Closing Bell - Closing Bell: Preparing for a Momentum Meltdown 3/11/24

Episode Date: March 11, 2024

Should investor brace for a momentum meltdown ahead? Liz Young from Sofi, Emily Roland from John Hancock and CNBC’s Mike Santoli give their forecasts. Plus, tech insider Lo Toney of Plexo Capital weighs in on the upcoming Reddit IPO, the run in tech stocks and what Nvidia’s slide might mean for the sector going forward. And, top technician Chris Verrone is flagging two big opportunities outside of tech. 

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the state of stocks and whether the rally is changing shape from leaders to laggards. From an NVIDIA and Meta market to an Apple and Alphabet one, we're going to ask our experts over this final stretch, including top tech insider Lo Tony. In the meantime, your scorecard with 60 minutes to go and regulation looks like this. An eye towards tomorrow morning. CPI is clearly what seems to be driving trading in today's session. No big bets being made either way. Rates holding steady after a midday bond auction.

And then there is NVIDIA. It's always notable. It is once again as we watch that stock closely following its big Friday fall. Some key earnings in overtime tonight, including Oracle. We're going to get you set up for that, too, in just a little bit. We begin, though, with our talk of the tape, whether investors should prepare for an even bigger momentum meltdown. Let's ask Liz Young, SoFi's head of investment strategy, with me here at Post 9. Nice to see you again. You too.

Welcome back. Thank you. That seems to be where the conversation is, whether momentum, the momentum trade, has run out of steam. And now we're going to see this rotation into laggards. What do you think? If we're talking about the momentum trade as the magnificent seven of 2023 and the big tech names that brought us into 2024, then yes, I think it already has run out of steam. I think that boat, that ship has sailed, right? Well, while you're ready, you're throwing the curtain down on it already. I mean,

it was one day for NVIDIA, Liz. I'm not done yet. So the momentum, though, if we're talking about momentum in the sense of risk appetite momentum, I don't think that ship has sailed. I think that's still here. I think that's still alive and well. So all that I think is happening right now, which may be the precursor to something else, but all that I think is happening right now is that investors are saying, I don't want out of the market. I don't want out of growth. In fact, I'd like to try to find growth wherever else I can get it. But I'm not going to be silly enough to go into things that are very obviously crowded trades, very obviously overbought. So let me go try some other things. So there's rotations going on within sectors, which is exactly what's happening in tech right

now. And there's also rotations going on amongst sectors. Do you think the NVIDIA reversal on Friday marked a change in a trend for the market? I'm talking not so much momentum behind the rally itself, but the factor of momentum. Stocks that since November 1st, for example, almost anything tied to AI. And especially if you look at the direction of many of these chip stocks, it's not just NVIDIA. I mean, you could Taiwan Semi, AMD, Micro. I mean, so many of these other names just went to the moon and seemingly everything went with it. That's related to, you know, growth, momentum? Is that going through a reversal? I do. Well, I think a lot of it hinges on the direction of NVIDIA. Don't underestimate the rising tide lifts all ships and then the guilty by association trade as well. So if NVIDIA was

the one driving most of this and keeping the enthusiasm up, then yes, for it to give some back, I don't think it should be a surprise that the rest of the chip sector also gave some back. But I also don't think it's a surprise that people didn't throw in the towel entirely on tech. I think that people are still willing to be present for that. And even if we think the market is extended, which I think it's difficult to find anybody who says it's not extended broadly at these PE levels, at this level of yields. Even if we think it's extended, that doesn't mean it has to stop. It's just that certain parts of it

may need to slow down a bit. And we're in a market, I think we talked about this on Halftime last week, where I remember two years ago, maybe even less than that, we were talking about, well, can the market go up without Apple? Yes, it can. Now we're talking about, can the market go up without NVIDIA? We're finding that out right now. So far, it's one day, one or two days, right? Do you think it can? I do think it can if the rotation trade stays intact.

But that also depends on whether or not the economy continues to go. Because the rotation trade, in order for a broadening out to be effective and durable, would need to include cyclical sectors, which it has in part, right? Industrials have participated. A lot. I mean, materials are up seven and a half percent in a month. Energy is doing great. Financials have done better. Industrials have done quite well. Industrials have been doing well for a while. The materials and energy trade is a little bit newer. That would have to continue. And if the rotation goes into cyclical sectors like that and keeps it durable, then yes, I do think the market can go up without NVIDIA.

But that doesn't mean that in the meantime, that sentiment wouldn't be bruised. We've been throwing all of our eggs into that basket. And I think it would make people nervous if NVIDIA went down quickly. Are you more positive than not on the market now or no? In the short term, I guess my answer would be yes. I still do not think that the business cycle ever ends a different way. I think it's just a difference in how long each phase lasts. And I'm still pretty convinced that we are late cycle and that a lot of the things that we're seeing in the market are more late cycle euphoria driven, not early to mid

cycle expansion. Do you think it's interesting, though, that a lot of the points of excess throughout this period of the last few years have been self-correcting in the market in some respects? So if NVIDIA has gotten way ahead of itself, OK, NVIDIA is going to pull back and have a breather. And some of these other stocks are, too. But there are these other areas of the market that are able to pick up the slack. It's been every excess point along the way, NFT, SPACs, all sorts of other stuff that maybe got over at skis. Well, it self-corrected in a way that it didn't upset the whole story. Yes, I do think that's important. I also think that it's something that throughout 2023 surprised those of us who were more cautious, because it showed that there was strength, it showed that there was investor appetite for things to continue. And if you take it from the perspective of most crises are caused in some

shape or form by excessive risk-taking, unless we're talking about some exogenous shock. But if it's a financial crisis, it's usually caused by excessive risk taking in some part of the market. If we've been seeing little bits of excessive risk taking, whether in all the places that you just mentioned, maybe it's AI, maybe it's crypto, maybe wherever it may be. But it does self-correct and we still stay afloat. I think that's an indication of a healthy market. But you're still convinced that the economy is not going to have a good ending? I'm convinced that in order to transition from late cycle back to early cycle, you have to have a contraction that resets the business cycle, and that has not happened yet. Why are you still so convinced we're as late cycle as you've been saying? If we were early to mid cycle, the unemployment rate would typically be higher and coming down. The labor market is the last thing to crack, the last thing to recover,

and it usually recovers pretty slowly. And during that early to mid cycle phase, you typically see the unemployment rate coming down, which is good, an indication of growth, an indication of increasing health, but we've been at this bottom level of unemployment and we're actually more so on the rise than on the fall. So that typically is characteristic of late cycle getting into the point where maybe we're starting to see some cracks form because of the tools we've used to cool down an overheating economy. Well, let's bring in Emily Rowland now of John Hancock

Investment Management and CNBC Senior Markets Commentator, Mike Santoli. It's good to have you with us, Mike. You've been listening to the conversation. Some people are trying to figure out if there is, in fact, a trend change in this market. How do you assess everything? First of all, you have to see the break to know if it's going to actually have wider effects. It's not as if you can anticipate in advance and say this is going to cause the entire market to break down. I'm reminded of I was using the phrase immaculate rotation in 2013. OK, 2013 was this kind of market where we broke to a new high and it felt like we were a little bit ahead of ourselves in general. And every time it sort of started to falter, something else did pick up. And it showed that there was this willingness to just keep equity

exposures high, to maintain your risk levels in the market, but just let things, as Liz was saying, cool off and then reheat as needed. I'm not saying that we have this perfect rerun. That was a melt-up year in general. But this start to this year feels and looks a lot like 2017, 2013, 1995, where you did have a rally that was already running into the year, and then it felt like it's just hard to hang in there and say, how is this market just going to go up every day discounting the same good macro news? And that is, you know, agree or not, the way things are mid-cycle or at least not at the end of a cycle.

OK, well, that's where I wanted to go next. So I'm glad you ended that way. The idea of, as Liz says, that we are late cycle. And it's been a pretty good debate of late with people on this program suggesting, well, maybe we're not as late cycle as you would have thought. Maybe we are rather early, maybe mid cycle. Yeah, I don't know about early at all. I agree with the fact that longer term unemployment rate below four percent means there's not a lot to get out of that part of the economy anymore. But you can have a steady state and just sort of this kind of muddle through, you know, grow at a decent pace, but not really boom. That happened for years. You know, we were using it a higher slack economy in

the 2010s. So I don't know if you have to make that macro call. What I do know is right now, GDP estimates are going up. Earnings have turned higher in terms of the forecast. You have relatively loose financial conditions and you have a Fed that's expressing a willingness to look for an excuse to cut into all time highs in stocks, tight credit spreads and a strong economy. So tell me what's wrong with that. And I guess if the if the 12 percent drop from Friday's high in NVIDIA did not really knock something loose in the market and you realize that there's some leverage players out there who are just riding this too hard and therefore there's going to be a broader unwind. It's going to get disorderly. Might still happen. Hasn't happened yet. Yeah. Emily, how do you see it? Yeah, I mean, we completely agree with Liz that we're in an extended late cycle environment. The problem is that cycle analysis has been completely unhelpful. And that's a tough one for people like us that are focused on the business cycle.

You've seen these animal spirits alive and well as markets have reacted to the Fed pivot party. At one point, we had six rate cuts priced in. Financial conditions, as Mike mentioned, are easing. We've got high yield bond spreads at 300 basis points. Nobody cares about extended valuations in tech stocks. And the Fed is kind of helping ease financial conditions. You had Powell last week talk about getting closer and closer to cuts. You know, for us, we think the Fed policy should be like the movie Fight Club. The first rule of Fight Club is you don't talk about Fight Club. The first rule about Fed policy is you shouldn't talk about rate cuts until you have to talk about rate cuts. And that's one reason that we've seen this broader participation across markets, risk assets rallying, a sense of complacency across markets. We think investors need to be mindful here of how far they're reaching

for risk. You say when you have to talk about rate cuts, I take that to insinuate that the Fed's going to have to cut rates, you think, because the economy is going to force their hand because it's going to slow. What if they just want to cut rate cuts? They don't have to do anything, but they make what some would arguably say is a preemptive move because they can. And maybe that gets underscored tomorrow morning with the CPI release. Yeah, CPI is going to be critical tomorrow. And the Fed does have some cover here. Rates are probably too restrictive, given that inflation continues to decelerate here. Of course, the path to getting to 2% is a little bit bumpy,

but we're certainly moving in the right direction here. And that's what makes investing really tricky right now, as markets are responding to this idea of Fed rate cuts. But typically when the Fed is cutting, it's because there's something wrong. Either it's just simply the unemployment rate going up, as Liz mentioned, or something breaking, some type of financial accident. If you look at the last 13 Fed tightening cycles, they all end with something breaking. It's really hard to see that happening now. And by the way, the fact that we're continuing to do fiscal stimulus to the tune of potentially two trillion dollars this year is keeping the economy from slowing to the extent that it normally would. It's keeping margins from compression. It's keeping companies holding

on to their labor force. But again, it's hard to see this ending any other way than it typically does. Well, I'm not sure I understand why then it would be, as you say, so tricky to be an investor. It's been pretty, I guess, anything but. I mean, the market seems to be hung out on the idea that the Fed's going to be cutting rates. That's all that really matters. Doesn't necessarily matter when, doesn't necessarily matter by how much. The economy is hanging in there. Earnings are hanging in there. Rates seem to be heading lower because the anticipation of these rate cuts coming. We have a new economic revolution, if you will, by virtue of AI. So hasn't that simplified the

whole thing? A little bit. But the tricky part, I think, for a lot of the investors that I talk to is that they haven't participated. And if you've missed out on this market, particularly in mega cap tech, that's been a tough pill to swallow. So it's about trying to figure out how to participate. The challenge also is that even though tech valuations are very much elevated, I don't think anybody, again, can argue that, there's nothing fundamentally wrong with tech. I mean, you look at Q4 earnings season, by far the sector had the best beats, 90% beat rate versus 75% for the broad market. The magnitude of those beats was exceptional, 10 percentage points higher. So you want to be there, but it feels not quite right to be

investing in areas of the market that are up over 50 percent over the past year. So it's sticking with it, not necessarily downgrading tech, but looking to areas that are actually trading cheap. U.S. mid-cap, for example, trading 16 times forward earnings, mid-cap value at 15 times, looking at areas like health care that have been left in the dust and are giving us a 10 percent valuation discount and even utilities, I hate to say it, trading at a 20 percent discount to the broad market. So we do think that those more defensive areas could help balance that exposure to those tech titans. See, the problem, Liz, is that bears have been too bearish. And now, now after the market's gone up a lot, they can't bring themselves to say, well, you know what? I think actually this market's got some legs. That's sort

of what I gather from people who remain bearish or overly cautious in the market after the market's already gone up a lot. Are they going to change their view now? That's confirmation bias, right? And I think we all suffer from it on some level. You can find things to buy in the market right now. It's not large cap tech, probably. It's other parts of the market. And if you've changed your view from being bearish on the economy to more constructive on the economy, or even just make it more nuanced, being completely bearish on the economy to thinking that we might muddle through with just a mild contraction, then you would want to be exposed to some of those cyclical areas that maybe haven't quite kept up. Maybe they've had a little rally in the last month or so,

but they're not overpriced at these levels. The thing that I think is important, especially ahead of tomorrow's CPI report, yes, inflation has come down, but we're stuck. We're stuck at this 3% level in CPI. I know that's not what the Fed watches, but we're stuck. We're stuck at this 3% level in CPI. I know that's not what the Fed watches, but we're stuck at 3%. It's expected to stay stuck at 3.1% headline tomorrow. And core CPI is still at 3.7%. The other thing that I look at is breakeven inflation rates. If you look at the two-year breakeven rate, it's up 75 basis points since the end of November. And that's what the Fed cares about, because that's what means that inflation is entrenched, which also means I still think their stamina for holding rates this high is going to be much stronger than the market stamina. And that's where the

pressure point is. But you didn't hear, you know, from the Fed chair, Mike, on the Hill last week. He didn't come off as somebody who thinks that inflation is going to remain entrenched. He was pretty dovish. Let's just say it. He was. Maybe he was a little bit more dovish than people expected him to be. Slightly. I do think between from the CPI tomorrow, over the next eight days till the Fed decision and press conference, you will have to see how the market absorbs if that changes the story at all. I think that we have to be alert to that. He was more dovish, but I think it's just really an outgrowth of their overall framework. You have to think December, the consensus outlook, what did it say? We think the neutral rate is a whole lot lower than what rates are right now. What does

that mean if the rates are still five and three eighths? I think that that's really feeding that perceived dovishness, which is just look at the numbers. And we have this gap here that we can go partial part of the way to fill. The other piece of it is I think everybody to a degree has crisis brain when it comes to why does the Fed do what it does. Right. This idea something must be wrong for them to cut rates. They have to be responding to something scary. Well, arguably in 2019, it was just kind of a little bit of upset in the money markets and inflation wasn't a problem.

They had room to cut. It didn't cause COVID. OK, so there you had a bear market in the recession, but it wasn't because they cut rates. It was because they broke something, so to speak. Ninety five. You know, we can't talk about it too much because it's the perfect year and you can't take advantage and take credit for it before it happens but there was no crisis there and they trimmed rates a couple of times after a big tightening campaign even in the mid 80s so the point is they used to be able to kind of you know come off the the break a little bit and feather the gas and see how it worked as opposed to you know responding to a fire i would say, too, you know, Emily, as you as you say, maybe stay away from the mega caps that it's the Apple and Alphabet trades of the last couple of days would suggest that it's too early to write that trade off. That trade is just maybe taking a different makeup where a couple of the higher momentum names are going to pull back.

But yet that group is still going to be deemed the place to be. It's just going to have a couple other leadership stocks for for a while, but potentially. Yeah, we've said for some time that it's important to look underneath the hood within mega cap tech and find those higher quality companies. These are ones with great balance sheets, tons of cash, elevated return on equity, and really a limited need to have to tap the capital markets in order to grow. And frankly, tech broadly is the poster child for that. But we want to look at the factor composition and we want to find that intersection between tech and quality. Some of that's also in momentum. So I think as an active investor, you've got to really be thoughtful there.

I know. I mean, but people are using those factors and still, you know, deeming that that trade is going to be a place to be. You just may have momentum sort of reverse itself or rotate into other quality names within that group. Right. It's going to be hard to argue with me that Apple and Alphabet are not deemed quality. Now, they may have lost their momentum for a period of time, but those things can reverse rather easily. Yeah, they can. So, again, the theme for us is quality at a reasonable price. We look at it in areas, again, like health care. You all talked about industrials early. We're seeing a big benefit to industrials from on-shoring or reshoring themes. There's almost an industrial revolution that's happening in the United States right now. So you really want to look to where is the investment going? It's the Infrastructure and Jobs Act. It's the Inflation Reduction Act. It's the CHIPS Act. So we want to look for those areas,

those more cyclical areas that offer quality and are going to see that momentum as far as the earnings backdrop goes from here. There are definitely opportunities. It's really about finding that quality at a reasonable price. We'll leave it there. Emily, thank you, Liz. Thanks so much for being here, Mike. I'll see you in the market zone. That's Mike Santoli. To Pippa Stevens now for a look at the biggest names moving into the close. Pippa. Hey, Scott. Moderna shares are popping following an upbeat note from UBS,

which said conversations with management point to confidence ahead of Moderna's potential phase three CMV vaccine data this year. The firm also noting increased conviction in that program and the broader latent virus portfolio. And Boeing shares slipping after the Justice Department increased conviction in that program, and the broader latent virus portfolio. And Boeing shares slipping after the Justice Department opened a criminal investigation into the 737 MAX door plug blowout on that Alaska Airlines flight in January. Both the DOJ and Boeing had no comment, while Alaska Airlines said they are fully cooperating.

Those shares down 3%. Scott? All right, Pippa, thank you. We'll see you soon. We're just getting started here. Up next, navigating NVIDIA's fall, what the move actually means for the mega caps and the semi space in the months ahead. We're going to ask tech expert Lottoni after this break. Got a Reddit IPO coming up to get his take on that. Live from the New York Stock Exchange, you're watching Closing Bell on CNBC.

All right, welcome back. The major average is pulling back from record highs. The Nasdaq seeing another day of losses amid the broader sell-off in semi-stocks. NVIDIA down near 3.5% in three trading days. So is the rally changing shape? Let's discuss with Lowe Tony of Plexo Capital. Welcome. Good to see you.

CNBC contributor, obviously. It's nice to have you back. Thanks for having me. I want to ask you about that in a minute. But just since Reddit is top of mind because we've gotten some news on it, 22 million shares, $31 to $34 a share. We're going to do this the week of March 18th. What's your view?

Interested? So we do hold Reddit. We bought it in the private markets and we're very bullish overall on the company. I think a lot of folks have been taking a look at Reddit really closely so that we can better understand what this might portend for future IPOs. You know, we haven't really had one that has really as much name recognition in the consumer space as Reddit since maybe Pinterest. So this is one that's going to be closely watched by a lot of investors, both in the public and private markets. How do you think it's going to do? Well, they're looking at an IPO price that puts it in the range of about six, six and a half billion. As you pointed out,

that's about thirty one to thirty four dollars a share. The last private market financing was about ten billion. So that's about, I don't know, 60, 61 dollars a share. So I think this is the correct movement to place it at a valuation to, number one, I think recognize the fact that the last private market valuation was at the height of the market. Number two, you always want to have the opportunity for these stocks at IPO to have a little room for performance to run up as long as everything feels good for investors. So I think that price point makes a lot of sense. And look, that's going to be a new bar for how investors are thinking about pricing future IPOs, especially with the dynamic that there's recognition the last private market financing may have been at a level higher

than the IPO market can support. You sell into the deal, you long-term holder. I mean, how do you personally view it? Well, we're locked up for five to six months. But, you know, I think we're focused on private market investing. So we don't go into the area that your prior panel was discussing around the public markets. But, you know, look, I think there's a few things that are going to make this Reddit IPO pretty interesting to watch. One is just getting a better understanding of where sentiment is around the public markets acceptance for tech venture backed IPOs that have a very focus on generating revenues from consumers. And number two, you know, Reddit is going to be interesting, if nothing else, just because of the forums that exist around stock and the fact that Reddit plans on offering a portion of shares to the most active Reddit users. So, you know, we know what happened with GameStop. So we'll have to see, you know, how these Redditors influence the price of the stock.

You feel like this is a true, you know, part part thaw or thawing of of the IPO market? Or is this just another one of those idiosyncratic stories that is going to just do its own thing and it's not going to tell us really anything about the bigger picture? You know, look, we have not seen a lot of IPOs since we reached the peak of over a thousand companies going public a few years ago. So, I mean, we're at about 30 to 35 IPOs so far this year. Like I said, this IPO from Reddit will be the first kind of recognizable name for consumers that, you know, follow companies that are in the social space since Pinterest. I don't know if we should say that if this IPO is successful, that it will completely unbought the market.

However, I do think we should watch this very closely because it could, if it stumbles, if Reddit stumbles, I mean, that's not good news for the market. I think what we're looking for is Reddit to set the stage for more IPOs like the names that everyone's waiting for, most notably companies like Databricks, Stripe, obviously, even Turo. You know, I think we need to see a successive, you know, launch of a number of companies that perform well until we see a full defying of the market. And look, this might take, you know, it's not going to be just one year. I mean, this could take several years for us to truly unthaw. When you see NVIDIA trading the

way it has, what goes through your mind? What is that telling you, if anything? Well, look, I think, number one, for a lot of investors, especially at the retail level, there's this recognition around the promise of AI and there's this connection between the demand for those services and the infrastructure that's necessary to be able to power them. Most notably, people have come all the way down to chips and NVIDIA without question is the leader in that space. So a lot of investors, I think, are just using NVIDIA as a way to kind of just index the entire AI space because we all know that chips are going to be necessary.

Now, look, I always take a longer-term view, and I think your panel really did a great job of articulating the difference between the momentum that is behind the rise in NVIDIA versus the overall promise of the space, which is going to take a much longer term. When we think about all of the private market companies that we see through our Plexo Capital GP network and talking to CTOs, CIOs, you know, I think they're really just now kind of dipping their toes in, experimenting and trying to understand how they're going to incorporate these AI tools and technologies into their business processes to really drive more business value.

They're at the very, very early stage. So I would agree with your panel. You know, NVIDIA might be due for a little breather near term. However, we're very bullish on NVIDIA, the overall AI space. And look, NVIDIA is not just driven solely by AI. NVIDIA is going to benefit from the continued rise in gaming, self-driving cars, cloud in general. There's a lot of momentum that is going to be long- term beneficial to NVIDIA. And look, everything is going to have a chip. Everything's going to be connected to the network at the edge. So, you know, these are all great trends for NVIDIA long term. You look at some of the other stocks that have gotten a halo effect from NVIDIA and say,

you know what, this is just crazy. Some of these stocks have just gone up by insane margins. Their valuations have just gotten crazy. And there's just too much froth in a broad swath of stocks, not necessarily NVIDIA related, but the ones that have ridden the coattails. There's a lot that have done that as well. And yeah, I mean, look, this is what always happens, right? But the proof is in the pudding. I think when we look at the earnings potential for companies like NVIDIA, you know, I would say those are real because we can see the numbers and we see the connection

between the performance of NVIDIA based on the demand for the chips, which is based on the demand long term for AI, cloud and these other elements that NVIDIA is playing in. And there are companies that are kind of riding along on the coattails. I mean, that happens. We see it in every cycle. We see it across multiple industries. And it's really, you know, you got to take a look deeper than just trying to understand why these companies are moving. And, you know, that takes time these companies are moving. And, you know, that takes time. It takes research. And, you know, sometimes people don't want to do that and just say, hey, these companies are kind of playing in that space. So I'm going to pick one that looks like it might be a little cheap and hatch on to it. Good catching up with you again, Lo. We'll

see you soon. I appreciate your time. Absolutely. Thanks for having me. All right. Plexo's Lo, Tony, joining us on Closing Belt. Coming coming up charting out opportunity top technician chris varone flags a seasonally weak stretch for big tech but is seeing some potential upside in two other sectors it's going to tell you what they are next and as we head to break a message as cnbc celebrates women's history month one of the disadvantages that we might have as women becoming leaders in business is that there are fewer examples in the world of women in leadership positions or in certain industries. If I had dwelled too much on that fact, then I might not have had the courage to start a business in the drilling, HVAC, home construction business. And now my presence as a leader in this industry

hopefully provides one more example. We're back, tech stocks. But dipping again today after last week's NVIDIA-driven sell-off. Our next guest, though, says other sectors of the market could be ready to break out. Chris Verone, head of technical and macro research at Strategas, is back with us at Post 9. Welcome back. Great to be here. I just

got a note in my inbox from one of the places on the street. And the headline is, with signs of the rally stalling, we remain defensive. Is the rally stalling or just rotating? I think this is a very rotational market. I mean, think about the last couple of weeks. There's been these little shots across the bow with tech. We've seen it with NVIDIA. We've seen it with Apple. But the daily breath actually has not been bad. We're still talking about 75% of the S&P above the 200-day here. So to call this narrow or justifying some defensive posture here, I think, is a bit too far at this moment.

There's maybe a hint of life from some of these defensive groups. But that's after 12 months of nothing. To say those are trend changes, I think, is very premature. Well, like utilities? I mean, you like utilities, right? Yeah. Well, I think there's a difference between your laggards at least going up in price, and utilities have been laggard for the better part of the last year. At least they're not going down. Well, I'm trying to think of defensive groups that you would maybe be referring to. Well, I think the biggest justification for anything defensive right now would probably be health care, to the extent you even want to consider it defensive. I mean, we're talking about something like 80 percent of health care stocks in an uptrend.

That's the best rating in three or four years. So there's been some clear improvement over the course of the last three or four months in that sector. And it's against the backdrop of what has been really liquidation, if you look at the flows in health care. And it's against the backdrop of what has been really liquidation, if you look at the flows in health care. So this kind of powerful cocktail, this powerful combination of health care setting up well as the market maybe takes on a touch more of a defensive tone. What are you telling clients about technology and that trade right now? Because that's top of mind for everybody. Vidi has sort of made it that way on the way up and then the reversal on Friday. I think the biggest punchline is there's a difference in this business between a top

and a correction or a top and a consolidation. I think this looks consolidative in tech. I don't think these are big top formations taking shape. Now, there's clearly an emotional element to this. The flows have been excessive. The options are excessive. We see it just in the discussion on the show all the time. There's an emotional element to where we are with tech.

I went back over the weekend and I looked at how all the real parabolic stocks peaked in 2000. And what you learn is it wasn't a single day. It took months and months and months of distribution. We've had one noted reversal in nvidia from a very extended spot could this be the start of a correction absolutely but i think if we're going to start talking about big top formations we're not going to know that for months and months the only stock that's actually done that thus far is probably apple um ironically it's oversold here it probably bounces but that's the one in tech maybe adobe as well i mean yeah tesla in the spirit of the mac 7 but

within tech in particular apple and adobe are really the mean yeah tesla in the spirit of the mac 7 but within tech in particular apple and adobe are really the two that look like they've topped i think that's a difference from saying hey nvidia is vulnerable to a correction two different stories i mean now but we're having this conversation of whether an nvidia and meta market as we say at the top at least as it relates to big cap tech just becomes a alphabet and Apple market for a while within that group. That money comes out of the leaders, goes into the laggards. So maybe even that idea is premature to declare that those stocks have topped. Who knows?

You know, but where you look at, I think the big change in Google, the big change in, say, Apple is in the relative standing of these stocks. I mean, they've been deteriorating in their relative standing for the better part of the last six, seven, eight months. I mean, Apple made 52 equal relative price lows. That's fair. I think if you've got bounces here in Apple or Google, they are oversold. If you've got bounces, you'd be wise to reduce exposure into that.

But, Scott, take a look back at the bigger picture here for a moment. After almost 600 trading days, the Eagleweight S&P made a new high last week for the first time. That's right. One fifth of the stocks within that also made new highs. So it's not like the broadening story is just limited to a very small group of stocks. And this is rotational. And listen, I get that all the big weights, all the index weight is maybe vulnerable to a correction here. But the average issue is okay. I mean, energy is perking up here. Materials have perked up a little bit. Utilities, you note. Healthcare, we note. So there's a difference between the correction and the top. Maybe this is a consolidation. But quickly, before I let you go, you also say that tech is entering one of its weakest seasonal periods as well from the period of what, March to May? Yeah, March to June, let's call it.

You know, seasonality is conditional. I don't think you make calls on seasonality, but it can help fill in some of the gaps. I haven't heard that. Like, why is that the case? Yeah, it's funny. Tech is historically not a very seasonal sector except for these three months. Conversely, this is a very good three-month stretch for energy, materials, copper, gold. And I think we're materials, copper, gold.

And I think we're seeing certainly life in gold. Copper, watch copper at $4 here. Very close to a big breakout. All right. I'll see you soon. Thank you. Chris Ferron, Strategist, joining us right here at Post 9. Up next, we are tracking the biggest movers into the close.

Pippa Stevens is back with that. Pippa. Hey, Scott. Another mega merger in the energy sector with the stocks going in opposite directions. All the details coming up next. We're about 15 out from the bill. Pippa Stevens watching stocks for us. Pippa. Hey, Scott. Well, EQT is the worst performer in the S&P after announcing it will buy pipeline operator Equitrans for $5.5 billion. The midstream name was spun out of EQT in 2018 after pressure from activist Jonna Partners. Equitrans is a join over owner of the controversial Mountain Valley pipeline that runs from West Virginia to Virginia.

And on the call this morning, EQT noting it serves a data center alley, which will create more opportunity. EQT CEO Toby Rice will be on last call tonight at 7 Eastern for more on that deal. And Xcel Energy in the green after two upgrades to outperform from Barclays and Wolf Research. Barclays saying the share loss since the Texas smokehouse fire broke out is overdone, with Wolf saying the drop is an attractive entry point for a high quality utility. Scott? All right, Pippa. Thank you, Pippa Stevens.

Still ahead, a Bitcoin breakout climbing to yet another record to start the week. We'll find out what's behind that big move higher and how the rest of the crypto space is reacting. We'll do that just ahead. Plus, what to watch when Oracle reports in overtime. We have all those details with Closing Bell comes right back. Coming up next, Oracle getting ready to report results after sitting out the AI-induced rally. Shares down nearly 10% in the past six months. Is that underperformance temporary or a sign of things to come? We will discuss in a quick programming note. Do not miss a CNBC exclusive with AMD CEO Lisa Su.

That is at the top of the hour in overtime. Closing bells coming right back. We're in the Closing Bell Market Zone. CNBC Senior Markets Commentator Mike Santoli is here to break down the crucial moments of the trading day. Plus, Kay Rooney on Bitcoin again rallying to new highs. And Steve Kobach looking ahead to Oracle. Those earnings coming out in overtime. Mike, we'll begin with you.

CPI front and center tomorrow morning. And I think we'll be talking a lot about that and the influence it has on specific trades. And I'm even thinking about how NVIDIA and some of these stocks trade on the backside of that. I mean, for now, the market is showing that it can take a punch, at least from something like a reversal in NVIDIA and the associated stocks. And it's not just tech. I think that's significant. I keep talking about Costco, because the seventh biggest stock in the QQQ and the NASDAQ 100 ETF, it's down 10% off its Friday morning high for no reason, except that it's in that same basket, that same headlong momentum basket. So we're absorbing all of that because, I think, of quiet macro. So, yeah, CPI tomorrow yields, Treasury yields have sort of leaked just slightly higher in the last day or so.

No big deal. The stock market, I said many times, can live with 3% inflation. The reason it has a problem with 3% inflation is if the Fed says we need to take extreme measures to get it from 3 to 2. If that's not the case, then you're not going to panic out just because of, you know, three-ish on CPI. Base case right now, that's not the case. That's right. Now, let me ask you this. Marco Kalanovic, J.P. Morgan, drops a note a little while ago, says,

with signs of the rally stalling, we stay defensive. Now, he's been very defensive for a very long time. We could debate whether the rally is stalling or if it's just rotating. The makeup of the rally is changing, and that's not necessarily a bad thing at all. No, it isn't. Certainly not long term. It's flattened out. It's slowed down, whatever you want to call it. We're trading at levels we got to two weeks ago, and there has been just a little bit more chop. And I do keep noticing the VIX above 15, that maybe people are bracing for something a little bit more. But I think there's a distinction between saying the risk-reward doesn't look really ripe over here at 20 times forward earnings

and everybody expecting a soft landing and strategists rushing to raise their targets and saying that it was an illegitimate move up to this point and therefore it's got to end. Because I don't really think there's anything telling you in the market action itself that it's acutely vulnerable to the next pullback being the big one. Yeah. Kate Rooney watching Bitcoin, where that has been on a run to say the least. Yeah, Scott, exactly. The rally is seen as sort of this sign of risk appetite out there. The main price driver, though, has been demand for those new crypto ETFs. There's been roughly $20 billion of flows into those funds so far, that's according to JP Morgan. That is excluding Grayscale, which is still seeing net outflows due to higher fees. It's been immune from some of the sell-off in tech lately. Citi points out Bitcoin's lack of correlation lately

with equities, gold, and even interest rates. There have also been some signs of institutional demand with larger transaction sizes. That's often a signal of wealthier buyers out there. And then there's more leverage now in these markets. It's exacerbating some of the moves in both directions that we've seen. Worth mentioning also this event in April that's meant to keep a cap on Bitcoin supply called the halving. That's adding to some of the bullish sentiment. And then some news out of the U.K. as regulators there open the door to exchange traded funds overseas. Coinbase is getting a big boost from this. It's now above its direct listing price of $250, guys.

Scott, back to you. Okay, Rooney, thank you so much for that. Steve Kovach watching Oracle in overtime. A stock, Steve, that just hasn't gotten the love, the AI love that some of these other software names have gotten. Yeah, and I'll explain that here. You kind of got this cloud company claiming to be an AI beneficiary, though the details on how exactly are kind of fuzzy. I'll point to some quotes from CEO Safra Katz last quarter,

credited AI for what she called, quote, astronomical demand in cloud. But overall, unclear how much cloud services revenue, the biggest segment, is related to AI. Analysts expecting almost $10 billion in revenue for that segment. That would be up 11% from the year-ago quarter. Expecting total revenues, though, of $13.3 billion. That would be up 7%. Now, one thing to pay attention to also is NVIDIA. We heard from HP Enterprise this earnings season say they just can't get their hands on enough NVIDIA chips to meet AI demand. And Dell, well, they told the opposite story this season. So it's curious

where Oracle falls in that equation. Hopefully some answers there on the call, Scott. All right, good stuff. Thanks for the insight, Steve Kovach. A minute left in the trade today on this Monday. You'll be watching rates in the morning, small caps. You'll be looking at all the signs that are most sensitive, I suppose, to moves in rates. You go down the sort of checklist, and rates, I think, have been enough in this range that they haven't necessarily said we're going to swing stocks one way or the other. Small caps, not doing much today. Underperforming, but I'll note, you know, Supermicro, biggest holding in the Russell 2000, is down 5%. The outlier.

So it's part of that thing. Look, I think you could look at things like like as Oracle reports, things like Adobe and ServiceNow have acted a little bit, you know, more finicky. They haven't really cooperated. Adobe reports later this week, too. Exactly. So there's, you know, there's some selectivity going on in this market, which isn't necessarily a bad thing. All right, good insight as always.

Mike Santoli, our senior market commentator. Bells ringing. Dow's going to go out positive. Nice little comeback here, about 50, 55 points or so. All roads lead to the CPI, obviously, in the morning. Morgan and John in OC get to set up for that. And they've got Oracle coming up, too.