Closing Bell - Closing Bell Overtime: Win streaks snapped, Disney board member on the consumer, one key piece of advice for the second half 6/23/23

Episode Date: June 23, 2023

The major averages snapped multi-week winning streaks as stocks fell in Friday trading. JP Morgan’s Jack Caffrey and Invesco’s Brian Levitt discuss the weakness in the shortened week and the outlook going forward. Disney, Coca-Cola, and Under Armour board member Carolyn Everson, who was previously an executive at Facebook, gives her read on the consumer and post-pandemic spending. CFRA’s Sam Stovall gives a key piece of advice for investors in the second half. Plus an under-the-radar sector worth a look, why Virgin Galactic’s stock fell to earth, and a big change for Florida real estate.

That's right, stocks ending lower. It's the worst week for the major averages since March. 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 Fort. Coming up, this is double trouble for us, by the way. Coming up, we've got former Facebook executive and current Disney and Coca-Cola board member Carolyn Everson going to join us to talk about her latest board appointment, plus her read on the consumer and the advertising industry. And later, CFRA's Sam Stovall has one piece of advice for investors in the second half after the market's strong start to the year.

He's going to join us to explain. We begin this hour with a news alert on the Russell indices and a major rebalancing happening right now. Bob Pisani, what is this and why should investors pay attention? Well, this is one of the big liquidity events of the year. We have a rebalancing. The indexes have become very important. S&P 500 index, Russell 1000 and 2000.

Today, the Russell indexes are rebalancing. So this happens once a year. It's a big event. There's $12 trillion indexed to the Russell indexes that include the Russell 2000, the small cap and the the big cap Russell 1000. Again, one of the heaviest trading days of the year. So here's what happens. Two things.

First, winners in the small cap Russell 2000, they go to the big cap. They graduate. And vice versa. The losers in the Russell 1000 go down again. A lot of the tech names increased their weighting in the Russell 1000. You know about tech. Had a huge year. This is the moment where they get rebalanced in the Russell 1000.

So some upward pressure on technology there. And some tech stocks like Meta, Netflix, and Alphabet, communication stocks, really, go from value to growth. So remember what happened this year. We've had Meta's up over 100% this year. Netflix as well is up over 40%. So they're now going to go from value stocks to growth stocks. And a lot of people who play those kinds of styles, of course, are going to have from value stocks to growth stocks. And a lot of people who play those kinds of styles, of course, are going to have different weightings and different stocks

in those indexes. So occasionally, we're going to see here big cap tech names. I just want to put them up for you today. They fared fairly well. Apple dropped going into the close. So did Alphabet a little bit, but not dramatically. These have held pretty well. I'll tell you what I see a real difference in this week, guys, where people are talking about correction is in the semiconductor stocks. We've had some fairly big names down this week. Intel down 9 percent, AMD, Broadcom, STMicro. So a lot of people have been calling for a summer correction. We may start getting it already. I wouldn't be surprised. This happens a lot, guys, 5 to 10 percent correction in the summer. But we've got seasonally lower volumes going into the months ahead, sky-high prices for tech stocks, and now concerns

about higher interest rates. And I think those concerns about higher interest rates is really the main catalyst for why we're seeing some weakness in big cap tech this week. Guys, back to you. All right, Bob Pisani, thank you very much. Have a great weekend. Major averages still, or major averages all, snapping weekly winning streaks. Three for the Dow, five for the S&P 500, and eight for the NASDAQ. Joining us now is Jack Caffrey, JPMorgan Asset Management's Equity Portfolio Manager, and Brian Levitt, Invesco North America Global Market Strategist. Good afternoon to you both. Brian, I'll start with you.

I mean, Bob just kind of laid it out right there. We've had this rebalancing on the one hand and on the other, some profit-taking in big cap tech names, and just kind of laid it out right there. We've had this rebalancing on the one hand and on the other, some profit taking in big cap tech names and the possibility of a summer correction. Do you think that's a real risk here? Yeah, I wouldn't call it I wouldn't over exaggerate the risk. I mean, what I would say is there's potential for some retracement of some of the gains that we've had this year. That's that's how these things tend to play out. We've had a very nice advance, but it's been pretty narrow. And typically when you have narrow advances, it suggests that there tend to be less sustainable than if you have more broader advances. And we're still dealing

with the challenges of a slowing economy. And we're still grappling with when the Fed's going to end rate hikes. And so that puts a little bit of pressure on equities here. Look, I'm not overly concerned. Markets tend to do very well in the couple of years after Fed tightening. It's just perhaps some some near term challenges as we move through this period. Jack, how do you see it, especially when we did get that LEI that continues to flash recession warning signals? A lot of focus these last couple of days on some of the yield curve inversions as well. I mean, do the recession fears actually matter here? And if so, how do you position yourself for it? Or has the can been kicked? Well, I think that everyone entered this year anticipating recession. And for the most part, the initial calls were for a first half recession.

I think one hand, though, what we've seen is much better data than people were expecting. And employment data in particular has been almost a thorn in the side of the Fed, which is why their commentary has been so hawkish. And they've been dragging the bond market to agree with them versus the rate cuts that we were talking about pricing in as more recently as call it five or six weeks ago in terms of commentary. The Fed keeps reminding us, monetary policy works with a lag. And so the fact is, we are now inverted now for a year. I do think that there is a recession still to come. I think that actually makes some of the anticipation of a bottoming, if not actually a recovery, in earnings estimates later this year,

or even looking into 2024 2024 a little bit more suspect and then i'm going to add bank tightening you know we were told yesterday by chairman powell or i should say our fears were confirmed yesterday by chairman powell the big banks are going to be expected to hold more capital so inverted curve bank lending about to fall not only because senior loan officers are saying they're scared but effectively now you have to put up more capital against those loans and charge more for them to earn a return on your now increased capital base. Brian, for the investors at home, since we're talking about Russell rebalancing, let's talk about portfolio rebalancing. What does that mean in particularly in 2023, you think, for investors where you've had this big run, interest rates are in a very

different place than they've been any year in recent memory? Well, look, the start of the year was a soft landing type of rally. So investors started to get excited about small caps value, emerging markets. We never thought that that was sustainable. And around the time that the regional banks started to fail or a handful of regional banks started to fail, you ended up in a more defensive environment. I think that that defensive environment continues here now where you you want to favor quality. So that's quality within the fixed income space and that's quality within the equity space. And, you know, a lot of those quality names have been winning. They tend to be larger cap. They tend to have a growthier bent to them. But what you want to look out for is signs

over the, you know, the coming months. Are we starting to see signs of a recovery? And it's going to take a bit of time. You know, we still haven't seen this much anticipated recession. So I would hunker down here a bit in quality investment. But keep your eye out on the sign that things are turning and we're starting to move into a better macro environment, which would increase the breadth, improve the breadth of this market and start to include smaller caps value and non-U.S. equities. Jack, what does quality mean in fixed income as specifically as you can narrow it? Well, as an equity portfolio manager, I don't really have a strong view on

quality and fixed income. Sorry, let me let me give that to Brian, then get a little bit more specific than since you were talking about that. What does what does quality mean for investors out there here? Funds. How specifically should you be looking at longer dated things? Well, I'll tell you what investors are doing, looking for protection or quality is going into money market. I mean, you've seen a substantial over a trillion dollars into money markets, and that's giving you a four.5%, 5% yield. Historically, not a lot of volatility. But typically, when you have an inverted yield curve, that's not usually the right approach because you're bringing on reinvestment risk into the portfolio.

So I would say move out longer duration in treasuries. Also look for quality corporates. So you're being compensated. I mean, it was just a couple of years ago investors were saying to me, where can I get 4%? Well, you can get 4% in quality corporates now. You can get a tax equivalent yield over 4% in quality municipal bonds. So there's places to go to generate income where you eliminate or at least alleviate some of that reinvestment risk, but still take advantage of incomes that you didn't think you were going to get again a couple of years ago. You said tax equivalent yield. I love it.

Brian, Jack, have a good weekend. Thanks to both of you. Let's bring in Senior Markets Commentator Mike Santoli now at the New York Stock Exchange with a closer look at the action in the S&P 500. Mike. Yeah, John, just a glimpse at the field position here in the S&P 500. We had a modest pullback, pretty orderly all around. I would say a pretty widely anticipated and predicted one. So far, so good. You do see, though, how far the S&P did get stretched above this 50-day moving average, which shows you, you know, kind of the shorter to intermediate term trend. So you see since about March, the index, every pullback has ended before we got to that

50 day moving average. That's a pretty good kind of discipline type behavior for the index. And so that also means you could have another, let's say, three and a half percent drop from here in the S&P. And if it held right there, it would still be relatively routine in the grand scheme of things. Who knows if we get there or just kind of crack through it. But it's just a way of kind of putting it into perspective how much has built up in the market cap weighted S&P. Now, zooming in a little bit on the last several days, but an interesting dynamic intraday this week. Basically, every single day you had a morning drop in the S&P 500 and then a little bit of a rally afterwards. So this is Friday's action. That's last week before we had the Monday holiday. So morning low rally, morning low rally Wednesday, Thursday. So we had the attempt today and then it kind of sagged at the end. We did have the noisy

index reconstitution going on. Who knows if that's part of it? But it does show you that there is a little bit of a of a muscle memory in here to buy every little dip. You're seeing rotation within the market rather than people exiting the market. And that's generally a favorable pattern, except unless it's just kind of using up a lot of energy to stay in place. And we should make a remark, you've had a net decline in the index over this period. So market's a bit tired, might have to rest and reset lower a bit more. But we have to wait and see if, in fact, we do get more aggressive dip buying going into next week. And Mike, remind us what's happened to valuation levels in the overall S&P 500 while we're also looking at the charts.

Yeah, they've come back. And it's also kind of how you split it. I'm going to look at much more detail on this in a little while. But they're basically, let's call it not quite halfway back from October's low to the all-time high back in the early part of 2022. So you would say in a historical perspective, the S&P looks expensive, but it is still skewed by the very largest stock. So if earnings are hitting basically their low point for the year and are going to start to grow from here, as the consensus says, that mitigates their valuation excess a little bit anyway. Okay. Mike Santoli, we'll see you later in the show. The S&P ending the day at 43.48. After the break, former Facebook executive and current Disney, Coca-Cola, and Under Armour board member Carolyn Everson is going to join the board of another well-known consumer brand. She's going to join us exclusively in the meantime to reveal it. And we're also going to get a read on advertising spending so much more.

Plus, Fort Pitt's chief investment officer tells you the one under the radar sector he is betting on in the second half. Fort Elkhorn. Oh, we're times back. Yes, in two. Welcome back. Wedding and event powerhouse the not worldwide adding a decorated board member in carolyn everson she has a strong background consumer businesses including as former president of instacart and a vp at facebook everson is a senior advisor at investment firm premiera sits on the boards of disney coca-, and Under Armour. Carolyn, welcome. So another board, another important consumer name. Tell me, the knot is at the intersection of some really important macro trends, experiences, services, just consumer debt.

As you look at the rest of the year, do you think consumer spending can hold up through the end of the year and can services continue to outperform? Well, thanks for having me on, John. And hello to you, Morgan, as well. I'm thrilled to be on. Yes, I joined The Knot, which is The Knot Worldwide, which is a private company as part of my role in advising at Premiera, the private equity firm I joined in January. And I was really excited to join The Knot for a few reasons. One, I have a background in history in the wedding category. One of my very early jobs was actually being the CEO of ModernBride.com and the wedding network. So I used to compete with The Knot way back when. And the knot, as you mentioned, is at the intersection of so many interesting dynamics. It celebrates the most important moments in consumers' lives.

Last year was actually the Super Bowl of weddings. There were 2.6 million weddings. There was a bit of pent-up demand, as you can imagine, post-COVID. This year, it's stabilizing to pre-pandemic levels of about 2.1 million weddings. And what we are seeing is that despite challenges in the economy and in consumer spending, the average spend of a wedding is about $30,000 in the U.S. That's holding fairly steady. But what couples are choosing to spend money on is shifting a bit. They're looking for very significant moments and wows to make their wedding celebration stand out.

They are very focused on guests coming in and having an experience in person that, frankly, we were all robbed of during the pandemic. And so I think as digital as the world has become, and I certainly have spent my career in digital, there is some magic in celebrating together. And guests are showing that they're willing to spend money to go to weddings and travel because I think people are craving these in-person celebrations.

Yeah, I think that's still very much the case too. I mean, it got our attention that Signet Jewelers, not that long ago, basically shared a surprising tidbit. They said that they're selling fewer engagement rings this year because singles who are stuck at home during lockdowns failed to meet their their loves, their would be fiancees. And it's impacting it's impacting their results, their earnings results. And so it raises the question, whether it's the Knot or whether it's Disney or Coke or Under Armour. I mean, you have such a pulse on what's going on with consumers across goods and services. Have we seen certain behaviors shift coming out of the pandemic

fundamentally that will never return to where they were before? So what we've seen is a shift towards people craving experiences and services. So you see the travel industry has had quite a year. And by all indications, summer travel season is going to be very strong. Certainly at Disney, we've experienced excellent attendance at our parks and resorts. I think from a wedding standpoint, we are seeing it stabilize to pre-pandemic levels. And so there was definitely an interruption during COVID for in-person celebrations and perhaps people meeting, but we're also not taking into account the importance of online. A third of couples in the U.S., Canada, and the U.K. are meeting online, and those numbers are dramatically increasing in Latin America

since the pandemic. And so I think people are finding alternative ways to meet and at least start a conversation in the post-pandemic world. But I think there's no question that the value consumers place on creating memories, and in our case at the not celebratory moments, is very, very high. And people are prioritizing spend on them. So, Carolyn, this is interesting, because not too, too long ago, you were at Meta, Facebook, and Mark Zuckerberg was pushing this idea of the metaverse, of not in-person experiences, of virtual experiences being just as good, frankly, as in-person experiences. I'm not sure that the culture is still moving in that direction. You know, Disney parks are about

in-person experiences. Weddings, at least for now, are still very much about in-person experiences. How much did society sort of during COVID over invest in the virtual? And where do you think it's going to balance out? I think it's a great question. I, you know, I would never bet against Mark in terms of his vision. Mark tends to see things, you know, decades ahead of most people. So I think the digital world already plays a significant part of the time that you and I spend on a day-to-day basis, the time we spend on social media platforms or watching

CNBC on our mobile phone or in certain demographics, the amount of time people are spending in gaming environments. And so we do live in a digital world. But look, I have always also had a bias towards physical world connections. And I think COVID, because it was such an alarming moment in humanity's existence, where suddenly it was all taken away. And I think now that we have it back and we understand the importance of those in-person gatherings, the trips, the creating memories. I think that's why you're

seeing just a flocking to people wanting to be together physically. So I don't think it's an either or. I think we're going to be living in a very blended world. We already do. But there is something that you cannot replace when you get together physically with somebody. All right. Well, sticking with the physical aspect of this and with visionaries. Zuckerberg, Musk, apparently going to face off in this UFC competition, supposedly. I just wonder what the business aspect of this is when you have the CEOs of two major social media companies that could potentially have some sort of physical interaction here, whether this is good for business, how advertisers might be reacting to this,

or whether it doesn't really matter. Look, I know both Mark and Elon personally. I hope that if the reports are true, which I have to go by the fact that they both have personally posted, so I assume that they're having this dialogue. I hope they both do it for charity if they're going to do it. It's certainly not how I would want to see them spend their time doing this with each other. But if they're going to do it, I sincerely hope that they do it for some kind of cause in the greater good. Yeah, I guess in a way it's the opposite of the not right. Like two people getting together, not to. Anyway, hope neither of them ends up with a knot on their heads.

So Coke is very much also about in-person experiences in a way because of what we saw happen to stadium sales, to the fountain drinks in locations during COVID. How should we think about the continued ripple effects of people going back out into the world in experiences? And as that normalizes, how you think that's going to affect investors? So I think from an investment standpoint, I think the headline is people are not only returning to pre-pandemic levels of wanting in-person experiences, but in some cases they're over-indexing on spending on those services and experiences. And that is a macro trend that we're seeing. Over time, will it stabilize and it will go back to more of a balance between goods and services? Perhaps. But I think COVID has had an opportunity, I think, for all of us to rethink our priorities,

where we spend our time, who we spend our time with. You can go back and audit and ask your friends who stayed in touch over COVID, who made the effort to do virtual gatherings and stay really close to people if they couldn't see them physically. I think everything was reevaluated from a sociological standpoint during COVID.

And that's going to take some time to play out to see if it's a fundamentally changed behavior for consumers around the world, or will it go back to a little bit more like pre-pandemic? I wonder if you think some of the conversations in boardrooms has shifted and changed and that what's sort of being assessed as arooms has shifted and changed and that what's sort of being assessed as a risk has shifted and changed, whether it's geopolitics and rising tensions between the U.S. and China and what that means for companies doing business amid that, or whether it's some of the political stuff that's going on domestically, some of the social issues that are affecting some companies right now, like, for example, Disney? I think there are some very common topics

that are being discussed in sort of the largest corporate boardrooms that I have the privilege of sitting on and even some of the smaller private companies. Number one, the geopolitical landscape is of course a topic that is being discussed in every boardroom because you need to be prepared to make backup plans for supply chain and onshoring.

You need to understand what happens if tensions between China and Taiwan continue to escalate. Can you continue to do business in China? What does that look like? How does that impact the overall operations of the company? So that is very much a topic. I would say cybersecurity continues to be a very important topic. You know, when you look at what's happening with AI, cybersecurity can be a lot more sophisticated in terms of the attacks that companies and financial institutions are experiencing. So, I think there's a heightened level of awareness and discussion around that. The impact of AI more broadly on businesses, how it can be

used to make teams more efficient. Coca-Cola was one of the first ones to embrace open AI, a partner with open AI, I should say, and basically take all of their internal materials and make them accessible to their employees. That's been amazing. They're utilizing it in marketing. The Knot is utilizing AI in a marketing sense has already seen a 20% lift in efficiency and effectiveness. And we are looking at how AI can help in the wedding planning process and really allow people to communicate in a natural language way. For example, I would love to have a venue that could hold 200 people that is, you know, on a beach, has a beach setting and it has this type of food. You can speak in an AI format in a much more natural way.

So I think those are those are trends that we're seeing in every corporate boardroom discussion. OK, Carolyn Everson, wide ranging conversation. Thanks for joining us to have it. Thanks for having me. Take care, Morgan and John. Coming up, a chief investment officer with nearly five billion dollars under management says there's one sector that's been overlooked as tech steals all the headlines this year. We're going to hear about that stealth opportunity for the second half when overtime returns. Welcome back to overtime, the health care sector outperforming in this week's down market but it has been lagging so far this year our next guest sees some big opportunities in certain areas within that sector joining us now is fort pitt capital cio dan i dan so you like thermo fisher you like Thermo Fisher, you like Danaher. Why those in particular?

Yeah, happy Friday and thanks for having me. So, you know, both of these companies were just huge beneficiaries of COVID-related testing and vaccine revenues. And to put that into context, you know, Thermo's up, you know, 75% in 2020 and another 22% in 2021. So obviously, you know, that demand is rolling off. You know, the pharmaceutical customers that they serve are working through excess inventory levels and some of the smaller biotech companies that they serve are kind of feeling the pinch for tighter liquidity. But, you know, we view those as very short-term issues that have, frankly, been very well expected and even telegraphed. And just longer term, these businesses have very durable growth profiles with exposure to

very attractive end markets, such as, you know, biopharma processing, diagnostics, as well as life sciences tools. And what we really like is very sticky and very visible, highly visible revenue streams. Both companies generate about 75% of their revenue from recurring sources. So how do you feel about medical technology in general, the likes of Boston Scientific or Medtronic, and then pharmaceutical names, perhaps on the other side. We've been talking quite a bit about some of those lately. Yeah. So we really do like the pharmaceutical sector, especially the well-established large cap pharmaceutical companies that generate, you know, extremely attractive free cash flow profiles, you know, offer investors really

attractive dividends have rock solid balance sheets you know they're growing their earnings at high single digits and the stocks are very cheap you know the pharmaceutical companies that we focus on are trading it call it eight to twelve times earnings which we look at as as as extremely you know attractive and and undervalued uh so dan we had Tree. We have news that Oak Tree is also, I guess, raising a $2 billion plus private credit fund that is going to be dedicated to life sciences. When you see developments like this, is that a positive for the overall sector, or is that a sign that maybe this is a trade that could potentially get crowded quickly?

No, I think it's generally positive. You know, what we're seeing right now is, you know, the two companies that I mentioned and focus on, these are trading at 10 to 15 percent valuation discounts compared to their, you know, five-year averages. So the sector is certainly not overheated. But, you know, they're probably seeing the same thing that we see is you know these companies have very you know durable uh growth profiles you know call it low to mid uh low teens type of of earnings growth valuations are are attractive and again they have very visible you know revenues revenue and earning streams so i i. So I definitely don't see it as a sign that the

sector is anywhere close to overheated. Yeah. And of course, to your point, the fact that it's underperformed at least to start the year. So some opportunities here, maybe some value hunting. Dan, I thanks for joining us. Time for a CNBC News update with Contessa Brewer. Hi, Contessa. Hi there, Morgan. The chief of Wagner, a private military group, accused Russia of launching strikes on his military camps and killing an enormous amount of troops. He pledged to retaliate. Well, the Russian defense ministry denies the allegations made by Evgeny Prokhozhin. And state media reports the Russian government has now opened a criminal case against him

for calling for an armed mutiny. Earlier today, Prokgozhin accused the defense minister of lying to the public and misleading Putin about the reasons for invading Ukraine. Canada has launched an investigation into the implosion of the Titanic tourist sub. A Canadian cargo vessel was providing surface support to the submersible as it descended to the Titanic wreck last Sunday and lost contact an hour and 45 minutes into that mission. And President Joe Biden signed an executive order this afternoon to make it easier for Americans to get contraceptives. The order directs several

federal agencies to make sure health insurers cover all contraceptives approved by the FDA. Biden says his actions are crucial as states across the country move to limit access to abortion. John? Contessa, thank you. Up next, Mike Santoli returns with a reality check on tech, looking at whether, yes, he mentioned it before, valuations have gotten out of hand among NASDAQ 100 companies. And speaking of the NASDAQ 100, take a look at the biggest decliners this week in that index. Lucid, Enphase, JD.com, Intel, all making the top of that list. Also Rivian. We'll be right back. Welcome back to Overtime.

The healthcare sector outperforming in this week's down market, but it has been lagging so far this year. Our next guest sees some big opportunities in certain areas within that sector. Joining us now is Fort Pitt Capital CIO, Dan I. Dan, so you like Thermo Fisher, you like Danaher. Why those in particular? Yeah, happy Friday and thanks for having me. So, you know, both of these companies were just huge beneficiaries of COVID-related testing and vaccine revenues. And to put that into context, you know, Thermo's earnings per share were up 75 percent in 2020 and another 22 percent in 2021. So obviously, you know, that demand is rolling off. You know, the pharmaceutical customers that they serve are working through excess inventory levels and some of the smaller

biotech companies that they serve are kind of feeling the pinch for tighter liquidity. But, you know, we view those as very short-term issues that have frankly been very well expected and even telegraphed. And just longer term, these businesses have very durable growth profiles with exposure to very attractive end markets, such as biopharma processing, diagnostics, as well as life sciences tools. And what we really like is very sticky and very visible, highly visible revenue streams. Both companies generate about 75 percent of their revenue from recurring sources. So how do you feel about medical technology in general, the likes of Boston Scientific or Medtronic, and then pharmaceutical names?

Perhaps on the other side, we've been talking quite a bit about some of those lately. Yeah. So we really do like the pharmaceutical sector, especially the well-established, large cap pharmaceutical companies that generate, you know, extremely attractive free cash flow profiles, you know, offer investors really attractive dividends, have rock solid balance sheets. You know, they're growing their earnings at high single digits. And the stocks are very cheap. You know, the pharmaceutical companies that we at high single digits. And the stocks are very cheap. You know, the pharmaceutical companies that we focus on are trading at, call it, 8 to 12 times earnings, which we look at as extremely, you know, attractive and undervalued. So, Dan, we had Oaktree.

We have news that Oaktree is also, I guess, raising a $2 billion-plus private credit fund that is going to be dedicated to life sciences. When you see developments like this, is that a positive for the overall sector? Or is that a sign that maybe this is a trade that could potentially get crowded quickly? No, I think it's generally positive. You know, what we're seeing right now is, you know, the two companies that I mentioned and focus on, you know, these are trading at 10 to 15 percent valuation discounts compared to their, you know, five-year averages. So the sector is certainly not overheated. But, you know, they're probably seeing the same thing that we see is, you know, these companies have very, you know, durable growth profiles, you know, call it low to mid, low teens type of earnings growth, valuations are attractive. And again, they have very visible, you know, revenue and earnings streams. So I definitely don't see it as a sign that the sector is anywhere close to

overheated. Yeah. And of course, to your point, the fact that it's underperformed at least to start the year, so some opportunities here, maybe some value hunting. Dan, thanks for joining us. Time for a CNBC News Update with Contessa Brewer. Hi, Contessa. Hi there, Morgan. The chief of Wagner, a private military group, accused Russia of launching strikes on his military camps and killing an enormous amount of troops. He pledged to retaliate.

Well, the Russian Defense Ministry denies the allegations made by Evgeny Prigozhin. And state media reports the Russian government has now opened a criminal case against him for calling for an armed mutiny. Earlier today, Prigozhin accused the defense minister of lying to the public and misleading Putin about the reasons for invading Ukraine. Canada has launched an investigation into the implosion of the Titanic tourist sub. A Canadian cargo vessel was providing surface support to the submersible as it descended to the Titanic wreck last Sunday and lost contact an hour and 45 minutes into that mission. And President Joe Biden signed an executive order this afternoon

to make it easier for Americans to get contraceptives. The order directs several federal agencies to make sure health insurers cover all contraceptives approved by the FDA. Biden says his actions are crucial as states across the country move to limit access to abortion. John? Contessa, thank you. Up next, Mike Santoli returns with a reality check on tech, looking at whether, yes, he mentioned it before, valuations have gotten out of hand among NASDAQ 100 companies. And speaking of the NASDAQ 100, take a look at the biggest decliners this week in that index. Lucid, Enphase, JD.com, Intel, all making the top of that list. Also Rivian. We'll be right back.

Welcome back to Overtime. Michael Santoli back with a check on tech valuations. Mike? Yeah, John, they have come roaring back. If you just look at it through the NASDAQ 100 as a proxy and then compared to the S&P 500, you see this blue line here. We peaked in November of 2021 in the Nasdaq 100 and in valuations at around 31 times. Forward earnings went down to just about 20, slightly below that in October of last year. And now we've come back to 27 times forward earnings.

So that shows you we've rebuilt more than half of that P.E. that we had lost in the in the bear market. Now, there is a subtlety here, which is this 31 times. It was actually more expensive than that because the actual earnings that ensued over the following year were lower than then forecast. So you were more expensive than 31. You just didn't know it. If you think earnings are going to come through as expected this time, then maybe, you know, we're at more of a discount. But the point is, that's come back a lot faster than the overall market has. You see, it's a much more shallow rebound in the S&P 500. We're still between 18 and 19, closer to 19 times. I've seen some work that says if you take the broader tech sector, which means tech proper and then companies we used to call tech, such as Meta and Google and all those, that basically everything ex-tech is under 17 times.

So in other words, it's more like the median valuations for everything aside from the big growth stocks. But that doesn't necessarily mean that you have great forward returns, just not as, you know, not as great as they were certainly at the lows. But also it doesn't mean that you're trapped here and that we have to go lower because we've clearly been more expensive than this, Morgan. Interesting. You know, I was reading one report this morning that was talking about the fact that the real interest rate is perhaps pushing value and quality lower relative to growth and momentum right now. I wonder if you have thoughts on that. It is fascinating because the thinking for a long time had been that real interest rates would also restrain growth stock valuations. But the growth companies have really diverged from almost all of the yield based explanations for why they were valued in such a way. A lot of it you can explain simply by,

you know, the multi-year AI excitement, whether it's correct or not, is getting into the likes of NVIDIA and Microsoft and the rest of them. And it's just sort of independent of yields. But I think that the higher real yields, higher in the two year than we've had since 2009, are an issue. The good news about that is if you invest in fixed income at this point, you're getting goodjusted yield, which can kind of create an anchor in a portfolio. All right. Mike Santoli, the maestro of the Magnet Doodle. Have a good weekend. Good weekend, yeah.

Let's turn now to some action in the space space. Next week, Virgin Galactic is going up, literally, starting commercial spaceflight service with a launch window that opens Tuesday. But today, the stock is going down. Shares falling double digits, finishing the day about down about 18 and a half percent after Galactic says it raised $300 million through an at the market offering of common stock. The company plans, according to a filing, to raise another $400 million in a separate offering to expand its fleet. Shares of Virgin Galactic spiked 40 percent earlier this month when the company announced its plans for commercial operations, outlining next week's launch, as well as a planned flight in August.

And if all goes according to plan, monthly flights thereafter. John, I'm going to be in New Mexico next week to cover that launch. We're going to be doing that for CNBC. And you can catch all my space coverage in general on my podcast, Manifest Space, which is available wherever you get your podcasts. Nice. Nice. Looking forward to that action from New Mexico. And up next, Robert Frank is going to look at how a new law in a very different state, Florida, could have a huge impact on real estate in the Sunshine State. Robert. Well, John, Florida is the top state in the country when it comes to overseas buyers, and China is the top source of those buyers. But a new law could bring all of that to an end next week.

We're going to tell you about the battle brewing between the real estate industry and Governor DeSantis and the billions of dollars at stake. Coming up after the break. Welcome back to Overtime. Check out one of the biggest movers to the downside today it's siemens energy finished the day down 27 percent shares falling as much as 37 percent in trading after the company said it found a quote substantial increase in failure rates of wind turbine components adding that an extended technical review would incur high costs that could last

for years john that's a huge move for the game. Yeah, it is. Meantime, the winds of change are blowing in Florida as a new law backed by Governor Ron DeSantis could have a major ripple effect on the state's real estate market. Robert Frank is there with the details. Robert. John, bad news for overseas buyers could be good news for local real estate buyers.

A new law that takes effect next week could limit sales for people from seven different countries. Now, citizens of China would be prevented under this law from buying any real estate in the state of Florida. People who are from Venezuela, Russia, four other countries would be prevented from buying within 10 miles of what's called critical infrastructure. So that's airports, seaports, water treatment plants, electronic facilities, telecom systems. Basically, you map that out, it excludes all of Miami. Governor DeSantis says this is to protect the state from the influence of the Chinese Communist Party. But brokers say this could cost Florida billions of dollars in lost sales,

especially because of the inclusion of the Venezuelans. There is a lot of confusion as to if this affects all Venezuelans or just a certain side of Venezuelans. So when you read the headlines where it says Venezuelans can't buy properties, everybody panics. Then again, housing advocates say less competition from foreign buyers means greater opportunity for local buyers. There is a huge housing affordability crisis in Florida with very low inventory, so that may ease that. But without any kind of court intervention,

this law would take effect on Saturday, July 1st. Guys? Robert, what kind of precedent is there for this sort of thing, not just in Florida, but maybe in some major markets outside it? John, there is no precedent for a law like this. We've seen 25 states pass some kind of legislation that relates to Chinese government companies or related officials buying farmland in the U.S. But DeSantis has taken this to a whole new level to include residential properties and these seven countries, three of which China, Russia and Venezuela have traditionally been very big buyers of the condos in Miami Beach, all kinds of housing in Miami real estate. So this is a big test.

We'll see whether it stands the courts and whether it can hold up on the ground, because remember, there's one big loophole here. If you rent, you're not subject to any of these rules. So, Robert, then I just folks that already have bought homes, are those grandfathered in or is this or is this going to affect people that have already made purchases in the past? And I have to think that this is going to be challenged in the courts. It will be. And Morgan, you make a very interesting point, an important one, because part of the legal challenge to this from a group of Chinese citizens is that as part of this legislation, if you have already purchased in Florida, you've owned for years, and you're still a Chinese citizen, you need to register with the state.

That has caused all kinds of controversy for people that have owned and lived here for years. And that lawsuit is progressing. They're seeking an injunction on the basis of discrimination. We'll see whether they can get that injunction. Otherwise, this will start next week. But that's been a big challenge point for this law. Yeah. Big news, Robert Frank. Thank you. Up next, Sam Stovall explains why history says the bulls will keep running in the second half of this year and where he sees the biggest buying opportunities. And check out Bitcoin up 17 percent this week, briefly crossing the 31K level for the first time in more than a year. Cryptocurrency is now in pace to notch its first or best, I should say, first half of a year since 2019. Stay with us.

We're counting down. We're on our way to closing out the first half of the year with the Nasdaq currently up 28 percent and the S&P 500 up 13 percent. So will the momentum continue into the second half? Let's bring in Sam Stovall from CFRA. Sam, great to have you on the show. I mean, you called it at the beginning of the year. You said this was going to be a bullish year. Does it continue? Yes, I think it does, Morgan. Good to talk to you again. And I like to point to history. Obviously, history is a great guide. It's never gospel. But it does give you an idea that if the market does fairly well in the first half, then you probably have a lot of portfolio managers who feel like they have to play catch up. And so what traditionally happens then

is we end up with a good second half. And also, depending on how much the first half has risen, gives an idea of how well we'll do in the second half. On average, the market's up about 4% in the first half, whether it's up or down. It's up 5% if the first half is up. The second half is then up 6% if the first half was up more than 5%. And as we're seeing right now, with the S&P up more than 10% so far, that carries through to the end of the first half. History says we could see an 8 percent gain in the second half. Interesting. I wonder how granular you've gotten in terms of digging through history and looking at this pattern. Is it a situation where what's worked in the first half tends to work in the second half or do you or does rotation factor in here? No, what tends to work in the first

half does continue to work in the second half. I looked at the 11 sectors in the S&P and basically found that in the second half, if you had a positive first half, then by letting your winners ride, not only did the market go up on average about 78 percent of the time in that second half. But then the three best performing sectors at least equal that advance, but outperform the market about 60 percent of the time. So basically, you're equal to or better than the market six out of every 10 times. And so that could even be looked at from a sub industry perspective. So digging down even a little bit deeper than the overall sector. So, Sam, what's happening with the banks? What are you doing there? And particularly, what's your read on the regional banks? Are they going to consolidate? Well, to carry over the thought, what we have found also is that the regional banks right now are among the worst performers. We're the third worst performer so far, down 29% so far this year. And history would then say things are probably not

going to be much better in the second half. We still have some of the banks that we favor, but we're fairly cautious on the group right now, having at best a neutral weighting on the sub-industry. So I think what's been bouncing badly in the first half will likely to continue to bounce in the second half. What do you see as wild cards or risks to this thesis this year? I mean, there's been a lot of talk about the Fed. And of course, we saw Powell two times on the Hill this week testify that two more rate hikes are a likely guess. The word he used was guess. Does that change any of this if we see that come to fruition? Yeah, well, I think, you know, we've had times in the past in which we have had a double digit first half gain only to then post

a decline, a fairly substantial decline in the second half, once in the 1970s, three times in the 1980s. So, yeah, I guess the concern is that if the Fed continues to be overly hawkish and that we do see the array of indicators that are pointing to recession do finally kick in and the recession is more than just mild, as what I think has already been factored into the market, then even though the S&P 500 has been confirmed in a bull market up 20% and has recovered 70% of the overall decline and no other bear market advanced by that amount only to then turn around and go even deeper, but history frequently is rewritten. So if the Fed is overly aggressive

and throws us into a deeper than expected recession, yeah, I think you can throw these numbers out the window. OK, Sam Stovall from CFRA. Thank you. Thanks, John. Up next, what to expect from next week's Fed stress tests and what's at stake for the banks and investors when we come back. Welcome back to Overtime. We have a news alert on an IPO filing that just crossed. Israeli company Oddity. Leslie Picker has the details. Hi, Leslie.

Hey, Morgan. Yes, this is one to watch. Recently valued, according to reports, at about $1.5 billion, so somewhat sizable. They did just file their F1. That means they're a foreign filer. This one is based in Israel, but they are looking to file here on the Nasdaq stock market under the ticker symbol ODD. So odd will be the ticker symbol. Goldman, Morgan Stanley, and Allen & Company are managing this offering. Just kind of bear with me while I'm going through this F1 here. They describe themselves as a consumer tech platform that is transforming the global beauty and wellness market. They say that they established Oddity Labs to bring artificial

intelligence-based molecule discovery for the development of science-backed high-performance beauty and wellness products. In other words, they're kind of tapping into that AI trend and hoping to hit the momentum there as they pursue their IPO of going public. They're backed by Elkatterton, which, of course, is a big consumer-focused private equity firm based in the U.S. Continuing to dig into their financials a bit more here, just kind of scrolling down. Revenue, $166 million in the three months ended March 31st. Okay. John? Okay.

We'll see if investors are down with ODD. But meanwhile, we also want to talk about the Fed's annual stress test results, which will be released on Wednesday. Give us your quick take. Yeah. So the prospect of additional regulation has actually kept bank stocks in a holding pattern recently. The summer is expected to bring some clarity, starting with next week's stress test. So on Wednesday, the Fed will release the results. Those detail the financial resilience of larger

banks by estimating bank losses under a hypothetical recession scenario. These results help the Fed set capital requirements. So this year's severe adverse scenario comprises a peak unemployment rate of 10 percent, real GDP declines of nearly 9 percent from the end of last year, a drop in inflation and a yield curve that remains inverted but steepens over the course of the scenario. Now, based on the results of that test, we're expecting to hear from each of the 23 banks that will be tested individually about how these results inform their buyback and dividend plans. But management teams, especially those at super regionals, may be more conservative with capital return because there are still two

more pretty sizable regulatory actions expected in the coming months, guys. OK, it's one of many things we'll be watching next week. We got a lot of news on tap. And I got your reference, which I think dates both of us. Yes. You know me. That's going to do it for us here at Overtime. Fast Money starts now.