Closing Bell - Closing Bell: Preparing to go Parabolic? 2/9/24

Episode Date: February 9, 2024

Is the risk surrounding the rally increasing as the S&P keeps rising and some big name stocks go parabolic? Trivariate’s Adam Parker and NB Private Wealth’s Shannon Saccocia give their expert takes. Plus, the mega caps have seen double digit gains for the year. But can this narrow leadership continue its grind higher? Doug Clinton from Deepwater Asset Management weighs in. And, Nvidia rocketing higher once again. We tell you what’s behind that move and how the other chip stocks are reacting. 

Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the S&P chasing history. The first close above 5,000, very much within reach. We're going to track every move over this final stretch and ask Trivariance Adam Parker in just a moment how high this surging stock market can go. In the meantime, a look at the scorecard with 60 minutes to go in regulation. We got a lot on the move. Take a look at this. NASDAQ on the cusp of 16,000 again. First time since November of 2021. S&P is going to close above 5,000 today, barring something miraculous over this final stretch, because right now it's 25 points over that level. That's one half of 1%. Dow's giving some back. The Russell is a big winner today. That's outperforming. It's up 1.5%.

Well, more evidence of the recent broadening in the market after weeks of top-heavy trading. We talked so much about that. How about interest rates? They're mostly higher, too, after some revisions to CPI and more suggestions from more Fed speakers that rate cuts might very well come this year, just not so soon. It does take us to our talk of the tape. Rally and risk, whether the latter is increasing as the S&P keeps rising and some big name stocks go parabolic. Let's ask Adam Parker. He is the founder and CEO of Trivariant Research, a CNBC contributor. Good to see you. Great to be here. Do you marvel at this market like just about everybody else? I think the bull case we talked about, gross margins can go

up for the average company. You'll think earnings are growing in the middle of this year, next year, and so forth, and that the Fed's likely to be accommodative. That cocktail's still in place. I mean, valuations have moved a lot, but as you know, valuation is never a good predictor of near-term return. It's about believing the economy is going to be in reasonably good shape. And I think the data points support that. So you think that the environment, all of the things that you said, plus other things you didn't mention that are potentially positive, support the stock market at these prices? As long as I think gross margins can go up and earnings are growing, I think history dictates being reasonably optimistic on equities is a good idea. And I can't find other asset classes that give me exposure to things like the top 20 U.S. equities.

I mean, we talk about that all the time. The biggest 20 U.S. equities grow their net income at 15% per year. So what else do you see that that's awesome, that's big and liquid and all that? So I think it's a good risk-reward. What am I worried about? Maybe China gets worse. That's really hard to wrap your arms around. Maybe the U.S. consumer slows.

We've seen a little discover, some little signs that the low-end consumer is slowing. You've got to monitor that. I'm worried that maybe you could get the balance sheet stuff from the Fed kind of offsetting some of the accommodation. It's not nothing ever feels. You always feel, as we talked about a million times, you always, always sound smarter when you're bearish. But I think if you think margins are going up, you should stay optimistic. And I see so many things I want to buy

in the equity market underneath. Yeah. Well, we'll get to that in a minute. Before we go underneath, I want to stay above, so to speak. Let's cruise at altitude. The two E's, exuberance and euphoria. You worried about either of those? Look, what I do all day long is I talk to

portfolio managers and CIOs and big senior people at corporations. I don't see a lot of champagne in Maybach's or whatever you want to call it. I think people are... You looking around NVIDIA's corporate headquarters? Yeah, well... There's some Maybach's in the corporate parking lot there. I think, yeah. I think you picked a stock that's been a monster, and we've talked about it a lot on your show, that you need exposure to AI. If you're a fund manager and your boss says to you five years from now, what did you own for exposure to AI, and your answer is zero, you're fired. So you have to look around at the nine or ten businesses that participate.

We're in the first inning of a multi-year trend, and they're a winner. Everyone thinks that they're the genius that's going to call the right part of that lightning bolt. They think today is the first part of the lightning bolt to sell it. And that stock's proven no wrong. That's an early trend. So I'm not smart enough to get that right. I just know we're headed. We talked about it a long time ago. You're a former chip analyst. I mean, you know chips better than most people. Yeah. And somebody else used the inning analogy with me earlier saying this first inning of AI. I said, well, if you look at NVIDIA, they're doing like nine innings worth of gains in the first inning. Yeah.

You can't keep that pace up. No, you can't keep the pace up for sure in terms of the amount. But when I look at it, and we did a big note on it today, actually, like when is the time to toggle to the industrial-centric semis from the AI-centric semis? That's the title of our note today. Like the NXPs and the Texans and the OnSemis. Yeah, the ADI coming up, Texan microchip. Yeah, great businesses. They all guided down.

They all have way too much inventory. They have more broad-based economic exposure and don't have a lot of AI. You know, it's hard to own them when I don't think gross margins can go up and have a lot of inventory. I can still sink my teeth into this AI trend for the time being. I think at some point you'll want exposure to the good businesses. I just think it's too early. So, look, our call coming in the year was to like software that is accelerating growth and to like AI-centric semis, avoid the industrials. I think that's still right.

I do worry about the EV to gross profit or the valuation, but I know that's not the leading variable I can use to pick stocks. It's really incredible. Now, the market, as Mike Santoli's been pointing out, is broader than people want to paint. Today's a good example of it, obviously, with the Russell up 1.5%. But when you look at the elevating prices and the valuations, but the, specifically of the Mag7, the NVIDIAs. We had the dean of valuation, NYU Stern, Aswath Damodaran. He's a smart dude. He owns all these stocks. He studies this stuff for a living. And he has a hard time looking at what's happened. I want you to listen to what he told me the other day and we can react. Here's Aswath Damodaran.

Today's prices, I mean, all of the stocks looked overpriced, but I think Nvidia stands out as particularly overpriced. I mean, just to get a collective sense of what these seven companies account for in the S&P 500, these seven stocks alone account for 70% of the overall market cap of the index. They account for 11% of the revenues, but they do account for 27% of the gross profit. So they're very profitable, very valuable companies. And you can get pretty close to the current prices for the other companies. NVIDIA, I can't even get close.

Just curious what you make of that. I mean, he's not the only one saying it. Yeah, I think people said that at $500 billion market cap, and it went to $1.7 trillion, right? So I think, you know, it's hard. And he's an owner of the stock, too, right? So he's enjoying the gains. It just makes him a little queasy. I think I get it. I get it.

I get it. It makes you nervous when you look at EV to gross profit. But I just think if I'm creating a portfolio long only to beat the S&P 500, I need some AI exposure. I can own Taiwan Semi. I can own Micron as a memory trade. I can own Cadence and Synopsys, which trade at 35 times forward. I can own—I mean, I could find stuff to own, but this is the best company with the best product early in the cycle. So I know it's going to be worth

$3 trillion in a couple of years. It could go down to $300 billion in the interim, sure. As soon as they miss on any expectation, it's going to be down 15%, 20%. But as you know, because they come on your channel all the time, then the people will say, oh, now it's cheap enough for me to buy it.

They missed the first $1.7 trillion, but they victory lap on your show when they buy it at $1.4, right? Like that's not the right. So I want exposure to AI in a portfolio long-run for sure. And I just don't know who's going to be smart enough to miss the 20% correction in the 500% move higher. It's like Arm Holdings is another example.

It's up 60% on the week. Someone comes on halftime today and says, I just bought Arm. Yeah. It's up 60%, which is why you have some making comparisons to 1999. There's a strategist at one of the major houses who did that, Jeremy Siegel, the Wharton professor was on with me yesterday and said, this is not like 1999. Listen to what he told me. I'll get your reaction. It's not worse than 1999.

But one thing is very, very different. This is important. We had S&P selling at 30 times earnings at the beginning of 2000. And the tech sector even far more than that, 60, 70 times earnings. And by the way, interest rates were higher than they are today. Today, we're selling at 20 times earnings. Now, that's not cheap, but certainly it is not a situation like 1999 or 2000. All right. So, I mean, you don't like when I mention the strategists, you rip on them. So, I bring out the professors. Yeah, look, I mean, I don't rip on the strategists. I mean, you know, I think it's just, you know, when you force people to make a two week market call and they tell you with confidence they can do it when they demonstrably can't.

OK, so it's $99 or not? No, it's not $99. I don't think companies are going to run out of capital spending to fund the projects. I think every company is investing in productivity and efficiency. And I think the market deserves an aggregate to trade where it is because these big businesses are highly profitable, have huge moats, and have long runways. I still think there's other things I can own. And, again, being the S&P, you can own 25% of your fund in tech and still own lots of other stuff. There's stuff that's gotten annihilated this year underneath that maybe sets up better for 25. And you look at health care services, or you look at tools, or you look at there's things you can buy underneath buy underneath that in a balanced portfolio could beat the S&P. Tools? What do you mean, like Illinois Toolworks? No, like healthcare, like healthcare, you know, tools, like the stuff that... Oh,

healthcare related. Yeah, yeah, exactly. So I think healthcare is really lagging. We're talking about like hammers and screwdrivers. Oh, well, no, you know, no guns and butter. We're talking about picks and shovels, though. That's what people are talking about. Yeah, yeah. You know, I do think there's things you can own. It's not all, let me by correlation to the to the go go, you know, tech stuff. But I do think, you know, there's lots of opportunity. On the other hand, there's things I don't want to own, you know, U.S. retail or stuff like that. Why not? The consumer's doing great. Yeah. It depends if they're physical retailers that it's just going to hard for them to mean revert on margins and on comps. So, you know, stocks that have really recovered that I don't think deserve it, like Target or something, is one, you know, I always pick on. But, you know, to me, the comp negative online and in the store,

to have no new store growth, why would that be a good security? All right, let's bring in CNBC contributor Shannon Sekosha to join the conversation of Envy Private Wealth. Shannon, welcome. It's nice to see you all on this Friday. Hey, Shannon. What might be a history-making day if we can close above 5,000 on the S&P for the first time ever?

We're certainly on track to do it. Your take on the market is what? Well, there's no ugly surprises as an Evercore analyst put out today. And I think that's really what we're looking for here, Scott. We've gotten through the bulk of earnings season. We have the concentrated names that held up there under the bargain for the most part, although there was some, obviously,

some dispersion in those results. And so now we're just looking forward to this continued drumbeat of what Chair Powell called confidence. They're building greater confidence. And to Adam's point, the broadening out of the market, and Mike is in a great job of covering this this week. The broadening out of the market really does rely on greater confidence that this economic picture that's being painted, that is of a disinflationary trend with low unemployment and continued surprising growth can be mirrored in the equity market in earnings growth because we know top line is coming down. So if we can start to see this continued execution, I can't agree with Adam more on the gross margin point.

Gross margins are improving and they have room to go outside of the big names that we talk about every day. So I think that it's about building this greater confidence. And, you know, milestones like 5000 help that. But I think it's more about just all of these data points coming together at the right time. Now, you were neutral. This sounds like a more bullish Shannon Sikosa to me. Am I hearing you correctly on this Friday, Shannon? Maybe you got me because it's Friday afternoon and Adam's on. And so, you know, that's always positive.

Yeah, thank you. Thank you. Honestly, we came into it. The tone don't lie. The tone don't lie. I mean, I'm being serious. All jokes aside, it sounds to me like you've become a little more positive on the market. Yeah, so we're still neutral overall in equities, Scott, and so I don't want to reflect anything different.

However, you know, we went overweight want to reflect anything different. However, you know, we went overweight in small caps to start the year. We moved our cash position from an overweight cash position to an underweight cash position, acknowledging more so that cash rates are coming down and that needs to go somewhere. Perhaps the bulk of that goes into longer duration bonds. But there is an opportunity here. And we do think, again, looking at this potential broadening out, I know that there's been some fits and starts in January and we're seeing some evidence of it. I do think that that's going to accelerate and that gives us a nice home for some of this cash to go to. All right. I mean, Russell, you know, speaking of broadening, we're above 2000 now. It's been a tough place to hold. We'll see what happens. Small and mid-cap. You a fan? You know, again, like you need

gross margins to go up. I think they will, but I'm not a fan of not owning a lot of the MAG-7. As you know, like you can't beat the S&P 500 and be underweight that group. That's my view. You've got to own big weights in the biggest, you know, 10, 15, 20 stocks. Okay, that's interesting. I like everything. Big weight. Well, that's important what you just said. Big weights in the biggest stocks. So you still want to go with the 2023 playbook of go big or go home. Here's why. It's really more risk management than alpha, right? One, these stocks have very low company-specific risk. When the market goes up in large beats small and growth beats value, it explains 80% of Microsoft's returns. Two, there's 50, 60 sell-side analysts and 4,000 buy-side analysts who cover Microsoft and Apple and Google. So the idea that I could know something that nobody else does that's not in the price,

I mean, that's rough. And then the third thing is I can't find a basket of stocks, 30 or 40 stocks that mirror their performance, that are correlated. I can't kind of de-risk the one. So if I don't know anything anyone else does, they trade macro and they're not replicable, I got to own pretty close to the market weight. And yeah, maybe I love Nvidia more than Tesla or whatever, or more than Apple, but that's not going to explain too much of my return. I've got to own a quarter of my portfolio long only in the big names. And so many people can't because they have mutual fund rules or risk rules that prevent them. And if you have the flexibility to do it, yeah, you should do it.

The other bit of fuel, Shan, towards the mega caps, if you wonder, if you need yet another reason why there's been such a flood of money in that direction, as Tony Pasquarello of Goldman Sachs, who covers hedge fund client coverage there, was talking about in his note today about the buybacks that these companies are doing. Extraordinary. Apple, $20.5 billion in Q4. Google, $16.1 in Q4. Meta, $6.3 in Q4. And they're big announcements. And Microsoft, $4 billion. And by the way, there are still tens of billions of dollars from prior buyback announcements still sitting waiting to act. Scott, this was the story of 17 and 18, 16, 17 and 18.

And it really created the market lever that exists for companies not just these mega cap companies but obviously we talk about their buybacks look at the return of shareholder value in the form of buybacks that's been announced in the last year it's not just in these companies but i think the the the misconception was that in a higher rate environment that they weren't going to be able to tap this type of cash flow to fuel this type of return to shareholders in the form of buybacks. And frankly, by terming out a lot of this debt over the course of several opportunities at zero rates, they have so much flexibility. And so when we look at companies we want to own, we look at balance sheet,

we scrutinize the balance sheet. We think about the companies that have a lot of balance sheet safe balance. We scrutinize the balance sheet. We think about the companies that have a lot of balance sheet flexibility. There's notable names that are in that mega cap tech space, but there are other names. Look at that and look at the flexibility and latitude that gives to these companies in this type of environment. Where are you today on energy? You know, are you come off that? I feel like you have. No, we're just wrong. We've been wrong the last year on energy. You know, I still believe that we don't have enough capital spending to meet what will be the demand at some point, two, three, four years from now, just with the installed base of vehicles. If anything else, I mean, look at Tesla's chart.

EV adoption has been a little bit weaker than people thought. A lot weaker. Right? And so that should support the demand-supply equation, you know, given where vehicles are. But, you know, supply has been a little bit better than people thought, given some geopolitical stuff. Demand's been weak from China. And oil prices, you know, a couple of deals have been announced without big premiums. So people are kind of negative sentiment. But I like it still because I just don't understand how we're going to get 107 million barrels,

which is what we need to fuel the installed base. So it might take me 18 months to be right, but I think eventually oil goes way higher. And, you know, in your portfolio, you could own 8%, 10% of your portfolio in energy, and I think it'll get paid. But it's been wrong. It's been wrong, no question. So because this week has been heavy with Fed speak. We've had yet another speaker today and everybody's kind of on message now. No March, but, you know, soon or soon enough, we're going to do it probably this year. When do you think we get the first one and how much do you think the timing actually

matters? I don't know is the answer to the first question. And it shouldn't is the answer to the second. Meaning, you know, I don't even know if they know when they're going to do it. I don't think the employment picture and the inflation picture and the economy are so desperate that I need to do a ton of cutting. And I've been surprised that there's six or seven in the price when you look at what's implied. So I think the problem we all have is we study history. We try to say what historical period is a playbook that's going to unfold. Well, the problem is history includes the TMT bubble unwind, the global financial crisis, and COVID. The current situation certainly doesn't feel anywhere near as dire as those three. So am

I going to average in those three things and tell you how many hikes they need to do? I don't know if that matters. I think as long as the consumer holds up okay, the economy's good, sure, they'll do it a little bit, but they're going to do less than what people think. Well, I mean, and also, Shan, there are some who suggest that they don't even need to cut and maybe that they shouldn't anytime soon. That was Professor Siegel's point yesterday, that the market's not, because people say, well, another one of the risks is that, oh, the market is so reliant on the idea of rate cuts. He suggested, no, it's not.

And at this particular moment, I don't even think they need to. I think there's pockets, Scott, of the economy that really could use a rate cut. We talked about low income consumers. You know, there's a lot of delayed purchasing that's going on in areas like autos that, you know, and, you know, homeownership, obviously, we're seeing just a stagnation there based on what we're seeing in rates. So I think there's parts of the economy that the Fed is worried about in terms of rates. I think, you know, from a corporate perspective, there are obviously segments. You look at regional banks, they certainly would like to see a kind of a different landscape, if you will.

But I think it's the it's the number, I agree with Adam, it's overstated. I also think that it may not be as linear a path as has been anticipated. I mean, it was a little bit unprecedented on the way up here in terms of going more than 25 basis points. Maybe we see that on the way down, too, and maybe they try to front unload this in June or later in the summer and then see how it goes for the rest of the year. There's really no telling because they have so much latitude in how they want to affect this policy. And so I think that that could create some uncertainty, but also some opportunity. I guess the dumb statement of the day for you is going to be this. The stock market leads the

economy and the stock market's telling you the economy is going to be decent that's it by the time the economists tell us that things are slowing the market will already have been down 10 20 so i think the market's telling you things are okay okay so on that note is where i wanted to end anyway oh perfect there are some who say like tom lee who's been bullish and correct and said stay big he's been correct there there. Says his 5,200, maybe conservative, 5,400 to 5,500 seems reasonable for the upside. Make sense? Depends on your time horizon. I mean, how could anybody...

This year. Yeah, I mean, look, 5,200 is only like 4%, less than 4% up. So, yeah, he could be there at the current rate by next Wednesday. It is crazy. Yeah. All right, we'll leave it there.

Speaking of, thanks so much for being here. I enjoyed that conversation very much. Adam Parker. Shan, be well. Enjoy is crazy. Yeah. Yeah. All right. We'll leave it there. Speaking of, thanks so much for being here. I enjoyed that conversation very much. Adam Parker. Shan, be well. Enjoy the weekend, too. That's Shannon Sikosha. All right. Let's head to the Christina Parts

in Nevelos now for a look at the biggest names moving into this Friday close. Christina. Well, let's talk about Pinterest because its shares are lower right now after a miss on revenues and softer than expected

revenue guidance for the current quarter we're in. The social media giant also saw lower average revenue per user and that's lower than what analysts had expected and that's why you're seeing shares sell off about nine and a half percent right now take two interactive having its worst session since november 2022 as its current quarter uh bookings outlook comes in much lighter than expected. The video game maker also cut its full year bookings guidance, leading some analysts to believe there will be further delays to its highly anticipated Grand Theft Auto 6 game. Uh-oh, that has shares down almost 8%.

All right, Christina, thank you. We'll see you in just a bit. We're just getting started here on Closing Bell. Up next, managing the mega caps. The Magnificent Seven already seeing some major gains this year. But can the run continue? How high can these stocks really go? Deepwater's Doug Clinton.

He joins us with his expert take after the break. We're live at the New York Stock Exchange. Closing Bell is coming right back. Welcome back. NASDAQ 100 closing in on yet another record closing high today. The mega caps already sitting on double digit gains and substantially so for the year. But can this narrow leadership continue to grind higher? Let's ask Doug Clinton of Deepwater Asset Management. Welcome, Doug. It's good to see you on this Friday. Likewise, Scott. Happy Friday.

You too. You know, I've run out of superlatives to describe what's what's happening. Some who are even positive and invested use the word insane for some of these mega cap gains. What words would you use and and how do you feel about what you witnessed? Well, when a trillion dollar market cap is up 50 percent in a month, I think that probably barely qualifies as insane. You know, we are big time tech investors. We have a lot of love for the MAG7. But I think as rational people, too, we look at some of the moves we've seen over the past month, really the past eight weeks. And at some point, you know, these trillion dollar companies can't

keep adding a couple hundred billion dollars to their market cap every single month. So my view is at some point we will get a break. We're sort of due for a breather. Maybe we're due for a little bit of a pullback. I don't know if that happens in a week or longer. Obviously, the market can be insane, to the word of the moment here, for longer than we think. But longer term, that's how we like to try to look at these stocks and not try to play the short-term trends. All of the MAG7 continue to have really great optionality as it pertains to AI as an emerging technology. We think over the next several years, a lot of these companies will have benefits that will see flow through to earnings

and I think can continue to support these stocks outperforming some of their peers in the broader S&P. I don't know if this is just too much of a softball loaded question is to ask you which one of the group looks more insane than the others. And I only qualify my question saying, well, NVIDIA is like literally going to the moon every day. So maybe that's the easy choice. But is it necessarily? I don't think it's necessarily NVIDIA. I mean, the tough thing, and again, the insane thing with NVIDIA is even though the stock is up 200 plus percent in a year,

the multiple really hasn't expanded that much. So a lot of it has actually been supported by a very rapid increase in demand for their GPUs. All of the hyperscalers obviously are building out infrastructure to support their investment in AI. So I probably wouldn't say NVIDIA. I might give you a little bit of a divergent answer. I'll tell you the one that I'm actually the most frustrated with, which maybe means it also to some extent could be insane, but it's Google. I mean, we own it. We are shareholders in Google and our core Titan fund. And the thing that's super frustrating about them is the stock's up 50%. Why should we be upset with that? It's because they should be the leaders in AI and they just haven't been.

Open AI, I think, is clearly two steps ahead of them for all the data that they have, 20 years of search data, for all the distribution they have, billions of users touch their products every single day. We think they should be in the lead in AI and they just haven't shown the hunger. They haven't shown the fire to really be aggressive going after AI. And we think that that could be a mistake. We'd like to see them get a little bit more aggressive with the products they're putting out. Does that, do you own it or not? We do own Google. We do. It's one, again, as I say, it's insane maybe to be frustrated when the stock's up so much. But as shareholders, we think there's more there. So I actually think it's insane that they haven't been more aggressive because I think that they're

leaving a huge opportunity on the table. Meta is really the standout of this particular period, just because their earnings report was so amazing. And then the stock's reaction was just, it was like shocking to look at how much it was up, coming off the best year ever last year, of course. You own this stock. Do you like it the best in the group? Meta is our favorite in the group. I think that the year of efficiency that Zuckerberg undertook a little over a year now has really set a new tone at the company. And when we talk about AI, the pace of innovation here, it feels like every month, it's like three years of development in the old world. I think that that year of efficiency has really set the tone at Meta in a way that Google has not figured out how to set the tone.

One of the things that I think is actually very underappreciated with for Meta, and we've seen it, to your point, in the numbers in the last earnings, the thing that they still have that could be a huge business in the future is their open source model business. Right now, they have the leading open source AI model in the world. That's Lama 2. I think it's downloaded something like 30 million times in the last couple of months. I believe that over time, Mark Zuckerberg is going to use the playbook he has always used with every product he's developed. You figure out how to get a billion users to use a product, and then you really figure out how to monetize it. So he talked about some of the tangential benefits they're seeing from Lama now in terms of interest from developers working with Meta,

improving their internal models. But I think over the longer term, we're going to see them provide some different services around Lama that could be a multi-b dollar business for them maybe over the next two to five years. Doug, I appreciate it very much. Enjoy the weekend. Thanks for being with us. That's Doug Clifton joining us today. We're tracking the S&P as we head towards the close. Coming up, gaming out the Fed. Ned Davis researches. Ed Clissel is mapping out his rate cut forecast, why he says speed could be the key to the market's continued success. He joins us after the break. Closing bell is coming right back. S&P 500 on pace to close above 5,000 for the very first time after hitting the milestone in the last few seconds of trading yesterday, literally the last couple of seconds.

Let's bring in Ed Klisseld of Ned Davis Research. So it's good to have you on. Here we are at these incredible levels. How reliant are we on rate cuts? And is that why we're here? I think that's part of the story. And it's not just rate cuts, but the fact that the economy is doing so well, inflation is coming down and that's going to allow the Fed to cut rates and not panic and cut rates like we've seen the last few cycles. But instead, go ahead and move it at a measured pace that will allow rates to come down, that would help earnings, that would

help multiples. And it's overall a pretty benign Goldilocks environment. When do you think the first cut happens? How many do you think we need? And what happens, do you think, to the market if it just doesn't go according to plan? Well, so the Fed's been pretty clear. March is pretty much off the table. We think May's probably the most likely, but June is quite possible as well. The Fed's also been signaling they're going to go slowly, and that's actually a good thing if you look back historically when the fed has moved slowly that is fewer than five cuts per year the market's under really well has to be up about 24 percent in the next year i wouldn't say that's going to happen this time but you know that's a pretty bullish historical perspective let's just say when the feds move very quickly uh five times or more in a given year. The market's only at about 5%.

And, you know, you think about the last few times they've done that, 2019, 2007, 2001. Those are all cases where the economy really shut down. And, you know, so it's not necessarily that lower rates are better. It's why the Fed is going lower. It really tells you what it means for the market. Well, of course. I mean, we are hoping, I would dare I say, assuming that the Fed's going to cut because it can, not because it has to. It can because they're confident. They use the word confident. They've seen enough to say we're confident inflation is, in fact, heading closer to 2 percent. And the Fed's done a very soft pivot

in what they're targeting. It used to be a nominal Fed funds rate. Now it's a real Fed funds rate. So you ask yourself if inflation is maybe not at 2% their target, but if it's getting close to that and the Fed funds rate is north of 5%, do we really need a almost 3% real Fed funds rate? And if you look

back historically, that's actually been very restrictive. So if they cut two times, three times this year, that'll get us in the range where they're not necessarily super accommodative, but they're restrictive enough to maybe help prevent the economy from overheating too much. And so that's a pretty benign environment. So, yes, that's what we're looking for, two to three times. If we if we take the Fed out of the equation do you see other risks or or not so much i mean economy good earnings seem to be decent especially with the with the mega caps you got you know theoretically some more money coming in off the sidelines into the equity market yes yes the way we do things at ndr we put things in the four pillars so you have the macro the

fundamental the technical the sentiment and so the one things into four pillars. So you have the macro, the fundamental, the technical, and the sentiment. And so the one of those four that's most worse at the moment is the sentiment. We've had a great run since the October lows. And so our sentiment composite, which includes seven different indicators of the sentiment, things like polls of individual investors, call ratios, that's been in its optimism zone for 50 trading days, and that is the 10th longest streak on record. So once you move out of the optimism zone, once the frost goes away from the market, usually you're kind of mixed for two to three months, and then the rally can continue from there. So the challenge with this is, of course, sentiment can remain optimistic for a

long period of time. As Cain says, the market can be irrational longer than you can remain solvent so it's not necessarily a sell signal at the moment but we need to be aware of that and to get a pullback actually would be somewhat healthy because if you look at these these runs of extreme optimism when it's gotten say over 100 days that's when that's really led led to their markets like in 2011 and in 2021. So it always was healthy to get a little bit of a breather. What about the broadening out of the market, which is a little better than people would otherwise want you to believe? I've got a Russell that's over 2000. Now it's up near one and a half percent on the day. So things are trying to broaden out more.

How much do we need that? It's important. And as somebody who looks at technical analysis and you get on Twitter or X and you read people freaking out about the mag seven, it's a little bit of a little frustrating to see because it's really about it's absolute versus relative. Yeah, there's going to be some areas that are relatively strong than others when we talk about market graph it's about absolute and 61 percent of small cap stocks above the 200-day moving averages that's very healthy so sure they've been trailing large caps but uh most stocks are in uptrends that's a positive

thing and would it would it be stronger if even more were? Absolutely. And the action of the Russell last couple of days is certainly part of that. And if you look at how small caps do around rate cuts, they usually underperform going into the cuts and then outperform once the Fed starts to cut. So this is something that would be positive for small caps once the Fed gets going and reason to think that maybe we could get the continuation of the whole market from the Fed cuts and the broad made. It all kind of works together. Ed, we'll talk to you soon. I appreciate you being on. Ed Klissel, enjoy the weekend. We'll see you soon.

Up next, Bitcoin hitting its highest level nearly a month. We'll tell you what's behind it, how it's impacting the rest of the crypto space just after the break. Closing bell. We'll be right back. Welcome back. Crypto-related stocks among the big winners today as Bitcoin hits its highest level in nearly a month. Kate Rooney with the details there. Hi, Kate. Hey, Scott. Yeah, so some risk appetite returning to the markets. Bitcoin is often where that shows up.

The cryptocurrency you can see topping $48,000 today, heading for its biggest weekly gain in about four months. Analysts are pointing to some speculative buying ahead of a market event in April that's known as the halving, which is essentially meant to slow down the creation of new Bitcoin. And then there's also been a slowdown in Bitcoin ETF outflows, especially in Grayscale's Bitcoin Trust, GBTC. The ticker there then, it's some of the same factors lifting S&P past 5,000. Solid earnings, easing inflation, giving traders a little more confidence out there. The second largest cryptocurrency, look at Ethereum.

That's also outperforming Bitcoin for the first time since October 2022. All of this is boosting those crypto proxy stocks as well. Coinbase, one of the biggest winners, reporting earnings next week. You got Marathon Digital up double digits. The mining stocks doing well today as well. And then the rally is coming amid some more legal trouble in the crypto industry on the company side. Today, New York Attorney General Letitia James expanding an existing lawsuit against Digital Currency Group, saying that it defrauded investors of over $3 billion.

That's more than three times the amount they initially accused. Scott, back over to you. All right, Kate. Thank you, Kate Rooney. Still to come, cloud flares. Stock is soaring. We'll tell you what's behind that big leg higher today. We're also tracking the S&P as we head towards the close.

We think we're getting over 5,000 on the close for the very first time ever. It'd be surprising at this point if we don't. Closing bell. We'll be right back. Hey, have you heard this before? NVIDIA is on the rise. It's unbelievable. The stock's up another almost three and a half percent today, $720. We'll discuss what's driving the name even higher and how the rest of the chip stocks are reacting when we take you inside the market zone next. We're in it, the closing bell market zone.bc senior markets commentator mike santoli here to

break down these crucial moments of the trading day the s&p on track now to close above 5 000 after hitting it for the first time yesterday in the waning seconds of the trading day plus steve kovac on the rally and cloud flare shares say that 10 times fast and christina parts of nevelos is back to share what's behind nVIDIA's gains. Mike Santoli, you first. The bell was ringing yesterday. We're like, oh, there it is. And here we are. It's perfect.

You know, you get to kind of commemorate it twice, but only twice, ideally. You know, you don't want to necessarily have it drag on. It provided no clear, genuine resistance. That's probably all a good thing. I think I'm more impressed beyond 5,000 as a figure, the fact that it's doubled in more than, you know, less than four years, really, from the low in in 2020 is that we are up in the last 15 weeks. Twenty two percent. That is a 100 percent annualized total return. That's how much we've been compounding. So it's among the best 15 week stretches in the entire history of the market. There's like four other periods of this type in the last 80 years that fit that. Now, that being said, the next question is,

is it too much in a hurry? And, you know, you might be getting there. We're kind of at that point where it seems like enough for now, just because of the heavy skew toward the highest momentum stocks. Shorts have been, you know, finally starting to get squeezed and run. But that doesn't mean that the overall trend is in jeopardy, I don't think. 50-50 and thereabouts, I've been saying for weeks, is where this kind of uptrend was seeming headed for. And now we're basically there. Round numbers all around, you know, it's not just the S&P closing above five. It's the Russell closing above two. And the Nasdaq's not quite at 16,000 again, but it was within a few points and it's heading there as well. Yeah, it's actually the Nasdaq chart. If you go back three years, it's

just this far from its former peak. Now, that's impressive given how bad 2022 was. But it also is a reminder that, you know, if we're just doing round trips over the course of two plus years, it's hard to say you're super overextended. The Nasdaq 100, for as much as it's been the source of most of the upside, is still at a kind of lower valuation than it was last July and at the end of 2021. So, again, it doesn't mean it's cheap. It just means it's been crazier. It is. And thankfully, because you study and you know these markets cold, it's really important to hear that. It's context into where we are and why we're here. And it does sort of push back on the prevailing narrative, which is, oh, it's too much, too fast.

It's too expensive. It's too this. It's too that. It's getting insane, it's euphoric, it's over its skis. It can be that in the really short term. And you can definitely see some signs of chasing. And when the crypto-related stocks start to play hard, that works, too. So that's all part of it. But that's just tactical stuff. It's not that the actual excesses have built up to such a degree at all that you want to compare it to some of the most vulnerable markets in history. Cloud Flare, those shares. Steve Kovac, tell us what's behind the rally. Yeah, up about, oh boy, 19.5, 20 percent throughout the day after those earnings report last night.

So what's behind the move? Well, let's look at what Cloudflare CEO Matt Prince said in the earnings release yesterday, saying they signed the largest new customer ever in the quarter and its largest renewal ever. And of course, sign of importance of cybersecurity spend no matter what kind of company you are. But specifically on the call, Prince said Cloudflare now has business from the U.S. Commerce Department. So some government agencies there. Also, of course, the AI play. Cloudflare, like everyone else, buying up those GPUs for AI. They have GPUs now in 120 cities by the end of 2023.

That was better than its own estimates of 100 cities. Now, why is that important? Well, it basically means Cloudflare can process tasks much faster for the customers that use those AI capabilities. Guidance also pretty strong for 2024 four-year revenue, a tad light, but earnings guidance was above expectations. And because of today's moves, shares up about 31% or so year to date, Scott. All right, Steve Kovach, appreciate you as always covering that. Christina Partsenevalos back with us to share what's behind NVIDIA's gains. There's something else today specifically that's behind this incredible move?

A loaded question, you know the answer to that. This time it has to do with custom chips. For the past few years, Nvidia has been working on them, but today's Reuters report points out not only has Nvidia created a custom chip unit, but is meeting with Amazon, Meta, Google, OpenAI to discuss building their custom chips, and is also in talks to build a wireless chip with Ericsson.

NVIDIA reached out. They won't confirm these conversations, but you can see the stock reaction, positive for NVIDIA, positive for Ericsson, and negatively impacting custom chip competitors like Marvell, for example. And for those who don't know, custom chips perform very specific tasks

and are cheaper than GPUs. I was chatting with Jordan Klein at Mizuho earlier today, and he brings up a really good point to me that these custom Nvidia chips could cannibalize Nvidia's actual GPU business. Additionally, custom chips have smaller margins. But Scott, a growing number of companies, AWS, Meta, Microsoft, Google, the list continues,

are making their own in-house custom chips as an alternative to GPUs, a.k.a. competition is slowly ramping up for NVIDIA. GPUs aren't the only game in town. Christina, thanks so very much. We do have a news alert right now. Actually, we don't. Our news alert is that the S&P is going to close above 5,000 for the first time ever.

That's an important news alert as we approach one minute left in the week. Yeah, 50-24. Looks like there's a decent cushion here. And I think one of the things that I would take away from the action so far this year is the market keeps passing these little tests. You know, the Treasury auctions this week were supposed to be a potential speed bump. Yields did go higher, but not really in a rapid or disorderly way. And so the market got past it. This CPI annual revision that we had this morning, I mean, crazy amount of attention on this obscure thing. Again, absorbed it, and it's okay.

I do think also the fact that we have, like, mid-single-digit earnings growth tracking for the fourth quarter and the first quarter means it's hard for lots of bad stuff to happen in a lasting way to the stock market if you've got earnings moving in the right direction, even if, as I said before, in the short term, it feels as if we're wound pretty tight and running pretty hot. Yeah. I mean, I'm just thinking as yields go up, you know, the market's doing this as yields are going up. Yeah. Imagine what happens when they actually start. And we're only at about 60 percent

for a rate cut in May now. So we're doing it without the Fed being a big part of the story. That bell is going to mark the first ever close above 5,000 for the S&P 500. Quite a session, quite a week, quite a market.