Closing Bell - Closing Bell: Positioning for 2025 & the Broadening Trade 1/3/25

Episode Date: January 3, 2025

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

And welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with a belated New Year's celebration on Wall Street. The index is tracking the end of five day losing streak with a brisk rally. The S&P 500 up more than 1 percent more like 1.3 percent trading back almost exactly at this moment to its 50 day moving average helped by a rebound in several marquee tech leaders and a better-than-expected reading on manufacturing activity this morning from the ISM. Now, that same upside data surprise also allowing for Treasury yields to stay firm, with the 10-year well above 4.5 percent, once again, as equity investors try to make their peace with a less dovish Fed and unclear fiscal policy impacts in the coming year. Now, none of that is slowing Nvidia shares, though, which are now up 5% better than that, in fact, over the first two days of this trading year and have returned to the upper end of a six-month trading range.

Which takes us to our talk of the tape. Is the market now free of the indecisive December choppiness that dropped the average stock by more than 6 percent? And what are the crucial catalysts to watch from here as January unfolds? Here to take on those questions is Fundstretch Tom Lee, a CNBC contributor, of course. Tom, good to see you. Happy New Year. Happy New Year to you. So first off, Tom, what's what's your diagnosis of what the market's been contending with here in the last several weeks

as we've gone sideways and had sort of this negative skew toward market breadth? Markets kind of did flail into the end of last year and the first day of 2025. And I think it was trying to digest a few things, you know, that the pretty dramatic move in long term yields and the dramatic drop in yields in China. I think that there has been some concerns about macro, as you saw some events over the past few days. And I think there was general profit-taking and some sort of like, let's wait and see how 2025 is given. We just booked two 20% back-to-back years. And do you think that those things will remain overhangs? I mean, obviously, you certainly have a bullish orientation. You feel as if the S&P 500 can get to 7,000 by mid-year before perhaps a pullback. Well, if we're getting from here to 7,000 in less than six months, you're talking about, you know, 35 percent annualized pace of gain.

So how do we get there? Well, I think one thing, you know, the viewers need to keep in mind is that just because the calendar year change doesn't mean that the strength that we saw throughout 2024 suddenly has evaporated. You know, there are tailwinds building because the Fed is dovish, even if they're making fewer cuts. But I think one of the sort of two important things happening early in 2025 is going to be one, we're seeing manufacturing recover. You know, the ISM manufacturing, you know, posted one of the highest readings in almost two and a half years.

I mean, it's been below 50 basically for nearly three years. And the second is that I think the labor market could be softening in a way, because whether you look at link up data or the ISM employment to tell us that the Fed now has to be focused back on supporting the economy. So I think this month could be quite decisive in the sense that we've got weakness because of some insecurities building. But I think it's, you know, the same tailwinds are in place. I mean, I think it's still a buy the dip kind of market. And in terms of perhaps the same themes being in place, does that mean that the leadership profile of the market you expect to stay similar to 2024? I mean, I know it's waxed and waned between mega cap growth leadership and then some broader participation.

But we did finish again with dominance by the Nasdaq 100 type stocks. Investors still are going to pay for earnings visibility, and that's why I think the MAG7, including Nvidia, are going to be important holdings. But financial conditions should ease this year. Easing financial conditions does allow some cyclicals to post better earnings growth like financials and regional banks, industrials, and small caps. So I think that there should be a case for broadening the markets this year. And then finally, you know, I think in terms of risk appetite, still one of the good measures to look at how risk appetite is, is to look at something like Bitcoin and at ninety

seven thousand, it's still telling us that, you know, this is still a risk on market. Yeah, I mean, obviously, it's held almost all of its gains since that little poke above 100,000 in Bitcoin. Although I do wonder what you make of the relatively heavy outflow we were seeing in the in the BlackRock ETF that holds Bitcoin, whether it was just sort of deferred profit taking into a new tax year or something else. It's hard to tell. And I think with the ETFs, it is creating, I think, an interesting dynamic, which is that someone who sells a BlackRock ETF doesn't have a 30-day holding period if they buy another Bitcoin ETF. So I think in some ways, you can see people doing basis swaps and stepped up in tax optimization strategies and not really having

to worry about that 30-day holding period. Right, the wash sale rule. Yeah, that certainly would make sense just as tax planning and a tactical basis. Again, on small caps, I mean, it feels as if we've had these false starts in terms of the comeback for smaller stocks, and many theories fly around as to whether you really need market bond yields to go down, you really need the Fed to get more aggressive, or you really need it to look like the start of a new cycle as opposed to the continuation of an existing one. Yeah, small caps have been frustrating because there have been a lot of rug pulls, especially last year.

I've been disappointed that small caps haven't sustained gains, but we know earnings visibility is better this year. You can look at either bottoms-up numbers or median EPS growth, and not only are they accelerating for the Russell 2000, they're still almost, at least at the index level, 2,000 basis points higher than the S&P earnings growth. So I do think this is a year where as long as the Fed is committed to getting towards neutral. So that's a caveat because, you know, of course, if inflation reaccelerates, small caps should really be an important beta play to that easing of financial conditions that follows. And just in terms of what have seemed to be perhaps headwinds or causes for investors to to pause a little just in terms of what have seemed to be perhaps headwinds or causes for investors to

pause a little bit in terms of seeking risk, the 10-year back to 4.6 percent or so as we speak right now, of course, you've had this massive ramp in the dollar. Both those things could be occurring for relatively benign or even outright good reasons. But it does seem as if the equity markets need to sort of figure out if they have the chance of being a little more hazardous. That's right. I think investors understandably get leery

when they think that there could be a 5% on a 10-year. And that means investors kind of sit on their sidelines and see if the markets can handle it, if it doesn't damage the economy or companies. And then eventually, our expectation is that and see if the markets can handle it, if it doesn't damage the economy or companies. And then eventually, you know, our expectation is that investors are going to be OK with even something like a 5 percent 10 year, just because that's still a 20 P.E. for a risk free bond and an existing equity P.E.s can actually go up. But of course, it'd be better to see 10 year yields closer to the low 4 percent than 5 percent.

Right. Yeah, it seems like that's where equity investors are slightly more comfortable, though, again, you can kind of make your peace at different levels. Tom, back to you in a second. Let's bring in Jason Snipe of Odyssey Capital Advisors and Megan Hsu of Wilmington Trust. Jason, of course, a CNBC contributor. And welcome to you both. And actually, Megan, before we get into the whole big picture backdrop, I did want to bring up something that Richmond Fed President Tom Barkin said today. And it gets at this whole idea of the interplay between growth expectations, Fed policy

and interest rates. He essentially was pretty positive on the growth profile in general and essentially saying, you know, we can stay restricted for a little while longer. It's a very wait and see type of message. He expects more upside than downside in terms of growth. Labor market more likely to break toward hiring and firing. And, you know, bond yields did lift after this. You happen to think, Megan, that perhaps the Fed is going to have to be forced to do more cutting. Why might that be? Yeah. And I think that Bargain's comments do summarize generally the gist of what we've gotten in terms of the tone from the Fed of late. And our view is that relative to consensus expectations, we are a bit more concerned about growth and a bit less concerned about inflation.

We just do not see the ingredients needed to have inflation materially reaccelerate. We think it could be sticky on a year-over-year basis, but will continue to trend lower. And in fact, we're a bit more concerned about the state of the labor market and the state of the consumer, which on the surface has been very strong. But as Tom mentioned before, if you look at some real-time job opening data, jolts and different metrics of job openings, they are plummeting. We're really not seeing any sign of them leveling off. If they continue to move lower, we think that will start to show up in some real weakening of the labor market. And that should also curb consumer spending, which again,

on the whole, has been relatively strong strong but if you dig down into what consumers are spending on. It is an increase in a lot of sort of- must haves medical bills and other- necessities rather than discretionary items so we think that the fed will be cutting considerably more. Than that

they indicated in their summary of economic projections. Which should help the market on the whole. But again, we are attuned to some weakening of the overall economic backdrop as well. Yeah, I suppose the fact that the Fed's most fixated in terms of the economic metrics and growth indicators, most fixated on labor markets to take their cue from there, that's a positive in the sense that, you know, any further weakness there probably would pull a pretty strong Fed response. On the other hand, historically, when the Fed is getting more aggressive in terms of easing to prevent a downturn,

that's when stocks struggle. How would you reconcile that, Megan? Yeah, I mean, I think if the Fed is easing because the labor market is deteriorating, that could be a concern. But we think that we can still strike the right balance and achieve that soft landing. Our GDP forecast is just a little bit below consensus for next year. But we think that that easing will help. And that could be very different from what we've seen historically, which is that the Fed's more often than not been behind the eight ball. They've been cutting when it's too late and when the economy is heading into recession. But a recession is not our expectations.

We think it could still be a good year for equities, just probably not the returns that we've seen over the last couple of years. So a little bit more about staying invested. We are modestly overweight to our benchmark, but really just sort of managing expectations from here. Jason, as the early action, not just this year, I guess, but really leading up to the turn of the year, giving you any reason to rethink the overall trend of things, or what's your, I guess, sort of top line observation of how you'd want to approach this year? Yeah, I think there's been a little bit of a digest. And obviously, momentum is really strong last year. I mean, the momentum factor in of itself was up 48 percent in 2024. So I think there was a little bit of digestion in the last few days

of the year. And then I think what we had in middle of December is obviously we had a hawkish cut, you know, with the Fed talking about they're not going to be on autopilot in terms of lowering rates in 2025. They're going to be more in a wait and see mode. And I think that was another pill that the market has had a difficult time digesting over the last couple of weeks. But I think as we turn to the turn the calendar into the new year, obviously where we are now, the other the other factor that we've been monitoring very closely, which you've talked to Tom earlier about is obviously the 10 year. I mean, the 10 year close to four point six potentially floating higher. I do think the market is potentially sniffing out some concerns around inflation. What will immigration policy look like? What's the Fed story gonna be look like,

and what are potentially tariffs talk going to look like into 2025. And I think that has been part of the catalyst and what's been moving the tenure. So I think that's something that's for us closely to monitor. You know, we saw what happened in 2022. We're coming off of two really strong years in the market. So I do think there's opportunity,

particularly with earnings starting to earn this in the next two weeks. But we're definitely in a more patient mode as we kind of review all the various factors as we look at the markets. Yeah, I guess, you know, the lack of policy visibility, as much as there are many expectations about what policy moves might be made, Jason, this coming year, the lack of policy visibility, as much as there are many expectations about what policy moves might be made, Jason, this coming year, the lack of policy visibility often causes the market to kind of migrate back toward the known quantities of mega cap tech. I mean, you know, obviously, it's what happened in December. You're pretty well exposed in that area. Have you seen any reason to either lighten up there or, I guess,

even press the bets? There's no doubt about it, Mike, that obviously these names have done phenomenal in 2024, and we will be doing some trimming. I definitely don't think they will trade as a monolith, as they didn't last year, obviously, with Microsoft being the laggard there, only up 12%, 13% in 2024. So for us, we favor Amazon as it relates to the MAG7. I think they've really strengthened their operating leverage. As I look to AWS and the cloud, I mean, the margin growth there was phenomenal. I mean, the operating profit was up 50% year over year. You know, the cloud growth was up 19% year over year as well. So there will be picks in that space.

NVIDIA, I think, will, of course, be another great story. But I don't think all is well there. I don't think they'll all do phenomenal in the way that they did a lot in 2024. So, you know, we're going to kind of pick and choose, but definitely looking to trim some of the high flyers from 2024. Yeah, in fact, it's been kind of beneficial in a way that the mag seven have gone their own way at times and kind of kept volatility lower. It's kept the whole Nasdaq from maybe getting a little bit overheated all at once. Tom, I wonder what your thought is about the general expectations level of investors and Wall Street and strategists and such. The last couple of years, as we started January,

people were able to point to a really deep well of skepticism. And you had very modest S&P targets on the sell side. You had a lot of economists saying we're at risk of recession. There's not a lot of that as we start 2025. Basically, a bullish consensus feeling as if a lot of things are primed to work. Is that a concern? It always is a concern because we know when you get to a top, it's because investors have now made a judgment error thinking stocks don't have downside risk. I don't think we're at that point yet because we know that shorting activity has increased

pretty sharply in the past few weeks. And speaking to our own clients, many have been skeptical about how stocks can do in 2025 because they view it as a stock picker's market given the back-to-back gains. So I think the institutional universe isn't really as bullish as many believe they would be because I think many just think a lot's priced in. On the non-institutional side, I think when we look at some of the feedback from our clients, they feel pretty beaten up since mid-December. I think that that sort of drawdown has actually taken out a lot of bullish expectations. So I don't think people are bearish, but I don't think they're as bullish as many claim investors are. Yeah, that's fair. I mean, the surveys recently have shown a little bit of moderating bullishness, some of the positioning data as well.

Megan, for an investor who's, I guess, got a more diversified portfolio, you're looking at this year, what stocks gave you last year, and maybe what the bond market is offering there. Are there any kind of clear moves or reorientations you think they should be making? Well, I think, for one, we have and we'll probably see other investors rebalancing because you had a stellar return for the equity market, really lackluster for bonds. Going forward, actually, where you have the yield on an aggregate bond index and where we expect rates to go, you're probably looking at pretty decent annualized returns over a three to

five year basis for bonds. So we are neutral to fixed income. And recently we took down our equity overweight trimming from U.S. small cap, a little bit more cautious than Tom is on the small cap space. But I would say stay underweight to cash, stay neutral to fixed income. The obvious risk is upside risk to rates, which we've talked about. And certain policies from the new administration could put upward pressure on yields. And we would look at this four and a half percent level in the 10 year to add volatility, but five percent level to really be a bit of a red flag. So as we're looking at positioning, again, it's about rebalancing, staying fully invested in equities, a little bit overweight and neutral to bonds. Yeah, we've only really touched 5% real briefly in this cycle. And before that, go back a long way since we did have to contend with that. See how it goes if we get there. Tom, Jason and Megan,

thanks so much. Appreciate it. All right, let's send it over to Christina Partsenevelis for a look at the biggest names moving into the close. Christina. Thanks, Mike. Well, shares of U.S. Steel are tumbling after President Biden blocked the nearly 15 billion dollar takeover of U.S. Steel by Japan's Nippon Steel. The president cited national security, which U.S. Steel and Nippon Steel have definitely pushed back on, calling Biden's decision, quote, unlawful. U.S. Steel is down about 5 percent today. And Block is popping right now. Raymond Jayne's upgrading the fintech stock to outperform from market perform. Analysts saying they have greater confidence in Block's 2025 acceleration story with estimates for double digit growth

just this year alone. Shares are up over 6 percent right now. Mike. Christina, thank you. Talk to you again in a bit. Well, Congress reelecting Mike Johnson to be House speaker just last hour. Let's send it over to Emily Wilkins in Washington for more on how this all came about. Emily. Hey, Mike. Yeah, dramatic day in D.C., but Republicans have survived their first test of a new Congress, re-electing Mike Johnson, who is speaking now from the House floor as Speaker on the first ballot. There was still some drama, though. Three lawmakers initially voted for someone other than Johnson, while

another handful of holdouts held their votes until the end, not signaling how they would vote. But eventually, every single Republican, save for one, save for Thomas Massey, did back Johnson. But Johnson got everyone on board in part through promising a working group to help coordinate between Doge and lawmakers on cutting federal spending. But some Republicans, they still have reservations. The House Freedom Caucus released a letter moments ago signed by 11 lawmakers saying that there is always room to negotiate on the so-called leadership positions under the rules. Personalities can be debated later, but right now there is zero room for error on the policies the American people demanded when they voted for President Trump, the ones necessary to save the country. And the letter goes on to name several of those policies

that members want to see, including, of course, cutting federal spending. So, Mike, today is definitely a win for Mike Johnson. But, of course, the real challenge lies ahead. Getting consensus on things like raising the debt limit, getting near unanimous agreement on immigration, funding the government. Those are going to be really tricky battles. So it's definitely definitely taken the W today for Johnson. But we are going to have to see because certainly there's still some trouble out there. There are still reservations. And that could have a big impact in exactly how much Republicans are able to get done.

Oh, for sure. Tight margins. Lots of differing priorities. Emily, thank you. Could be one of the reasons the stock market is exhaling just a little bit getting past this hurdle today. We're just getting started here. Up next, your 2025 tech playbook. Plexo Capital's Lo Tony is standing by with what he's expecting from that sector and how he thinks a new administration could impact big tech. That's after this break. We are live from New York Stock Exchange. You're watching Closing Bell on CNBC. The Nasdaq outperforming today on track to snap its longest daily losing streak since last April after gaining more than 100 percent over the past two years, can the tech sector maintain its momentum into 2025? Let's ask CNBC contributor Lo Tony of Plexo Capital. Lo, it's great to have you on.

You know, I guess you get into a new year and maybe it's logical to ask, has much changed in the way of the big themes and the trends that have been underway for a while? I had to point to this Microsoft story today. The company saying it's going to spend $80 billion this year on new data centers, more than half of that in the U.S. I mean, when you have the biggest companies spending that urgently, I guess the big money, if not the smart money, is betting that these trends are well entrenched. First, thanks for having me and happy new year. And yes, to your point, without question, we've seen the momentum building up. We saw early on experimentation, but now we're actually seeing full scale deployment rapidly. And I think the investment

by Microsoft, at least the announced investment, reflects that. And then how do we think about, I know it's almost become trite now to talk about, oh, the expected return on this spending and the payoff. And presumably they feel as if they have to do it and know how to get paid for it. But what does it mean for other players? I mean, you know, these companies like Microsoft, like Amazon, for a long time, or meta for sure, were seen as just these kind of virtual platforms, these profit machines that just sustain themselves. It was all network effects. And now they're spending tens of billions each to create physical infrastructure with the hope of getting paid down the road. Does it change the basic equation in terms of how we should think about these businesses? Well, that's a good point. When we think about the models that were most

attractive, these are what we like to call increasing returns models, where the ability to write code once and to be able to deploy it as many times as possible, was the reason that we saw such incredible margins from these companies. And the infrastructure required was not as significant as the need is today, to your point about the rapid growth of the services that revolve around AI. That requires much more compute power, which is why we're seeing these massive investments. So to your point, yes, it does slightly change the calculus. And those are things that we'll need to look to, to better understand, you know, what will be the potential new margin from the increase in this new line of business that requires this additional infrastructure investment.

And what about new players, smaller companies, you know, those that would try and participate in this emerging ecosystem but don't have that scale? So, I mean, is it just going to be about, you know, software around the edges of this stuff? Are we going to see a handoff as we did with the build out of the Internet from the hardware creators and networking and broadband into software? And when might that happen? Yeah, you know, these are some really interesting points that are being raised because when we look at the innovation cycles, when new technology or new platforms in particular typically emerge, there's this restructuring or an emergence of new players. The challenge that we see today is that some of the requirements

that we've talked about, particularly those infrastructure requirements, are just so massive in terms of the amount of capital required. You know, that's going to reduce the level of competition in certain areas. However, we still believe there's plenty of room left for innovation, to your point, around some of the other edges and areas within the entire ecosystem. So we're very bullish on the ability for new players to be able to emerge, you know, whether that's some of the existing names that we hear today, like OpenAI or Anthropic, which is a Plexo Capital portfolio company. There are other areas. And I think what we'll start to see is we'll start to see some more specialized areas within AI, if we're going to talk about AI, or even in some of the other areas that are going to be supportive players within the ecosystem?

You know, one of the ways I guess that the market gets its arms around what the opportunities are and how to leverage these big trends is through the IPO process, right? You have a lot of deals coming. You know, these companies kind of they try to give you their pitch. You evaluate how they perform in the market, whether in in fact, the business models work. Presumably, we're going to have to start seeing some more on that front just because there would seem to be some pent up issuance here. Yeah, without question. I mean, there's probably about 700 unicorns within the the private markets that are looking for liquidity. That liquidity is important. It's important to the innovation cycle.

We need the ability for companies to IPO, to have better exposure to a broader set of retail investors, to be able to return capital back to investors so that they can recycle and invest in the next innovation curve. And we just haven't seen the ability to have the window open for that IPO pipeline. You know, we saw some glimmers of hope, you know, without question, Service Titan, Reddit, which was a Plexo Capital portfolio company as well. And we're bullish on what we see in the pipeline, companies like, let's look at Chime or Klarna or Turo. But we're still not ready to get back to that robust period, in my

opinion, of 2020, 2021. But we're on the right path. So without question, I think we will see opening the window a little bit and some more companies come out. If we see those companies perform well, that bodes well for the entire ecosystem. Yeah, I mean, any one of those names that you just kind of threw out there would probably be a pretty substantial deal. We're not talking, I guess, about the real early stage startups just trying to grab some public capital. That's right. And the other area I think we should watch, you know, speaking of the new administration, there will be changes to the SEC, the FTC and DOJ. You know, without question, the leadership will change and there'll be a new agenda. And I think that will bode well for the big tech companies,

the tech industry in general, whether that's public or private, because we'll see a loosening of regulation around things like AI. I think we'll see a little bit of loosening around the impact of the scrutiny that's applied towards big tech when they're looking towards

acquisitions, I think we'll now see a shift with this new administration away from trying to break these companies up and just trying to make sure that there's more behavioral changes. So that's good. We'll see more M&A, which also, again, back to funding innovation, capital will return as a result of M&A activity as well. So all these factors will play well, I believe, for the next four years with this new administration, the changes they'll make, you know, loosening cryptocurrency. I think this is going to bode really well for people that are interested in the technology sector and things that are influenced by tech. Yeah, well, there's no doubt tech and Silicon Valley have a spot in the inner circle of the incoming administration. See how it goes from there. Lo, great to talk to you. Thanks so much. Thanks for having me. Hello, Tony. Up next, 314's Warren Pies is flagging what he thinks is the biggest risk to the market this year, and it is not inflation.

He'll join me after this break. Welcome back. Stocks rallying today, led by high growth areas like discretionary and tech. But our next guest warns many, including key Fed members, are overlooking one big risk to markets this year. 314 Research co-founder Warren Pies joins me now to talk it through. Warren, great to see you. It's interesting, you know, for as steady as the broad U.S. economy has been in its performance the last year or two years, we keep alternating between a growth scare, an inflation panic.

It feels like economic volatility as far as the market's concerned, risk getting out of control. What are we in for as we as we get into 2025? Yeah, thanks for having me and happy new year. What you're describing is kind of what we've talked about before, which is this is the soft landing path. It's just this oscillation between growth and inflation fears. My view is that our view at 314 is that we are kind of moving into this next phase of the economy, which is 2025 is going to be a year where we all kind of collectively try to discover what is the true nature of this economy. If you put this in economist lingo, you'd say, where is the neutral rate of interest? Neutral rate of interest is basically the interest rate the Fed, where inflation and growth is perfectly balanced, inflation and job losses.

And so basically, I think that the Fed in their most recent SEP and most market participants are misinterpreting bond market signals and basically have gone too far into this inflation concerns. My view is inflation is going to fall pretty hard this year in that really the number one risk to the market is growth. And so neutral is going to we're going to get to the end of this year. The bottom line in my view is we can get to the end of this year. And I think collectively, everyone's going to be wondering if neutral has even changed that much post pandemic. It's going to be much lower than what people expect.

Interesting. So you say the Fed seems to be misinterpreting bond market signals. So I guess by that, you mean that the fact that Treasury yields have gone up a fair bit since the September initial cut and then even further after the December Fed meeting, that Fed officials see that as the market bracing for more inflation. And you say it's maybe not that. Yeah, I mean, I think that's a very common misperception that I'm seeing out in the market right now is that, you know, we had, like you said, 100 basis point rise in the 10 year after the September cut. And the the I think one really predominant narrative out there is the Fed made a policy mistake by cutting rates. And I just think that ignores initial conditions. If you're going into that first rate cut, the Fed funds rate was well ahead. It was inverted with the two-year yield and the 10-year yield. We've never had that kind of an inversion at the start of a cut cycle. And I think that was the

bond market's way of telling the Fed that there was a real concern around growth and that there was a recession priced in to the bond market at that point. So the Fed came in and they basically reassured the bond market. And that's the rise in rates as the recession got priced out of the bond market. And I'd say that was stage one of the bond sell off. And then, of course, Trump was elected and that introduced some policy uncertainty and ultimately was reflected in the December SEP by the Fed. And so that was stage two of this bond sell-off. And so here we are at 4.6% on the 10-year, 7-plus percent on 30-year mortgage rate. And you'll have to ask ourselves when it comes to that neutral discussion I talked about, can the U.S. economy handle a 7-plus mortgage rate? And I think that the evidence is going to really become clear as we move through Q1 of this year and into Q2 that the real estate market, in particular in the

U.S. economy broadly, can't handle this level of interest rates. And so it's going to force the Fed to cut. It just depends on the real question for us all is what kind of pain we're going to experience along that path. Yeah, I mean, because you really could look at the December market activity and say this is essentially what the market was suggesting, right? You saw as yields went up, obviously, housing related stocks went down, but so did other cyclicals. I mean, banks had a big reset lower. You had industrials as well. So I guess the point is, and you kind of alluded to it, what do we have to go through before we get to a point where either the Fed sort of capitulates to this view or you have, you know, I guess stock prices discounted in advance and then can recover?

Yeah, 7.5% peak to trough correction on equal weight in the month of equal weight S&P 500 in the month of December. So that's, I think, a little taste of what we have in store for us. It depends on how hawkish the Fed wants to be. This was our view is that we're bullish on the market this year. We think the soft landing's intact. But ultimately, Fed's going to have to cut. We have 100 basis point of Fed cuts in our base case projection. And I think that our view is that there are going to be a greater than 10% correction in the first half of this year. And it's going to relate back to this growth scare. So I do think it's going to be one of those things we have to keep our eyes out and wait to see when that growth scare starts to capture the market's attention.

Our view, our framework is going to be looking at the housing market. I mean, in watching those home builders in particular, you're seeing a stale inventory, completed inventory at the largest builders like D.R. Horton has backed up. Inventory that's been on the market for more than six months is at a multi-year high. I think that you're going to start seeing starts come down there, and that's going to be the very first domino fall in this growth scare. So that's what we're watching. I still think a few months before it starts. But yeah, it'll be some pain. Yeah. And I know along those lines, you do fixate on the construction employment, which might look a little fragile as well. Warren, I really appreciate it. Thanks a lot for laying out your view here. Thanks for having me. All right. Up next, we're tracking the biggest movers as we head into the close. Here's Christina with those. Well, there's one stock soaring over 100% on a collaboration with NVIDIA.

And private label Petfood, all the rage, and one stock is benefiting. I'll have those details next. 14 minutes to the closing bell. S&P still up about 1.2%. Let's get back to Christina for a look at the key stocks to watch. Well, it's the Midas touch of NVIDIA that continues, this time with shares of Cerenc up, what, 128% today? After the AI assistant software firm announced a collaboration with NVIDIA, both companies will be working together to improve large language models specifically for the auto industry. It's important to note, though, that this company is a smaller

firm with a market cap of around $780 million. You can see shares now up 144%. Shares of online pet food retailer Chewy up 6% on a vote of confidence from Wolf analysts. They point to improved average revenue, higher margins, and a growing line of private label pet products. Also of note, Chewy continues to open more brick and mortar vet care clinics, attracting new customers. Also seen as a positive. Mike. All right, Christina, thank you. Still to come, alcohol manufacturers dipping in today's session.

What's behind that drop and could there be further downside risk ahead? Coming up, Closing Bell. Be right back. Welcome back. A quick programming note. Don't miss a CNBC exclusive interview with Fed Governor Adriana Kugler. That's coming up in just a few minutes on Overtime at 4 p.m. Eastern. And up next, we'll tell you why shares of Rivian are ripping higher today, the details, and much more when we take you inside the market zone. We are now in the closing bell market zone. Alcohol stocks under pressure on a new advisory from the Surgeon General. Brandon Gomez has the details, plus Phil LeBeau here on fourth quarter

auto sales and what JetBlue's big fine could mean for the rest of the airlines. Brandon, talk a bit about the impact here of this Surgeon General action. Yeah. Hey, Mike, we've been tracking it today. A new advisory specifically calling alcohol the third leading preventable cause of cancer in the U.S. behind obesity and tobacco, saying alcohol increases risk of at least seven types of cancer regardless of type of alcohol, contributing to nearly 100,000 cancer cases and 20,000 cancer deaths each year in the U.S. Now, the Surgeon General calling for several action items, most notably, he wants new labels

on alcoholic beverages, warning of cancer. Picture those tobacco labels you might be thinking of. Alcohol makers offering no comment, pointing me instead to trade organizations. SVP of Science and Research at the Distilled Spirits Council emphasizing that it is the federal government's role to determine any proposed changes to warning statements. Clearly, Mike, this one will be one that Washington has to digest before Wall Street does consolation off its session lows as investors realize that. Yeah, obviously, those stocks, many of them also had been quite weak going into this. We'll see how it goes from here, Brandon. Thanks very much. Phil, quite a move in Rivian. Yeah, and we'll get to Rivian in a bit because we got the Q4 results

today, Mike. And what we saw, we knew that December was strong for the automakers, and that's reflected in the fourth quarter sales for GM, Ford, Honda. Look, they all posted strong results. Look at GM, more than 20%. And then we want to talk about Toyota. Now, Toyota was not great, great numbers, but they had a great year, especially when it comes to EVs and hybrids, mainly hybrids. Mike, they sold more than 1 million EVs and hybrids combined in the U.S. last year. Almost all of those, by the way, being hybrids. And speaking of EVs, take a look at Rivian. Posted their fourth quarter deliveries better than expected at more than 14,000. And they also had deliveries for the full year coming in

as expected at more than 51,000. That was enough to give confidence to the Rivian bulls out there. We'll find out in February when they report their Q4 results if they hit gross positive profit for the fourth quarter, which is what they've been guiding to all year long or all next year. Yeah, I mean, we definitely want to kind of delve a little more into the bright spots there in auto sales. But talk about the airlines here after this action against JetBlue. Yeah, and this is getting a lot of attention, not because of the amount of the fine from the DOT, $2 million.

Look, that's a drop in the bucket for almost any company. What is significant here is they are the first airline that has been fined because the DOT said, you know what, you've had some flights that are chronically late. And because they're chronically late, you have not been able to correct that. We're going to fine you $2 million. When we reached out to JetBlue for a comment, they pointed out that, look, we have seen significant operational improvements in 2024, including better on-time performance during the year's peak summer travel season. As you take a look at the other airline stocks today, keep in mind that, I mean, this is really unusual. And we're not talking about all JetBlue flights here.

We're talking about a small number, four, on particular routes that, according to the DOT, were chronically late. So that's why you have the fine of $2 million. You know, Phil, I always thought that the gamesmanship on the airline side, in terms of trying to get their on-time rates higher, to pad out the scheduled, you know, length of a flight and say, oh, we got in under that even though we knew it wasn't going to be that long. Right. Generally speaking, that is the case within the airline industry. Having said that, having covered this industry for more than 25 years, over the years I've gone back and I've looked at, you know, where do we usually see these late flights? You tend to see the same routes, not all the time, but particular airlines

on a particular route, whether it's because it's to a small airport somewhere or for whatever reason, there seems to be always certain routes where you notice there are a lot of late flights. Yeah, it seems like this flight must have been, you know, the end of a longer process of the government trying to get some answers here. Phil, let's just quick get back to autos, because I'm wondering what we attribute the strength in the fourth quarter across the industry to. Is it more incentives? Just simply, you know, that consumers are in better shape? Strong consumer confidence. You look at auto sales historically, Mike, as consumer confidence goes, so goes auto sales. And you had greater incentives. Look, the transaction prices remain close to record highs. Auto loan interest rates, they've come down a little bit, but they're still relatively high compared to a few years ago.

And there's substantial inventory out there. A number of automakers still have substantial inventory out there. But those incentives certainly did a lot to get people into dealerships. Yeah, it's at least positive to see some of that momentum maybe continuing into this year. Phil, appreciate it. Thanks very much and have a great weekend. As we head into the close, you see the S&P 500 up about one and a quarter percent. It is, of course, going to now fall short of a gain over that Santa Claus rally period. It does end today and we would have needed about another 50 points here or call it 40 points in the S&P to get positive. We also are down on a week to date basis, down about half a percent, but definitely a bit of a relief trade today. Volatility coming

down as well. That VIX coming down below seventeen and very positive market breath as well you have about two thirds of all volume to the upside so I sort of an upbeat end to a week but the market still down for the four days that does it the closing bell it's time to

overtime with Morgan and John.