Closing Bell - Closing Bell: Rally on the Rocks?

Episode Date: January 5, 2024

It’s been a slow start to 2024… so what lies ahead for stocks with some critical data and earnings looming next week? Payne Capital’s Courtney Garcia and Stephanie Link of Hightower reveal their forecasts. Plus, long-time bull Tom Lee from Fundstrat is making the case for caution in the first half of this year. He explains why. And, Stempoint Capital’s Michelle Ross is flagging some under-the-radar biotech picks she is betting on. 

Welcome to Closing Bell on this Friday. 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. Given this rocky start to the new year, we're going to ask our experts where things could go in the weeks ahead, including Tom Lee. He's coming up in just a few minutes. In the meantime, your scorecard with 60 minutes to go in regulation looks like that. It's been a pretty volatile day following that stronger than expected jobs report, but then weaker ISM services reading. So we're in the red, modestly so across the board. Let's zero in on tech for a moment, given the Nasdaq's down about 3% this week. Boy, Apple, worst performing mega cap this week after a couple of downgrades. Their yields, they've been up and down as well today. And that's a big reason for the gyrations in the major averages, we think. A jump after the jobs report, a fall after that ISM, and then another rebound, which definitely seems to be hurting equities.

The 10-year now sitting above 4%. There it is, 4.04. It takes us to our talk of the tape, the slow start to 2024 and what lies ahead with some critical data and earnings looming next week. It's all coming fast. Let's welcome in Courtney Garcia, Payne Capital Management Senior Wealth Advisor with me here at Post 9. Happy New Year. Welcome back. Happy New Year. Thanks for having me. So what's your big takeaway from the way this year has started? The big takeaway is what we saw in October, where everything rotated right out of the magnificent seven that was the place to be

in the early 2023. Everything has shifted now. And you're seeing your interest rate sensitive things like small caps, real estate, energy are actually are starting to outperform. And I think that's only going to continue as we look into 2024. And that's where you're seeing some of the euphoria with artificial intelligence is going away. People really want to see that actually reflected in earnings. I think things are going to go back to fundamentals. That's where you want to look at some of those value. I mean, it's not like you've had, you know, a ton of money coming out of mega caps and going into the Russell. I mean, it's been a pretty equal opportunity sell off. I mean, the Nasdaq and the Russell both are down about the same

on the week, each more than three percent. So what is that telling us? And I don't think we want to too much extrapolate from this one week. I think really, if you go back the last two months, I think that's actually going to show a stronger picture here. And some of that is you're going to get, people are just taking profits across the board right now because it's kind of interesting, but the investor sentiment levels have been overly optimistic. Yet at the same time, and we're seeing this with our clients, people are still very cautious and they're keeping their cash on the sidelines. If you look at cash levels, the end of that last week in December,

cash levels actually went up, meaning even though people say they're optimistic with the markets, people think the interest rates are coming down, they're still keeping their money in cash. I mean, they're not actually ready to get in the markets. They're not actually believing that those money market rates are going to go down. And it's not necessarily we're advising, but you're definitely seeing that right now. But does that mean that some of that next leg is going to be a bit muted

because there's just not enough cash, new money coming in? I would actually say that still leads to an opportunity because that money can still lead its way in. I think people aren't overly optimistic. They're not throwing all their money into the markets. You're not seeing that euphoria. I actually think that could lead to a further upward trend. You sound like you're a believer in the idea, though, of that rotation being longer lasting money coming out of mega cap winners and going into other unloved areas or small caps or what have you. Absolutely. And we're actively talking to our clients

to that about right now, because if you didn't rebalance your account so far, you're going to be overweight in technology in those seven companies. And especially I have a lot of people who say, oh, no, I've got an S&P 500 fund and a total market fund. I'm good. You have no idea that about 30 percent of that is those seven companies. And if you haven't made a change in your portfolio, you're going to want to take some of those profits and add to other areas. I'm not getting out of the magnificent seven. I just want to take some profits there and take some better opportunities. What if it's a giant head fake, though? You know, I look at that ISM services today and I say that's the one thing that you cannot have deteriorate. This whole notion that even Janet Yellen, the Treasury Secretary today, said in an interview that we can describe what we're seeing now as a soft landing. And my hope is that it continues. But what if the economy continues to soften a bit more than it is now, still stays out of recession,

but continues to be a little bit weak? Doesn't that take some of the oomph off of those other more cyclical and small cap areas of the market? Not necessarily, because we need the economy to soften to a certain extent so that interest rates do, in fact, come down. Expectations are there, but we need a softening for inflation to continue to come down. It's just we don't want to soften so much we go into recession. So it's that kind of perfect scenario that we need to get into. And I think that's what you saw with the jobs numbers today. It was kind of bringing into reality the fact that, yes, the economy is softening, but we still have a really strong labor market. And I think when people are expecting those six to seven rate cuts next year, probably getting a little overly optimistic. I think rates are probably still coming down, just maybe not as much as people had gotten excited about in the last two months.

It's probably going to be a little longer. I'm sorry to interrupt you there. I don't know many people, if any, that are expecting the kind of year that we just had to be backed up in terms of performance out of the S&P, 24% or whatever. But what's in your mind as to what seems realistic for the S&P? Mid single digits, high single digits, low teens. What sounds reasonable to you? When you have a year like last year where the markets were up double digits like they were, you actually tend to have like a mid single digit year next year, but again, in the upwards

direction. So I think odds are on your favor that we'll continue to have a positive year. We're going into an election year. I think things are actually, especially as interest rates come down, leading up well to that. So, yeah, I don't know if it's going to be the same kind of outperformance last year, but specifically the companies who did outperform as much as they did, I don't think that's where the performance is going to come from. That's what you need to be aware of. But you think it's coming from the laggards, the healthcares, the energies. Small caps, yeah.

We mentioned small caps. Well, why healthcare and energy? Both of those are actually going to be beneficiaries of, well, specifically healthcare, is actually going to be a beneficiary of lower interest rates, right? I mean, you're going to see more M&A activity. You're going to see as they need to borrow more money, it's going to become more feasible for them. So I think you're going to see a lot of that as we go into 2024. Yeah, what about energy? I mean, energy is a big wild card. You got a lot of people trying to get on that side of the boat saying, OK, you know, it had a great year a couple of years ago. Last year was

a total dud. And now it's going to be the year yet again because supply demand is still out of balance. What's your take? Well, I think that's the big thing. It's just a supply and demand question. And I think that really still leads into our favor energy and specifically a lot of the energy companies back in 2020, when prices really went out of whack, they had to become so much more efficient. So kind of regardless of what's happening with energy prices, as long as they stay relatively in the range that they've been in, I think those companies are going to continue to show the good profits that people are hopeful about. What do you feel like is riding on next week's CPI? You know, today you had these, as we wrote in the top, we have these gyrations in interest rates and also in the performance of the markets. You know, the jobs report comes out,

wages and the jobs report are a bit stronger than expected. So yields start to tick up. Then the services report comes out. Yields tick down. And now they're moving back up in the 10 years at 404. What's the area that you get concerned in? I think we need to continue to see inflation coming down. That's the ultimate thing. And I don't think one number is necessarily going to affect things too negatively.

It's not going to be this perfect straight downwards trend. But I think over time, we need to continue to see those numbers come forward, because ultimately, the Fed has said over and over again, they're data dependent. If the data doesn't support them pausing and lowering interest rates, you're not going to see that happen. But I just wonder, you know, because the market was so uneasy, it felt this week, you know, even though, as you said, one week doesn't a new story make necessarily, that a disappointing CPI is going to have maybe a larger impact because we're already kind of wondering, OK, maybe we were a little over our skis on the idea that they're going to cut six times. And I think that's the big thing, the cutting six, if not seven times, depending on what you look at. That's the thing where I think probably people have gotten a little bit over their skis.

And so any little bit of poor information, people are going to start to realize, OK, maybe it's not going to be that. The Fed's only said it's probably going to be three times. But bigger picture is I think likely interest rates are still coming down. But, yes, you're right. I think some of that exuberance of the six to seven times is probably going to come back. Let's bring in CNBC contributor Stephanie Link of Hightower into the conversation. Steph, it's great to add you. So what's your big takeaway then from the way that this week has started and this year has started? That the economic data is supporting the soft landing that all of us are talking about.

I always worry that when we're all talking about the same thing, but you've got to look at the number, Scott. And it's not just the job report today. I mean, look at ADP, look at Challenger Gray, look at initial claims, which is a leading indicator. That's at 207,000 four-week moving average, so far from a recession. But then I also look at durable goods, and I looked at factory orders. And those numbers came in better than expected, with business spending intentions going higher. So there are parts of the manufacturing part of the economy that are seeing a pickup because of the onshoring, the reshoring, all the infrastructure bills that

have been put in place. So you kind of add it all up. The growth is there. Obviously, we all want to see the inflation numbers come down so that the Fed can cut, but it's not. It's still at 4.1 percent. It's still OK, but it's elevated. So that's why I don't think the Fed is going to cut six times this year. And if, by the way, they do, that means we have a massive decline and a turnaround to the downside in the economy. And I just don't see it at this moment in time. So the three takeaways, I think fewer cuts, I think better earnings. And I think the consumer has actually been really strong.

And I'm really encouraged by Costco. And I know Costco is a beast in itself, but you had 100 basis point acceleration, X the one extra day that they had this month from the first quarter, 100 basis points acceleration. And you had a 400 basis point acceleration in non-food purchases. That's discretionary. So my thinking is maybe services is coming down a little bit from the torrid pace that we've seen, but maybe that we've seen the bottom in the goods side of the economy and the goods buying in the economy. So let's keep an eye on it, but I'm pretty encouraged. You start to worry at what point that the strong numbers that you always cite as a point of strength in the market story undercuts the cuts. And then the market has to reprice itself.

Well, I think that that's what we're dealing with this week. You know, I think six cuts got way ahead of themselves. I definitely do not think they're going in March. I think maybe they do three. We'll have to see. I mean, we're you know, we're all data dependent, including the Fed. So CPI number next week is huge. And PPI is pretty big as well. And then earnings. We'll listen to what the companies have to say and how they're dealing with all of these moving parts. But I do think whether the Fed cuts three, four, five, one or two, earnings are going to come in better than expected because demand is actually better than expected. And I really feel very strongly that the margin side

is going to stay strong, especially because wages are coming down, input costs are coming down, supply chains are getting fixed. You agree with that comment, Courtney, that earnings are going to come in better than expected that Steph just made? I do, actually. And I think the idea that this earnings recession is ending and we're only going to see improvements from here, I think is really what we're looking forward to. I think she makes a really good point that the consumer is strong right now, right? Ultimately, we are a consumer driven economy. And even if wages do start to come down, people are starting to spend into their savings that they've really built up during COVID. So maybe we do start to see a little bit of a slowdown. But as long as we have a tight labor market, people do have the means to spend.

And we have a very confident consumer. And that likely is going to lead its way right into earnings. Yeah. I mean, Steph, you like the same sectors in a sense that court does. Right. Health care, energy, maybe in some respects, small caps, too. But, you know, here we are again with a lot of people talking about the very same places that they think are going to work this year. I know. I know. And that bothers me a little bit. We don't we don't all want to be on the same side of the boat. But I really do believe that there is real value in these sectors. I mean, the valuations are tremendous. The free cash flow, let's just say healthcare and energy, let's just take those two.

I mean, the free cash flows in both are substantial. The last 12 months in healthcare, we've had almost $400 billion in M&A, and it's gone practically unnoticed. And I think you're going to see a real step up in that activity in the healthcare space. But by the way, you're now all of a sudden starting to see it in energy, especially with the big guys with Chevron and Oxy and Exxon. They're making acquisitions, taking advantage of these really cheap valuations. So both sectors think their their their their sectors are cheap and and companies are cheap. And so do I. And so I think you can see real returns and a catch up, a catch up trade this year.

I'm not giving up on tech, Scott, but I do think there's better value elsewhere. And it's encouraging. Let's talk about a couple of things. I want to because I want to ask you about this adding to energy and the fact that, you know, you used to be in Chevron, talked about it it all the time kind of got fed up and sold it and now have bought Exxon so give me give me that first and then I want to go a little bit deeper on this mega cap tech conversation yeah no I mean look Exxon they've been executing a lot better over the last couple of years versus Chevron and that's a reversal and so it's a of years versus Chevron. And that's a reversal. And so it's a little frustrating with Chevron and the charge-offs and the write-downs that

they have to take. They're not immune, I know, but they seem to be more frequent. And so I just didn't think that it paid to kind of wait. It's cheap, for sure. But I like the better operator. Exxon has about $38 billion in free cash flow. I love the Pioneer acquisition, as opposed to Chevron. The acquisition that they made actually is more focused international, and I'm not as crazy about that. Because I think the Permian deal for Exxon is really a good one,

and they're going to be the number one player there. So 5.7 times versus 7.9 times for its 10-year average with a good yield. So that's why I added to that one. But I'm now, by the way, I'm now 700 basis points overweight energy relative to the benchmark. And you're underweight, you know, things like Apple, even though you own it, which is where I want to segue to. So it's been an interesting week, to say the least. It's the worst performing mega cap tech. It's down 6% in one week. We rarely get downgrades on that stock. This week it got two. Now you got the New York Times headline about regulators, you know, looking at the possibility of an antitrust

case, which on an intraday basis took that stock lower. And then for obvious reasons, it took the market down a bit with it. Big weighting out of the S&P, the Q's. It's by it's accounted for 20 percent of the Q's move this week, too. So it has such a large influence on everything and the Dow, too, of course. What happens if the market has an Apple problem? There's a very good chance the market has an Apple problem. It's 7 percent of the S&P 500. And I don't know why anyone wants to pay 30 times for negative growth. I've said that to you many times, and you know I'm very small in it. And, in fact, on Tuesday we talked about I'm inclined to sell the rest of the 50 basis points that I have.

There's other places to put your money. But yeah, OK, so let's say we have an Apple problem and the market has an Apple problem because it's such a big waiting. And oh, by the way, it's so over owned and so loved. Well, guess what? Maybe the overall market doesn't do very well or does much in the first half of the year. But other stocks and other sectors will

because of what we just talked about in terms of where there are opportunities, where the valuations are really super cheap, where you're getting good shareholder returns and you're getting good dividends and you have good stories, good free cash flow stories. So to me, maybe the market as a whole kind of just, you know, trades around a little bit. But I think underneath the surface, you could be a good stock picker and sector allocator

and offset the problems with Apple and maybe some of the other meta stocks, some of the other FAANG stocks. Freudian slip. Meta's green. Freudian slip, for sure. Yeah. Amazon's green. NVIDIA's green. You know, so and the Q's, by the way, are still green, albeit slightly. But what about this notion, Court, about, you know, Apple being upset for a bit? What does that mean to the to the market here in the early part of the year? It is a problem where it's such a large part of the market, especially as indexing becomes so much more popular as an investment option. If Apple goes down, it's going to take a lot of that down with it. And that kind of goes to what I was saying, where you want to make sure you're taking profits from some of those things,

adding to other areas, and not just throwing all your money in an S&P 500 fund. Because by doing that, I don't think a lot of people realize how much you are putting your money to Apple and Google and Microsoft and Amazon. If you are, look at an equal weight rather than the traditional S&P 500. See, that's why we bring it up, because there are a fair amount of people who invest that way, or at least it's part of their investment strategy. You own one of the index funds. And that's why we talk about the stock all the time, because the size of the weighting that it has, the influence it has and why it matters so much if it goes through a period of some kind of upset. Remember, that stock was, you know, 167, 169. Then it had this run in the upper 190s towards 200 as the overall market ripped from the end of October to the end of the year.

If it goes through a period and some of these other mega caps can hold up, that's all good. Nothing to see here. If it's picked up by other areas. To a certain extent, it's such a large section. I mean, the overall markets are going to feel that, right? And you're saying a lot of people invest that way in indexes. I agree. I actually think it's a great way to invest. I think a lot of people forget there's a lot more indexes than just the S&P 500. You can look at the rest of 2000. You can look at your international companies. You can look alternatives like real estate and energy. There's so many more things than just the S&P, which people think is the

entire market. So it's not the only index you want to buy. And I think that's what we want to point out here. Steph, what happens if there's no cut in March? I think that that's what we're starting to price in, Scott. I really know. I feel like we're pricing it back up. I mean, if we I'm sorry to interrupt you, but if you looked at the way that the market is now pricing March, it's when the jobs report came out at 830, you know, it was stronger than expected. OK, so the probabilities go down a little bit. Services comes out and it's like, oh, OK, well, now now we're back up to what it was like 73, 74 percent around noontime today. But what happens if we don't get the March cut? I mean, if we don't get the March cut, that means the growth is better.

And actually, that inflation is probably around the three, four, three and a half, four percent level. That's why the CPI numbers are super important. But in today's jobs number, I mean, it implied that productivity is going to continue to go higher. Unit labor costs are coming down. And so that's very positive for inflation over the long haul. And if you look at the quit rates in the JOLTS numbers yesterday, that's a leading indicator. And the quit rates fell pretty substantially. And so that's a leading indicator for wages.

And so I think we're going to see inflation come down, but growth remain elevated. But wages and inflation isn't going to come down enough for the Fed to really say, OK, we can actually go. I don't think it matters. I think as long as the growth can hang in there, earnings are going to hang in there. And that's what we need to pay attention to. Let me ask you this. I'm looking at a journal headline right now that says Southwestern and Chesapeake near a 17 billion dollar merger. It just speaks to, you know, what may be in play this year. More more M&A, more dealmaking. I mean, this obviously is straight out of the energy patch.

But when I read you a headline like that, what's your reaction? It's exactly what I expect. It's exactly what we've been seeing from some of these, the big companies. But, you know, these smaller companies see value in getting bigger and getting scale to compete with the big guys. Right. So especially as the big guys are getting bigger. So I think the free cash flow, look, cash break evens at Chevron and Exxon is about $35 in oil. Where are we today?

We're double that. So these companies are minting money. So I would much rather see them do M&A versus overproduce and also return the cash to shareholders, which is exactly what they're doing at these stocks are trading at five, six, seven times earnings, which is nuts. So I like what I hear. And I think, look, I mean, the S&P 500 energy is about a four percent weight. No one is there, even though a lot of people like it. I think there's more that can happen where we can see it be a more a larger contribution to the weighting overall. Expect more deals?

Absolutely. Yeah. If rates come down, we think they will. That's absolutely going to lead to more M&A. And that's that's going to affect energy. It's going to affect health care. All the things we're talking about. That's a big part of that.

All right. Great stuff. Courtney, thanks. Thanks for having me. Steph, thanks as well. We'll see you soon. That's Courtney Garcia and Stephanie Link. Let's send it over now to Christina Parts and Nevelos for a look at the biggest names

moving into the close. Christina. Give me my rent. Shares of Medical Property Trust are plummeting today. The nation's largest hospital landlord stock dipped about, well, look at that, 29 percent right now after the company announced that one of its tenants, Steward Healthcare System, is 50 million dollars behind in rent payments. Meanwhile, a quarterly profit beat is pushing Constellation brands higher, although the wine and spirits distributor missed sales estimates and cut its fiscal year outlook. The company saw an 8% drop in wine sales amid a nearly 12% plunge in wine

shipments. The company anticipates its wine segment will experience, quote, near-term headwinds. I guess customers weren't there or here for the right reasoning. Scott? Very funny. We'll be back with you shortly. Christina Partsenevelos. We're just getting started here. Stocks struggling to start the year. The S&P is down just this week. Up next, we're going to hear from one of the biggest bulls on the street, Fundstrat's Tom Lee. Let's see what he makes the case for in the weeks ahead. We're back after this. We are back. Stocks off to a rocky start this year. The first week of trading, the S&P has been down about 2 percent or so. Joining me now to discuss what it could mean for the trajectory of the market this year.

Longtime bull, Fundstrat's Tom Lee. Happy New Year. Welcome back. Happy New Year, Scott. Are you wavering at all by virtue of what's gone on this week? We're not wavering, but it's clearly not a good start to the year. I mean, you know, markets almost got to an all time high at the end of last year. And the first four trading days of this year have been really terrible. I mean, I can see what the market's struggling with, because as your guest previously talked about, you know, part of it is when the Fed cuts. And I think people are still jumpy about a strong labor market and inflation.

But our base case still remains that, you know, we're going to see all time highs in January. And then I think the market is tough in the first half of this year because of some of those things. But we'll we'll overall end up strong by the half of this year because of some of those things, but we'll overall end up strong by the end of the year. But you're not rethinking your own outlook at all by, you know, how, I mean, you obviously sound somewhat concerned by the way this year has started. Maybe it didn't go according to your plan. So how's that all factoring into your psyche? Well, yeah, I mean, I think it is disappointing because, you know, the year tends to play out in January. So the fact that we're, you know, sort of had a failed Santa Claus rally

in the first five days is pretty important. And the market looks like it's going to be negative. Just tells you that the fundamentals might show to which have been improving aren't necessarily going to convince investors to be buying stocks. So I do think it's telling us it's going to be a tough year. But the reason we're not wavering is that the reasons we think 2024 will be a good year for stocks has to do with the fact that the PMIs are bottoming and inflation's falling like a rock and the Fed has pivoted and is now managing a business cycle. I mean, those are really good anchors and supports for why stocks can do well.

But, you know, it's not a great start. I mean, it might be much better if we were up for the week. Yeah, well, I mean, bulls would feel better. What about this ISM services report? I mean, I know you talk about PMIs, but is that concerning to you? Well, it's there's there's pluses and minuses. I mean, to me, I think the ISM services employment number and the manufacturing number show you that the labor report we got today may not be as strong as it looks. And I think that's actually good because we don't want a labor market showing

signs of rejuvenation. I think the trend there is sort of softer employment growth. And from a prices perspective, I think it's pretty supportive of what we've been seeing, which is prices are falling. As long as housing and cars don't surge, housing growing at 3% is fine. That's consistent with 2% inflation. I think inflation is going to eventually be viewed as approaching target. And that's actually good. So, Scott, you know, the data isn't always in a straight line. I think it's a little messy this week.

And I think it is disappointing to see. But I think too many are going to be quickly turning bearish and then put on their hard landing or skeptic hat or the Fed hawk hat. And I think that's going to prove to be a mistake. So you look for about 10 percent out of the S&P, but more or less is what you think we're going to do from here. How many cuts do you need to get that? Well, you know, it's it's not as dependent on cuts as it's dependent on really inflation approaching, you know, what we'd all accept as like, you know, close enough to 2% so that the Fed is no longer fighting inflation. So it's not going to be as important as cuts as really sort of the quality of the inflation data. And I think the second is that, you know,

we do need to have a rebound in earnings and global growth, which I do think is underway. And, you know, as you know, inflation is normalizing outside the U.S. And when you have that combination of inflation sort of normalizing and real growth recovery, I mean, that's that's good for stock. So it's not it's not dependent on the number of cuts. Well, I don't know. I could almost make the argument that it's one in the same. I mean, if if you get the number of cuts that the market has seemingly priced in, it means that inflation has continued to move down rapidly towards target. And if you don't, it likely means that inflation has gotten a little bit more sticky than the bulls had wanted it to be. So it impacts the ability and the wherewithal of the Fed to actually

start cutting rates and doing it nearly as many times as the market still expects. Yeah, I hear you. I think the problem people have is when they talk about cuts, they they're assigning singular drivers for it. You know, I heard someone say, well, if they make a lot of cuts, it's because the economy is in trouble. That's not the case. The Fed could be cutting rapidly because they've concluded that inflation is actually approaching normalization. And, you know, a nominal Fed funds at five and three eighths are almost five and a half percent of the upper end is not appropriate when you're at 2% inflation.

I mean, that's 3% real Fed funds. At the same time, the Fed may not have to cut. The market could actually conclude this by seeing interest rates fall. So we could be in a situation this year where the 10-year is at 3.2%, and FOMC members may be wavering, but the stock market will rally because it knows the Fed is behind the curve and needs to cut. So I guess this is the reason why I'm saying the cuts aren't as important as really the quality of the inflation improvement. And maybe it's more important to see what rates actually do. Before I let you go, I want to ask you about Apple.

I know you're still bullish on mega caps, but you don't expect them to outperform to the magnitude that they did in 2023. This stock is obviously not looked good this week. It's down more than 6 percent, variety of reasons. And we listed them earlier, downgrades, chatter about antitrust, et cetera. If the stock goes through a period of upset, as I asked our prior two guests, I want to ask you the same question. What happens to stocks? Well, it's, you know, FANG, the destiny of S&P really does hang on FANG because it's such a large weight. I don't think FANGs are sell this year because, you know, they actually derated over the last two years. You know, their earnings outperformed the stock price performance. But you are getting periods like this where, you know,

people get nervous. It's one reason why I do think the story in 2024 is going to be a lot more about small caps and sort of some of the lagger groups, you know, financials are our number one large cap sector pick. But, I mean, if I owned Apple, I wouldn't be a seller here. You know, their franchise and sort of returns on investment are still enviable. So, you know, if it's down 6% but was up 44% last year, you know, I think people have to kind of look through that. All right. We'll leave it there. Tom, I appreciate your time very much.

We'll see you soon. Thanks. All right. That's Tom Lee, Fundstrat. Up next, trading biotechs bounce. That sector's seen some strength lately for a change. The XBI up more than 20% over the past three months. Hedge fund manager Michelle Ross joins us next with the top names she is watching right now. It's ahead of the

big J.P. Morgan health care conference as well. We'll get you set up for that, too, when we come back on Closing Bell. Welcome back. Biotech under pressure today, but up more than 30 percent in just two months. Bouncing off the lows set in late October. Group in focus at J.P. Morgan's annual health care conference, which is set to get underway in San Francisco next week. Stem Point Capital CIO and managing partner Michelle Ross with me here post nine to discuss. Happy New Year. Nice to see you. Happy New Year. Nice to see you. All right. So is this bounce believable because it's been a rough stretch of two years plus? Absolutely. And what we are seeing is clearly there was a macro tilt to this. We have inversely correlated from the 10-year

and as yields had gone up we were under pressure as they came down. Biotech definitely made that move but I really want to be clear there are fundamentals that are at work here that are making this longer term in nature in our opinion and we actually believe we've seen the lows. Tell us some of the fundamentals that lead you to believe that. So obviously we're very focused on the science and the scientific advance what we've seen the clinical trial data it could be a meaningful impact to patients and ultimately change the standard of care for a number of different conditions and the second the very big one was M&A and is M&A it's been something that is a key piece of our sector and had been kind of frosty and frozen there for a few years.

And it was one of those effects. It was kind of slowly and then suddenly all at once it did show up in Q4 in a big way. Thank you, Bristol-Myers, right, which went on a spending spree. And you expect more of that. Does that ball really get rolling out at the health care conference out in San Francisco? Myers doing two, AbbVie doing two. It was something that really could have been the expectation for that conference. So I don't want to say that by any means I'm making a statement on that conference and timing, but I would anticipate 2024 has more in store. So what's your assessment of the weight loss craze? By now, the story is well known for the stocks that have been bought as a result. Novo, Lilly, you know, maybe one or two others. Is that played out? Does it still have legs?

How am I supposed to think about that as an investor when all I've been hearing about is this class of drugs? Yeah, I think it is a tremendous market opportunity. I think what Lilly and Novo have done in truly creating something that peak potential is in the hundreds of billions of dollars. I mean, that is staggering and something that, you know, we do look at as what is going to happen in the evolution of this. Now, for us and what I would state is there going to be next generation and additional compounds that can truly allow this to grow to a larger degree, meaning taking this to

an oral pill. That would be the next generation. Or looking at ways to change the side effect profile or augment it to prevent some of the side effects that people are seeing right now. Are there other companies that I need to keep my eye on as a result of what you're talking about? Yeah, I would say that one in particular that we focused on is a company called Keros. And Keros does look at the opportunity to prevent some of the salvage of muscle. So muscle wasting that people have commented on in the past. Could you look at this as something to augment as well as a number of other companies looking at the oral aspects of being able to bring this as an oral product in the future? You own this name?

We do. You do. Other names that you brought that we, I don't think I've ever talked about before, maybe we have, and I just don't remember. Syndax is one. Syndax. What do they do? Syndax had a wonderful year end in 2023, and that was on the back of two very important

data sets that it presented at a medical conference in December. And the reason it's so important is these are late-stage clinical trials that were successful. They are now with the FDA for approval, and they are both in the oncology indication. They are areas of unmet medical need. This will have a massive improvement for patients going forward, and we think the market is primed for them and what they're going to be able to do. All right. We'll keep our eye on that one, ticking higher by about 2%. What about Cabaletta?

Yeah. Cabaletta, as a scientist by training, it really makes me excited what Cabaletta is working on and doing. They are looking at something called cell therapy, something we've been familiar with in the oncology, the cancer setting. They're taking that now to the autoimmune setting. So very hard to treat conditions where the immune system is at the core, at the center of this. They are resetting the immune system and recharging our T cells in our body to basically have phenomenal results. Cabaletta

is one of a handful of public companies doing this. Very exciting year ahead for them. What about election year politics, which in a general election year is typically not good for health care because both sides are just teeing off on the on the drug companies? How should I know? It is a very important point. We have typically looked at and seen different things happen going into an election year. It becomes a very bipartisan issue. The rhetoric does increase. I would say, though, there was a win that Biden can claim from this year,

which was through the Inflation Reduction Act. He did put into place an attempt to lower drug pricing over the next few years. Now, that could be looked at as a win on his side and something that is not going to come out as what could continue to be done for this class going forward. So I think time will tell. It is obviously part of the volatility that we experience consistently looking at this space. Last question. Since we started talking about rates, why this sector really seemed to get jumpstarted as the 10-year went from five to four. What happens if it's sticky here for a little bit? What does that mean? The great thing about biotech investing

is the amount of dispersion that you can find and why I'm so excited to be able to talk to you about great advancements and new themes and new approaches. And we talked about this last time with the GLP-1 class working despite where the 10-year was going. So macro is a piece of this, but it is by no means the entire story here when investing in biotech. All right, you'll keep us informed about the names we need to know. Thanks so much.

Thank you so much. All right, it's Michelle Ross, StemPoint Capital joining us up next. We're tracking the biggest movers as we head into this Friday close. Christina Partsinevolo standing by once again with that, Christina. Well, Boeing shares no longer out of favor

with Wall Street. And one analyst is arguing that the AI hype has yet to materialize. And that call is hitting one software name. Details next. We are less than 15 minutes away from this Friday close on Wall Street. Let's get back to Christina Partsenevelos for a look at the key stocks she's watching. Christina. Well, it's shares of software analytics from Palantir Technology sliding almost 2% right now after the company was hit with a downgrade. Jeffries arguing that the AI hype is, quote, overblown and the so-called AI boom has yet

to materialize, which is why the analyst questions Palantir's valuation, but still likes the actual business and fundamentals. The stock is down close to, like I said, 2% today and down over 6% in the past week. Meanwhile, Boeing becoming a more popular pick as of late. Analysts at both UBS and Wells Fargo named it a top pick in aerospace and defense. The stock is up 1.5% today and actually had a big run-up since October, bringing it to levels we saw back in early 2021, but still has a lot more work to do to get back to those pre-pandemic levels.

Have a good weekend. You too. We'll see you next week. It's Christina. Oh, I think she was saying she has something coming up in the market zone, which she does. Who knew? Up next, it's been an ugly week for tech broadly. The XLK dropping more than 4%. It hasn't stopped the street, though, from showing this one chip name some love.

All the details, what it might mean for the mega caps just ahead. Closing bell, including the market zone coming up. We're now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of this trading day. Steve Kovach joins us with new details on a possible antitrust lawsuit against Apple and its supplier Foxconn warning on guidance. Christina Partsinello is back, as you knew she would be, on why Wall Street is still bullish on NVIDIA. Mike, I begin with you, though. Looks like we're trying to make a run back to 4700 here on the S&P before we close it out. Yeah, it's been a little bit of a sticky number a few days this

year so far. Relatively, I guess, benign response to some conflicting data today. It still continues to look like this sort of low energy, profit-taking, slash we already own enough of all these stocks type of reaction all week. Didn't really seem to have to reprice rate expectations too much. Most of the data, as much as they were a little bit noisy, confirm in general terms the soft landing thing. So I don't think we can argue all we want about what the market expects from the Fed, when they're going to get it, whether they're not going to get it. I don't think it matters that much. We stay clear of imminent recession and inflation doesn't flare up.

And you could probably navigate that. Well, Tuesday, CPI. So that's the big test. It is because there's a ton of conviction that inflation is still going in the right direction. Everyone's waiting for the lagged effective shelter to really start to drag on those numbers. So, yeah, it certainly matters. And again, you've got this retracement of Treasury yields back up to a four percent. Not a big deal at this point, but you don't want it to gather momentum. So, Steve Kovac, I mean, first,

the analysts come out against Apple this week and now you got a headline talking about antitrust and the stock's down about 6% on the week. It's the biggest loser out of the mega caps. Yeah. What a year this week has been for Apple. And this antitrust report took it from green to red. It was up about, I don't know, a tenth of a percent before this headline from the New York Times came out saying the DOJ is, quote, closer to that anticipated antitrust lawsuit against Apple. This is all regarding the ecosystem around Apple devices, the App Store, the fees, everything we keep talking about. We've been expecting this for years now. It was supposed to happen last year. It was supposed to happen in 2022.

Maybe we're getting closer. We'll really start to get a sense of when this is going to drop there, Scott. Likely after the Google case wraps up with the DOJ and maybe as soon as early this year. But let's also talk about Foxconn. That is, of course, the company that makes most of Apple's gadgets based in Taiwan and with production in China. They said December quarter revenue was down 5 percent and sales from electronics flat from slow demand and guidance saying sales are going to be down for the March quarter. But those comps are going to be a little wonky because if you remember at the end of 22, a lot of covid shutdowns throughout China caused Foxconn to close their factories.

So a lot of things got pushed into the following quarter. But look, bad sign for Apple and consumer gadgets overall, as far as demand goes, Scott. All right, Steve, appreciate that. That's Steve Kovach. Now to Christina Parts of Nevelos on why Wall Street is still bullish on NVIDIA, which I mentioned is still higher today by a couple of percentage points. Yeah, it shows interest has not waned for NVIDIA. Bank of America reiterating as well for the company that predicting that actually NVIDIA could go on a buying spree since it'll have about $100 billion of incremental free cash flow over the next two years. The Bank of America analyst estimates that about $30 billion of that cash could go to buybacks and then roughly $70 billion could go to, quote, new growth initiatives. So recall back in 2022, NVIDIA tried to buy ARM.

And so clearly it didn't work out, but clearly it has an appetite for software and IP-driven assets, so that could be where it's buying. Or it can go hunting for storage companies to be a fully, even with the new restrictions on AI chips to China. And then there's another note saying that NVIDIA will continue to lead the GPU market while increasingly winning over the developer community with software and services, which helps with market adoption of its products. So that cycle just keeps on going for NVIDIA. Stock, though, is still down on the week, about 1%, Scott. All right, Christina, thank you. Christina Partsenevel. So, Mike, I know you don't love the idea of as goes Apple, so goes the market. But how are we thinking about what's going on this week with that stock in particular and what it means?

Down almost 10% from the high. Obviously, the rest of the market is hanging in there a lot better. I was just looking back. There have been these stretches of time. It's not easy for the S&P to shrug off Apple or for Apple to be sidelined during a rally. But 2018 into 2019, the S&P went up 20 percent. Apple was flat point to point. It also happened in 2013, 14. So there have been these times when you're able to kind of set it aside. In terms of the way the market reacted to this news, it was interesting because the S&P took an immediate drop at 215 when the headline hit, but it was almost all due to Apple itself.

It wasn't the rest of the market spilling out. So you can do without Apple leadership. I don't think that you can necessarily lose all of the mega caps, obviously, and still have the index hang together. All right, we may not get 4,700. We're close. We're going to settle out right around there. Could be a few points below it. Nonetheless, looks like we made a nice little

run here into the end. We'll see what next week brings out on the tape. CPI, earnings, etc. I'll see you then. I look forward to that. Into OT with Morgan and John.