like, three quarters of 1%,

5,473, a new record high. We've had a string of them lately. Not too terribly much, though, in terms of potential catalysts here, other than perhaps retail sales and jobless claims later this week. I guess what are the next things to watch? Yeah, I know. It's actually interesting in the sense that there wasn't necessarily much of an identifiable catalyst today either, except that it was just the pile on momentum in a lot of those Nasdaq stocks that dragged the rest of the market along. I would say retail sales matter a fair bit. But I would also turn to David Kelly here and ask, you know, essentially where you feel we are after the Fed meeting last week, after we got some of the more signs of disinflation, as to whether we are, in fact, tracking for the scenario that the markets have been essentially

trying to price in for over a year, which is benign softish landing. That's where I think we still are. And I think what's really going on here is a lack of news to get scared about is allowing people just to keep on doubling up on their bets and it's you know i was watching i was watching the evening news a few nights ago and they led with shark attacks and whatever the evening news leads with shark attacks you know that really there's not that much for investors to worry about um and that's kind of where we are so we've got this this smooth economy grow slowly coming down two percent inflation slowly heading down below three percent it's it's very comfortable margins look good and so what's happening is investors whatever liquidity

they have keep on adding to whatever bets they're making so you end up with you know this is a great environment in which to blow to grow bubbles and that's what I I kind of worry about here that the the momentum you know the narrowness of this market it's it's still there and there's a you know there's a huge dispersion valuations both within the U.S. market and between the U.S. and around the world so I think there's danger within the market just because because of this concentration but I don't see it ending anytime soon until you have some shock to disturb this very bland soft landing scenario. Sure and Eric mean, would you agree that there's actually not much that investors are either worried about or that there is much that they should be worried about right now?

Or how would you essentially assess the risk appetite of the market right now relative to what you think the risks are? Yeah, Mike, one of the things we've been seeing very consistently is the migration out of cash and into other asset classes. I think that with some of the signaling by the Fed over the last week that the front end is likely to come down again, probably gradually, that has pushed some clients into other categories. Again, most of the movement lower in interest rates has been the back end. Again, a 35 basis point dip in the 10-year doesn't hurt risk assets. So I think that in absence of things like commercial real estate issues, liquidity drying up, as well as more saber rattling out of obviously all the global tensions we have right now, this is a

decent environment. Again, it's still a fairly buoyant expectation for earnings growth next year, which we're concerned about. We start to turn the page on 2025 estimates in another week or so, another, let's call it a couple of weeks. So that could catch investors' eye, again, to the point of valuation. That's a pretty hefty expectation for earnings growth next year, but we still think doable given consumer spending and business capex. David, we can't talk about the U.S. Treasury market or U.S. equities, for that matter, and not talk about the global bond market. Treasury market or U.S. equities, for that matter, and not talk about the global bond market and the fact that there are a number of events this week alone globally that have the ability to move those markets.

I mean, look no further than France, but you also have a flurry of central banks that are poised to make their own policy decisions this week. How much could this affect some of the trading sentiment we see here? Well, I think it's helping keep money in the United States because and money moving towards the United States. There is an issue in France because it looks like right wing parties or the main right wing party there will do very well in the late June and early July elections. Now, I still don't think it's going to change policy in France that much, but it's scaring people about French bonds, it's scaring people about Italian bonds.

It's scaring, you know, if you've got a populist movement, which is not so careful about balancing the budget, it scares people about those bonds. And you've also got the Bank of Japan, which doesn't seem to be willing to really stop the fall in the yen. So you've got all these things, which really just pushing money towards U.S. markets. And that is, on the margin, good for U.S. long-term interest rates.

They might come down a little bit. But I'm not looking for a big rally in U.S. bonds at these levels, because another thing that's going to happen tomorrow is the Congressional Budget Office is going to put out new numbers on the U.S. budget. And I think what we're going to see is budget deficits of $2 trillion per year for as far as the eye can see. And that is a staggering amount of debt. And I think it does put some floor on how low long-term interest rates can go. Eric, we mentioned, I believe, that you're overweight risk assets in equities and real assets, commodities over bonds right now.

But for a long time, we've been in this range with the S&P, say, between 5,000, 5,300. Now we've broken above 5,400, getting close to 55. And on a day like today where you have the hardware and semiconductor AI trade doing so well, Supermicro, Dell, Broadcom, some others. What gives you confidence that equities can continue to run? Yeah, I think, John, if you look at the fundamentals of the marketplaces we're most interested in, it really boils down to CapEx. It sounds like a broken record. But until we see companies shift away from their prerogative, which has been to get bigger, stronger, faster through tech spend, we think that continues. Again, cyber, CRM, AI. It's also an expanding base. It's not just

a couple of new entrants. It's also becoming more of the norm to compete. You have to be involved in these spaces to have security across your infrastructure. Having a solid cyber budget is critical. So that's a proven right until otherwise market for now. I do think that where we've, again, been early, which means that it hasn't worked quite yet, is equal weighted S&P. We still think there's refinancing risk with small caps and even mid caps to some extent. So we've been adding capital to equal weight. We think there will be likely some mean reversion over time.

That's a spot that we think is under love in the current environment. We have been more interested in EFA, again, international developed. But to the point earlier about politics, it becomes a little bit of a messy stew right now. So, again, CapEx is your friend. The let's call it middle income and upper income consumer. Those are places where we think there's still going to be incremental spend. That's why we're still overweight in risk assets. All right. Makes sense. And David, you outlined some five broad buckets of risk and risk only matters to the extent that your portfolio is exposed to it.

Economic trends, policy mistakes, geopolitical tensions, natural disasters, and overvaluation. I mean, there's only so much that the investors, individual investors can do about any one of those, but maybe overvaluation. How do you determine, do you have a method for determining when that starts to become more of an issue? Well, it's always an issue when you see it there. I mean, if you look at the top 10 stocks in the S&P 500, they're trading at 30 times forward earnings. The rest of the market's trading at about 17 times. Nothing wrong with the rest of the market.

That is too high. The question really is, when does it break? But from an investor perspective, as I said, the whole point about risk is it only matters if you're exposed to it. So as you have incremental dollars to put to work, I think it does make sense to reduce risk by diversifying here, because people are getting more and more concentrated in areas which are more and more overpriced. And that does mean that if you have some sudden break, some sudden event, which changes the story in the United States,

you could see a lot of these most expensive assets really take a tumble here. And that's what you're trying to avoid. It is indeed. All right, David, Eric, thanks to you both. Now let's get some more from Senior Markets Commentator Mike Santoli with his dashboard. Hey, Mike. Hey, John. You know, one of the features of this last leg of the rally to successive records in the S&P has been relatively calm nature of the index moves, and that's reflected in the volatility index,

the CBOE S&P 500 volatility index. This is a five-year look. Obviously, you know, COVID shock is reflected there pretty well. But right now at around 12, I mean, it's essentially the floor. So this always draws out people who said, uh-oh, nobody's expecting bad stuff.

Maybe bad stuff is going to happen. Maybe people are too complacent. Maybe traders are insufficiently hedged against some unexpected surprise. Now, I don't really buy that that's a direct conclusion from the level of the volatility index. Bull markets are associated with long periods of very calm markets. However, there is something interesting going on right here, which is the dispersion within the index. This is what's known as the realized correlation of the S&P 500 stocks themselves.

So how much they're moving in relation to each other. If they're all the way up here, that means everything's moving together as one big blob. All the way down here at record levels, it means there's tremendous divergence among the behavior of the individual components and the index itself. It takes you back to early 2018. That was when you had something called volmageddon, people betting too much on the index remaining calm. It's obviously something you want to be mindful of, but in itself is more just saying that money is following individual stock stories

and themes as opposed to trading as one big macro market, Morgan. All right. Mike Santoli, we'll see a little bit later this hour. Up next, we're going abroad with the chief strategist of Clocktower Group. Find out where he sees the biggest investing opportunities around the globe right now. And we are still awaiting home builder Lennar's results. Instant analysis of those coming up. Overtime's back in two. Welcome back. The French market recovered slightly today after last week's sell-off over the potential for a victory by the far-right National Party in its

upcoming parliamentary elections. Happening elsewhere around the globe, tomorrow morning, the Royal Bank of Australia will release their rate decision with the Bank of England's rate decision to follow on Thursday. Following us now to discuss around the world is Marco Popic. He is the Clocktower Group's chief strategist. Marco, first of all, before we even get around the world, you expect a recession in the U.S. over, first of all, before we even get around the world, you expect a recession in the U.S. over the next 12 months and see the risk that the U.S. is next with this geopolitical

instability. Please explain. Well, yes, I think a lot of the tailwinds that have really underpinned the extraordinary growth of the last 18 months are dissipating. You know, nominal wages are coming down. The huge real wage gains that came with CPI going from 10% to 4%, that's gone. And then finally, a lot of the excess savings is finally running out. The forecast that it would run out last year was incorrect mathematically, but it wasn't a silly argument. I mean, it was just early. So with the tailwinds for U.S. consumption going away, with CapEx intentions coming down due to high interest rates, and with fiscal policy actually being a drag on growth, I think that we will have some form of a shallow recession over the next 12 months. Now, granted, you have been bearish in

a number of different areas with the story yet to emerge. One of those areas is India, since we're starting to go around the world here. You've been wrong on that, as you point out, for about five years. India has been a very successful equity market. Why now do you continue to see risk there? Well, I think with India, it is the best performing market in the last five years. But the problem is that the story that has underpinned its rise, which is this idea that it is participating in manufacturing, rebalancing away from China, is actually incorrect. There is no evidence other than anecdotal that India has seen any actual increase in industrial capex or industrial FDI. And so I think a lot of the rally in Indian assets has been bid up due to this sort of a geopolitical move away from Chinese assets.

And I think that that's basically coming to an end, especially with the politics in India coming to an end in terms of being a positive tailwind. Marco, it's Morgan. Of course, I'm going to ask you about Europe. We've got the snap election and that dynamic playing out in France right now. It has rattled investors in those markets in France. We're seeing it ripple through Europe as well. Add on to that the fact that you have some central bank decisions coming out of the continent as well this week. I realize maybe it's not European Union, but Bank of England, you've got Norway, a number of others. How do investors prepare themselves for the uncertainty on that continent right now? Well, first of all, I think that a lot of investors still haven't updated their view of the far right in Europe, which I think

we should probably retire that term because a lot of the populist parties have actually moderated considerably. Giorgia Maloney in Italy is a great example of what has happened. You know, she is the head of the Fratelli d'Italia, which was extremely far right. And they're basically now a center right party in Italy. They have allayed the fears of investors since the snap election in 2021 in that country. So I think that the path for Marine Le Pen is pretty much the same. She's going to have to prove herself and her party over the next three years in order to compete for the presidential election in 2027. And so it really behooves her to ensure that the market doesn't rally. Sorry, it doesn't collapse, you know, that the market doesn't discipline in a very painful way,

French policymakers. You've already seen her and her various party members start to moderate. But what I think is really important is that this entire episode teaches us that even in a context of slowing down growth, where bonds should be rallying, politics can emerge as a real strong sell-off signal. And I think that what's happening in France is merely an amuse-bouche, you know, just a little sampler of what's coming in the U.S. potentially later this year with the U.S. election. Okay, Marco, thanks for joining us. Up next, Bessemer Venture Partners' Byron Dieter gives us his top AI investment opportunities. He also reacts to the FTC suing Adobe over allegedly deceptive subscription fees. And Zellman & Associates co-founder Ivy Zellman will be here for instant reaction to homebuilder

Lennar's earnings, which are set to be released in just a few minutes. We'll be right back. Welcome back to Overtime. Adobe closing lower today despite tech's rally. The FTC is suing Adobe, accusing it of hurting consumers by hiding fees, preventing users from easily canceling. Adobe telling CNBC in a statement, we are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process. We will refute the FTC's claims in court. Joining us now is Byron Dieter, partner at Bessemer, focused on cloud and AI. Byron, great to have you. I actually want to zoom back for a moment because a few years ago, we were talking about post-FANG, maybe in a way post-cloud, this idea of Mount Sass, this basket of stocks you put together, Microsoft, Twilio, Salesforce, Adobe,

Amazon, Shopify. And to me, the performance of that group versus the S&P speaks to something that Mike Santoli was sharing with us earlier about how the whole market's not moving together. Since December 2020 and over three years, the S&P has beaten everything in Mount Sass, except for Microsoft. So what does that mean about the state of every piece of software out there that's not MegaCap? Is there opportunity there or are the MegaCaps just crushing everything else? Yes and yes. So great to be back, John. Thanks for having me.

And we got a few things right with that and we are waiting to see a few things play out. I would double click on your mega cap piece of that. So the Microsoft Amazon hyperscaler part of that, we nailed. And you've seen them continue to play into their lead and really pull away. The mid caps, the Shopify and Adobe piece of that has performed quite well in an absolute sense, but sort of hung with Fang and some of these other indices. What we haven't seen, though, is the quote unquote smaller caps, which in this food group ranges from the 10 billion to the 150 billion. They've meaningfully underperformed. And so the question is, this is an

inversion from the last waves in tech, where in cloud and crypto and some of these markets, the smaller, more disruptive folks led and then the big companies followed. The question now is, will the smaller companies catch up and will they benefit from it? That's what we're betting on, is that there is a delay and these pure plays aren't getting forward credit for their product roadmaps as the incumbents are. But we haven't seen that in the market or the prices yet. And that's the weight we all have in mind. And the twin danger, it seems to me, Byron, is that even if the smaller caps do follow in the AI era, that the opportunity is less in the same way that historically the opportunity has been really big for the smaller companies out of the first movers and investors got to

capture that. Is there an argument beyond NVIDIA, Microsoft, Amazon, maybe even Apple now, that these smaller companies will get such an outsized AI benefit that public stock investors will benefit in a big way. So I disagree with the first part of that comment total addressable market, plus add in the services economy that is being consumed by much of the AI opportunity. This is the extinction level event for software. The software companies that don't respond and embrace AI are going to have absolute fundamental threats to their business. And so you have this huge prize up for grabs,

which is essentially that the majority of software spend plus a meaningful part of the services economy, trillions of dollars of spend that will be shifted over the coming years. We've seen the massive market reaction to the public names that are doing AI washing and have a little bit of AI in their business. What we haven't yet seen is this huge wave of private companies that are coming forward that are pure play AI companies. And that is the next wave that's building. NVIDIA is clearly benefiting from this. They see the spend from these private companies rolling through them. The infrastructure and hardware players are seeing parts of this. But for the software and app layer, that's still under the iceberg water level. And that's still going to reveal itself in the coming years. And I think that's the excitement that you see building in the private markets and from the investor sentiment

waiting for this wave to reveal itself. So, Byron, when do we know we're through that extinction event then? When do you know that the dust has settled and that the winners and losers have actually been determined? We're in the first innings of this. When you think of the plate tectonics going on now with the hyperscalers, and add in Meta and Apple's announcements recently, you've got the biggest of the bigs, the trillion dollar companies, that are fighting for this repositioning in their business.

And then you've got the open AIs, the anthropics, the challengers that are playing with, you know, multi-deca-core evaluations and billion dollar checkbooks that are coming with multi-deca-core valuations and billion-dollar checkbooks that are coming after them with better products today. And you have this entire business under threat dynamic rolling through, and the chairs are going to change. And it's fascinating to see how folks like Apple, who haven't made bets on LLMs yet, are responding and they're partnering and they're leveraging their dual assets of a ubiquitous platform and massive consumer data to try to get into that game and reenter.

And then you've got folks like Google Alphabet who have their core business under attack, and they've got a lot to lose and arguably very little to gain from what's going on right now. In the public markets, we're seeing this massive pile in by investors into those names, particularly the so-called picks and shovels or hyperscaler names, infrastructure-related AI play names that are seen as this first iteration and arguably as the folks that are going to set the stage for this new era. I'm wondering, is it the same dynamic that's playing out in terms of investor flows in the private market, or given the fact that these are the pure play upstarts that are going to help to set the stage, is it still up for grabs?

So the private market view is very much so, that we're in the early days. And go back to some of the other markets around historical software, cloud computing, even go back to search. And the challengers were later entrants, but fast movers and completely disrupted these multi-billion dollar and ultimately trillion dollar markets. We think that's still happening. We think that we're in the very early days. And what you have in terms of the leadership that's establishing itself, we saw the blow up of chat GPT and how it took the world by storm. You're seeing that now with Claude and perplexity and a number of these next generation tools that will be integrated into consumer and enterprise apps in completely transformative ways.

And it is a fun, wild, completely disruptive time. You think about healthcare and education and how fundamentally these industries will be totally disrupted and lives will be changed and outcomes will be changed because of this merger of technology and human horsepower that we're just starting to understand even how to horn it, how to harness and ultimately how to monetize. OK, Byron Dieter, thanks for joining us. Always a pleasure. Thank you. Time for a CNBC News update with Seema Modi. Hi, Seema. Hi, Morgan. A federal judge temporarily blocked the Biden administration's new Title IX rule in six more states.

The ruling comes after a different federal judge temporarily blocked it from going into effect in four states on Friday. It would require schools to allow transgender students to use bathrooms and locker rooms that align with their gender identity. The U.S. is up to 15 years behind China on developing high-tech nuclear power. That's according to a new report by the Information Technology and Innovation Foundation. China has 27 nuclear reactors under construction, while none are being built in the U.S. after plans for a plant in Utah were scrapped last year. And California firefighters are gaining ground against a large wildfire north of L.A. The post fire is now eight percent contained after scorching over 24 square miles and forcing at least twelve hundred people to evacuate. Fire department

officials hope to hold the fire at its current size, but warn that it could grow. Scary stuff. John and Morgan, back to you. All right. We've got Lennar earnings out. Seema Modi, thank you. Diana Olick has the numbers for Lennar. Diana. Well, Morgan, a big beat for Lennar on the top and bottom lines in Q2. EPS came in at $3.45 a share versus estimates of $3.24. Revenue of $8.8 billion versus estimates of $8.5 billion. Lenore Chairman Stuart Miller said in the release, although affordability continued to be tested by interest rate movements and simultaneously

challenged consumer sentiment, purchasers remained positive to increased sales incentives, resulting in a 19 percent increase in our new orders and a 15 percent increase in our deliveries year over year. So note increased incentives, he said. Not surprising given higher rates in the quarter. Average sales price of a Lennar home was down 5 percent from a year ago to $426,000. That's net of incentives, but that is down less than the 8 percent annual drop that we saw in Q1. Guidance for deliveries was in line with estimates, but guidance on new orders was slightly weaker than expectations. Back to you guys.

All right. Thanks, Diana. And that one's moving around quite a bit here in overtime. It was higher, almost 2% ahead of the results, and now it's about flat. Well, coming up, Zellman & Associates co-founder Ivy Zellman will break down those results and what they say about the state of housing right now. All right. We've got a news alert on NextEra, though, here. Pippa Stevens has the details. Pippa. Hey, John. Well, NextEra shares are falling here in extended trading after the company said it plans to sell equity units to the tune of $2 billion of equity units. They said that each equity unit will be issued in a stated amount of $50 and that some of the proceeds there will be used to build out new renewable energy projects,

among other things. That stock you see there down about 3%. John? All right, thanks. It's moving, so we needed to get to it. Now we will take a break. But up next, Mike Santoli is going to break down the growing gap between the big winners and losers in retail.

Out of a key reading on consumer spending tomorrow. Plus, NFL Commissioner Roger Goodell taking the stand today in a major antitrust lawsuit against the league. The highlights and what's at stake for the NFL later on Overtime. Welcome back. Results from May retail sales come out tomorrow morning. And while we wait for those numbers, Mike Santoli is back with a look at the current winners and losers in retail. Mike. Yeah, Morgan, this extreme selectivity of, you know, a couple of the high quality winners with earnings momentum and then the discarding of the rest is not just a tech story. Here's within retail some examples that over two years, Costco and TJX relative to Target. Target basically flat on a two year basis.

Very similar angles of ascent from TJX and Costco. Now, Costco, I've been attributing part of its gains to the fact that it's a very big component of the Nasdaq 100. So it's in the Nasdaq 100 ETF. But TJX isn't. So this maybe is just about market share gains and confidence in the earnings outlook. So that's being reflected in the market caps of these companies as well. I think one relevant point here is that TJX has actually eclipsed the market cap of Target with a lower sales base. I think another point you might draw from the fact that Costco and TJX are leaders right now is they're kind of net providers of disinflation. They're cost leaders. They kind of cap their margins, and they basically attract a more value-oriented customer.

It's probably good from a macro perspective. It is fascinating, though, to see how, as you do have names like Target, for example, like Costco, like Walmart, starting to, not to mention some of the apparel retail, starting to not only engage in more disinflation, but actual deflation, how that's going to play out in the macro data as well. Absolutely. I think on the good side, which is where they're playing here, it really is a positive story. And, in fact, you've seen some pockets of deflation in those areas. I guess the big question in terms of interest rates, Fed policy and all the rest is whether the services and real estate side of inflation measures can come into line as well. We're waiting for that, of course. All right, Mike, thank you.

And now the NFL's commissioner defending the league in court today in a huge antitrust lawsuit over its Sunday ticket package. Up next, find out what he said on the stand. And check out shares of Disney, one of the top performers in the Dow today after Inside Out 2 grossed $155 million domestically in its opening weekend. It's the second highest debut ever for an animated film. Shares at Disney up one and a half percent today. Welcome back to Overtime.

The NFL attempting to tackle a multibillion dollar antitrust lawsuit over its Sunday ticket package today by putting Commissioner Roger Goodell on the stand. Our Julia Boorstin is outside the courthouse with the highlights. Julia. Well, John, court just resumed. Right now, plaintiff's attorney is continuing with the cross-examination of NFL Commissioner Roger Goodell, who earlier today repeatedly hit stress, his focus on bringing the NFL to as many fans as possible. Now, as much as $21 billion in damages are at stake in this class action lawsuit that alleges that the NFL granting DirecTV exclusive distribution of its Sunday ticket package of games resulted in inflated prices for consumers. Now, the commissioner describing Sunday ticket as a premium product

with additional content not meant for every fan, saying that access to out-of-market games is supplemental and complementary to CBS and Fox's broadcast of Sunday afternoon games. Goodell also noted that the NFL had no control over DirecTV's pricing of Sunday Ticket and that they didn't like that DirecTV occasionally offered promotions and gave the premium subscription package away for free, but that they couldn't do anything about it. Now, after Goodell wraps up this afternoon, Dallas Cowboys owner Jerry Jones is expected to take the stand. We caught him walking into the courthouse about an hour ago. And John and Morgan, I have to say that this morning when I was in there, the judge was very testy with the plaintiff's attorney admonishing him for wasting time.

So some interesting exchanges there. We'll see what happens the rest of the day. All right. Obviously a big one for many folks watching. Julia Borsten, thank you. Up next, Zellman & Associates co-founder Ivy Zellman reacts to Lenar's earnings and what they could signal for KB Home, which reports results here on Overtime tomorrow. And Best Buy, a big winner in the S&P 500 today,

hitting a one-year high after UBS upgraded the consumer electronics retailer from neutral to buy and hiking the price target from $85 to $106 a share, citing catalysts such as improving housing trends and new products with AI. We'll be right back. Welcome back to Overtime. Homebuilder Lennar shares are in the red here right now, down about 1.5%, despite beating estimates on the top and bottom lines. Joining us now is Ivy Zellman, co-founder and executive vice president of Zellman & Associates.

Ivy, it's great to have you back on, and that's exactly where I'm going to start, because you had a beat for the quarter, but they also put forward Q3 guidance. And it looks like maybe some of those metrics, a few of them were shy of street expectations. I mean, last week ahead of this report, you downgraded Lenar. You said you were still bullish on the long term, but that you're neutral right now and that a lot of this was going to hinge on the guidance and on the growing of those gross margins. Your thoughts today? Well, first, thanks for having me. I think Lenar had a very good quarter. Our downgrade was more concerned

or related to the fact that we thought there really wasn't going to be much upside. We actually were in line with consensus and the company overall maintained their guidance and had pretty much in line metrics. Our concern about the industry right now is that we're starting to see seasonally slower than activity for the prior four months ended May. And we're seeing incentives tick up. We're seeing pricing overall flatten out. And we're seeing year-over-year orders declining for our proprietary private builder survey. So I think the publics will have very little upside.

And it's going to get harder given the valuations are already at lofty levels relative to history. So then what becomes the next catalyst for home builders like Lenar and like others? Is it going to be the cutting of interest rates or something else? I think you're right. I think that we need rates to come down. We need to see affordability improve.

One of the metrics that we reported on for our May survey was that the credit overall is showing definitely some cautionary red flags for the consumer. So I think we need rates to come down to make the monthly payment more affordable and consumers to feel like they're getting value. So, Ivy, you feel the same way about KB that you do about Lennar because KB stock has been doing a lot better. We do, although it's trading at a lower multiple at one point three five times book, nine times earnings compared to Lennar, which is at one point eight, one point nine times 11 earnings, 11 times earnings. It's trading at a premium to the mid cap group. And I think that what we're looking at is just not enough upside to get people excited given those premiums. And what we saw last week when Toll Brothers reported, although they hit an inline quarter and they had overall solid results, the stock sold off.

How much benefit does a homebuilder get from being at the very high end of the market versus closer to the mid-range, considering that the consumers at the high end are feeling less pressure and might be using more cash? Well, overall, Lennar is more skewed to the entry level, and they actually had a very strong quarter, despite the fact that the lower end is struggling more. So we do agree with you that the higher end is performing better. I'd say that the first time buyer is where we're seeing probably the most caution. So if anything, KB is more skewed to that buyer too. So we'll see how they do. But again, we're expecting them to be pretty much in line. It's really about the back half of 24. And if we continue to see what is slower than seasonal activity, I think the builders in

general will be harder and harder to deliver the results that they're expecting or guiding for. And of course, we're going to get some more housing data later this week. We get new home sales next week, which is always a key metric, forward-looking metric for the home builders as well. Do you just take profit from the group overall here and kind of sit on your hands, or is there a name that is particularly compelling at these levels? You know, we're pretty neutral on the group. So I think that it's better to look for opportunities buying on any weakness. I don't see any rush to be putting new money to work here. And I do like Meritage.

We have that rated outperform. They've been doing a lot of things strategically that I think are going to result in much higher returns longer term. But generally, the group trades as a group, a very homogeneous group. And it's difficult to see a lot of them break out. So I'd be sitting on the sidelines waiting for a buying opportunity, a little buying on weakness. What about apartment builders then? I mean, you know, if it's that hard on first time home buyers, if people are going to be in a renting position for that long and if the employment market is holding up, I imagine building those might be good for a while. Well, you know, the apartment industry,

multifamily has been seeing tremendous pressure on starts. Starts are roughly down 30, 40 percent year to date. And we're looking at what had been rents under pressure. But interestingly, our multifamily survey has been showing stabilization and re-acceleration in rents. So that may be the case that household growth and the economy still being so strong is pushing people more likely to go back to the apartment market because they can't afford to buy in the for sale market.

So of course, I'm gonna ask kind of the question that funnels into broader inflation data as well. And that is, what's the trajectory now for home prices? Well, our survey shows that home prices are flattening out. We're seeing a tick up in incentives, which I think the overall strength of the housing market, home prices have been up surprisingly very significant. We're up 5%, 6% year to date. We had expected that home prices would decelerate. So we're looking for home prices to decelerate, not go negative nationally, but definitely see more pressure in the back half of the year relative to the growth we saw in the first half, just because the affordability is so

constrained and builders want to move their inventory. So I think that would be good for the Fed, except the rental rates are re-accelerating for multifamily, which would be problematic for the Fed. All right. Ivy Zellman of Zellman & Associates, thank you. Thank you. Speaking of housing, we have an earnings alert on Lazy Boy. Shares are surging in overtime after the furniture maker reported much better than expected profit and revenue and issued strong first quarter sales guidance. You can see it there, up even 10%.

A Boeing CEO is in not a Lazy boy, but a hot seat on Capitol Hill. And a big reading on retail sales could move the market tomorrow. We've got details straight ahead. 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 Overtime. NASA pushing back the date of the Boeing Starliner's return from the International Space Station. Already extended once, the new date is now June 22nd, at the earliest, to give the team more time to conduct tests on the spacecraft and gather more data.

It roughly doubles the length of this test mission that involves NASA astronauts Butch Wilmore and Sonny Williams. Boeing ran into multiple delays before finally launching the first ever crew on Starliner earlier this month. Since then, five helium leaks and a valve issue have materialized. NASA and Boeing will hold a teleconference tomorrow at noon Eastern to share more information. Sticking with Boeing, a journal report this afternoon saying the company is having a tough time with its search for a new CEO. Some candidates have apparently turned down the opportunity to lead the troubled jet maker. One of the names who apparently has done so,

turned down the role, is GE Aerospace Chief Larry Culp. Now, it's my understanding, and he has said this before, that Culp is excited to run GE as a standalone public company, so no plans to leave GE Aerospace anytime soon. He does look forward to continue to work with Boeing as a partner and a supplier. Dave Gitlin, Carrier CEO, also one of the names that has been circulated. The Journal saying today he turned down consideration for the role too. Gitlin, who is a current Boeing board member, actually addressed this in Carrier's April earnings call when he said he told Boeing he is 100 percent committed to Carrier. Another name, Spirit Aerosystems CEO Pat Shanahan, who came to the beleaguered Boeing supplier last September.

The company's spokesperson there, Joe Buccino, telling CNBC, quote, Our CEO remains wholly focused on leading Spirit Aerosystems and providing the best value for our shareholders, customers and the flying public. Now, Boeing's current CEO, Dave Calhoun, has said he plans to step down by the end of this year. John, another name that has been floated is Boeing's COO, Stephanie Pope. So continue to monitor the situation. Yeah, going to have to moneyball that one probably. Well, speaking of Boeing, its CEO, David Calhoun, as mentioned, is testifying at a U.S. Senate panel tomorrow where he will address safety concerns around the Boeing 737 MAX.

Tomorrow, we are also getting results for May retail sales. And KB Home, as we've mentioned, is coming out with second quarter results right here on overtime. Other earnings we will get this week are Kroger, Darden and CarMax. So a lot of food in there and another, you know, qualitative read on inflation for sure. Yeah. And of course, everybody's focused on jobless claims that come later this week, this holiday shortened week on Thursday, too, given the fact that we saw a jump there last week. A lot of tug of war among investors in terms of whether we're seeing the soft landing narrative play out or whether we're seeing the beginnings of a much steeper softening in the economy overall,

which goes back to where we started this hour, which is the pile into the mega cap tech names that are seen as AI secular growth names and safety plays. Yeah, I know it's dangerous, especially because so much of the economy is services right now versus, you know, taking a little niche like restaurants or food. But Darden is so middle of the road consumer, so middle America, you wonder what they say color-wise about trends, how often people are going to restaurants, size of ticket, ingredient costs. I think that's going to be interesting and important. And then, of course, Kroger tends to run a pretty tight ship for a grocery chain. They're not Walmart. But in a way, that's a good thing. We know how Walmart's doing. How is a brand like Kroger faring in this economy?

Yeah. And of course, Kroger, we know, has been trying to merge with Albertsons. And it speaks to how that competitive landscape has continued to evolve, too, since Walmart, we know, despite being a big box retailer, is also the largest grocer in the country, too. Yeah. I mean, all kinds of merger attempts getting fought and foiled in this case, but they're still in the hunt here. We'll see if it happens. Yeah. Meantime, you had record highs again for the S&P 500, the Nasdaq, and the Nasdaq 100. You had the Dow snapping a four day losing streak. And you've seen Treasury yields. Well, we'll say they're range bound right now.

It was particularly, as I mentioned at the top of the show, a lot of the hardware and semiconductor names that did so, so well today. We'll see to what degree that can continue. I mean, among the semiconductor names, not even all just straight AI. Qualcomm was up by 3 percent. All right. Well, that's going to do it for us here at Overtime. Fast money starts now.