Closing Bell - Closing Bell: Rally Refresh? 7/26/24

Episode Date: July 26, 2024

Has the two week pullback and rotation away from tech reset valuations and expectations enough to refresh the rally? Or will the waters stay too choppy for comfort into the heart of earnings season and next week’s Fed meeting? Vantage Rock’s Avery Sheffield, 3Fourteen’s Warren Pies and HSBC’s Max Kettner reveal their predictions. Plus, Bill Miller IV tells us where he is finding opportunity in the crypto space right now. And, it was an ugly week for the tech trade. Steve Kovach tells us what to watch in the big week ahead – as we await numbers from Amazon, Apple and Meta. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with the dip buyers mobilizing to finish out a bumpy week on Wall Street. Some traction in hard hit tech. You have continued flow into financials and smaller stocks after a largely as expected inflation reading keeps Fed rate cut expectations for September pretty well in place. Here's our scorecard with 60 minutes to go in regulation. The S&P 500 up about 1% right now, making a bit of a stand after a 5% setback from peak to the lows this week. NASDAQ Composite, kind of the center of this pullback, is participating today but still underperforming, up about 0.8% of 1%. The Russell 2000 has been the big beneficiary of

this rotation that began about two plus weeks ago. You see it here up another one point three percent. The KBW Bank Index, boy, it's done nothing really but go up for a couple of weeks here, up 85 basis points today, looking to finish out a near five% week. And take a look at the two-year Treasury yield. That is nearing about a six-month low, under 4.4% as those Fed rate cut expectations flow through the bond market. That takes us to our talk of the tape. Has this two-week pullback and rotation away from tech reset valuations and expectations enough to refresh the rally? Or will the water stay too choppy for comfort into the heart of earnings season and next week's Fed meeting? Here to weigh in on all that is Avery

Sheffield, Vantage Rock co-founder and CIO. Avery, good to see you. Great to be here. So this is the job of a pullback, right? To test some assumptions about the fundamentals, to see if it was all just noise and excess optimism and positioning. Where do you think the market sits right now in a big picture way? Yeah, in a big picture way, I think the market is still overall quite expensive and there's a lot of vulnerability to many of the more expensive names in the market. But at the same time, I do think that some of the move up and some more reasonably valued names that have been really overlooked probably make sense and will stick. Yet other moves up in more junky names probably will come home to roost over the months ahead.

So reasonably valued, I guess, assuming that earnings remain on track, that the economy can hang in here. I mean, the soft landing view seems to underpin most of what we what we can hope to expect from these companies. Yes. I mean, certainly there's a risk to the downside. We had Bill Dudley out, you know, saying, hey, we've got to cut immediately. Like we're starting to see data rollover. We're close to the SOM rule like in unemployment. So there are risks. But what we've seen is that this economy is so sensitive to interest rates. I think the moment the Fed cuts or as the market starts to digest Fed cuts and brings rates down before the Fed actually does, that has a stimulative effect, right? We saw, of course, services spending next housing right as rates

came down in November immediately start to spike up from about 2 percent to 5 percent on a three months annualized basis. Then it came down as rates came back up again. So we do have so much sensitivity to interest rates that I think that we probably don't have to worry about the economy falling apart. By the way, if the economy fell apart, a lot of stocks would have to go a lot lower. So but but my view is like the Fed doesn't want to restimulate the economy. They don't want to restimulate inflation. They want to have a more even keel. And many stocks are not priced for that even keel. Like there are still stocks that are underpriced for it and other

stocks that are quite overpriced for it. It seems that's the result of this environment we had for a while where you had sort of a scarcity of predictable earnings growth or at least above trend earnings growth in those big mega cap secular growth names. Plus, you had the AI story that was just kind of rampaging through tech. And all of that got you this concentrated market. Everybody would have agreed we probably need to rebalance the market. It would be a lot to expect for it to happen painlessly or quietly. So it hasn't been. There's been some friction along the way. But you seem to think that the big stuff still is a little bit too expensive or too aggressively owned? I think vulnerable, vulnerable, because like these companies have the valuations are high,

not extremely high for some of them on earnings, but on free cash flow, all of them are getting stretched because they're spending so much on CapEx, right? A lot of that's on AI. In some cases, in some of the cases, it's on infrastructure. But we really need to see a return on investment of that CapEx. If we don't see a return on investment, there were questions on a recent mega conference call. Are we potentially overspending, going to go into excess capacity related to AI and cloud? Those questions weren't being brought up before. The answer was we need to spend. That's more important to spend than to not spend, right? We've got to be ahead of this. But now that investors are starting to ask for answers, I think these companies are going to be very vulnerable if they're not able to demonstrate

an ROI or a kind of, not necessarily a negative growth, but like a pullback in the acceleration of growth. If they're not focused on efficiencies, I think they're very vulnerable here. But if the CEOs express, hey, we've spent a lot and we're going to digest and move forward. I think actually the stocks could do well. But is it a much trickier place than it was before where investors would just buy the dream? Yes. Yeah, no, we've seen examples of that before when if you seem to be overspending and you throttle back, the market will recognize that at once. I wonder, you kind of pose these two different buckets of stuff that's up a lot and is kind of junky and maybe is going to fade, but also things that have been, you know, undeservedly overlooked before and now are getting recognized.

Maybe they have a better fundamental story. What are some examples in that latter group? Right. So we have examples both in more defensive areas as well as in more in cyclicals. So, I mean, we continue. I'm not saying you're going to make a ton of money in these stocks, but they're certainly more defensive in telecommunications. Right. You've seen some of the telecommunications providers where they're meaningful investments in fiber. They're starting to get returns. You're not seeing the aggressiveness on pricing you've seen before trading at very reasonable valuations, high dividend yields, high free cash flow yields.

They can kind of plug along. And even one of the major telecommunications providers has actually matched S&P's performance this year. If the economy goes to hell in a handbasket, I don't think that their financials are going to really be impacted very negatively. So I think you've got opportunity there to be defensive and maybe get some upside if their initiatives continue to deliver. Also, in areas of insurance, insurance is not every insurance company, but there are areas of insurance where you have

pricing power is moderating some, but they're still getting more pricing. They've managed their businesses conservatively. They can compound book value, trading at reasonable valuations. Again, not seeing the same cycles. There's a cycle there, but it's a different cycle than the economic cycle. But then you also can flip to cyclicals. Within probably all cyclicals,

there are companies that have demonstrated an ability to execute, even in a somewhat weakening environment. So you see in airlines, you see like one airline standing out above the rest, really continuing to execute. And you're seeing capacity start to come out of the weaker players.

Look, in a weakening economy, how do those offset? But if your valuation's under five times earnings, you have room there, right? Also similarly in autos, we've seen a real bifurcation. And if you're making the right cars at the right price point, you're recognizing that customers need value and delivering that, you can do well, especially a little bit of interest rate cuts, you know, creates a little bit of room for you while your competitors, you know, they'll catch up over time, but you're in a good position right now. We saw this week what happened

to some of the competitors. I guess you have in mind there. Absolutely. Let's widen out the conversation a little bit. We're bringing Warren Pies of 314 Research and Max Kettner of HSBC Global Research. Good to see you both. Warren, you know, been talking about trying to diagnose what's really been driving this rotation in the market, the sort of sloppy pullback type

action that we've seen. You know, I've been remarking for a couple of weeks, I know you've been focused on this too, is the small cap surge seems like the kind of thing you'd see early in a cycle. It just seems like there's a bit of a mismatch. What's the message you're pulling out of it? Yeah, thank you for having me on. I think that's really what's tripping a lot of people up is that this is a this broadening and especially small cap leadership, low quality leadership is an early cycle phenomenon. Yet we are late cycle. I mean, we were not coming out of a recession or a bear market. is that I think it's healthy for the market and it's good to see small caps participating. We saw a breadth thrust last week, which it pretends good action for small caps one year ahead. But my discipline is you want to stay in the non-MAG7 area, but not quite go down into low quality. So that's kind of what we see is it's kind of an anomalous late cycle broadening.

I do think there are areas of the market that have been of the economy that have been depressed by the Fed's rate hike cycle. So if you look at like new car sales were below 2018 levels. If you look at existing home sales, we're back to where we were at the lows in 2009. I think that we are going to have kind of two things going on at once. We have the labor market, which is late cycle. And then we have the credit expansion, which I do expect to happen as the Fed cuts rates. So ultimately, I see this as supportive for the broadening. But my discipline where we're at in the cycle is you want to stay higher quality spectrum as you play the broadening.

And Max, you know, this idea of, you know, where we are in the cycle, I mean, a lot of the action in the markets this year has been about essentially betting that the expansion continues, that it's sort of mid cycle, late cycle, whatever it is, it's an ongoing expansion. And has there been anything to come along either from the inflation numbers or some of the growth data that would lead you to believe that's not the case at this point? No, actually, not really. It is quite interesting that whatever meetings we've got right now with clients, it is always about this sort of this pretty significant slowing now of U.S. growth, that deceleration of growth that a lot of people are talking about right now. And we don't really see it. When we look, in fact, at a couple of high frequency indicators, things like freight volume, things like same store retail sales, things like consumer spending derived from credit card data. In fact, they've either been stable the last couple of weeks, the last two months, or even been picking up slightly.

We know that, for example, layoffs are still sort of chugging along at pretty much the lowest level from pre-COVID, from the 2010s. Yes, they've been picking up, but in terms of the levels, they're still around the lowest levels from the 2010s. We also know that job cuts overall have been going down in the last two, three months. So there isn't really an awful lot to suggest that we're seeing a really, really massive deceleration in terms of growth. Not at all. And I guess, therefore, that explains why you remain pretty much maximum overweight in risk, right? High yield credit as well as equities here. I note also that you have been saying to add to Japanese equities at this point. They've had a little bit of a gut check.

Yeah, I do think, however, that what we've seen over the last couple of days has been probably more of a positional unwinding of sort of consensus positions, obviously carry positions that have been in vogue for the majority of this year. So a lot of those yen financed carry positions have been probably unwound. However, the problem is, I think, going forward, that when we look at the Bank of Japan, they're really constrained in terms of how much they can do, right? We know that GDP is disappointed. We know that, for example, real wage growth is still running at sort of minus 1.5% year over year. Real household consumption is still running at minus 2%. So I think from here, any big really appreciation potential for the Japanese

yen is really, really, really constrained. And if the yen really depreciates a bit further from here, that should be giving at least a bit of a tactical tailwind for Japanese equities, but indeed for other risk assets as well, like you noted. And I would really say the sell-off that was so-called sell-off that we've seen in the last two weeks. It's really not spread that much across all the asset classes. In fact, when we look at July, you know, high yield spreads have been stable. Investment grade spreads have been up to three basis points. EM debt spreads have barely budged.

So we've not really seen this big growth scare that the bearish people want to talk about. That's right. Yeah, no, it has mostly been kind of a lot of shifting around among parts of the equity market as opposed to any kind of cross asset panic. Warren, I wonder just tactically how things set up for you right now in terms of how investors are positioned, how they were at the highs in the market, whether we've relieved any excesses. And how do you think this choppy period might play out from here? Yeah, I think seasonally, we've had this the first half being so positive. I think it sucks people in an early July. When you look at years like this, it games out to be a pretty choppy next few months from, like, say, August through October. And I think this is

going to be a period, like you said, where we're going to kind of alleviate some of the excess optimism. So we look at things like speculative ETF positioning. We've seen already some of this pullbacks already started to add some pessimism into the market. We see the percentage of volume and inverse ETFs, which is something we track is going up. And so this is all healthy. When you look at the equal weighted S&P 500, the damage hasn't been very bad at all. So mostly a rotation and mostly into things that have been laggards. And so in my view, I think that this is a bit of a holding period seasonally. We're going to catch our breath here and hopefully put some pessimism into the market. But ultimately,

I don't see anything. Just like Max said, I don't see anything in the growth data. I think the Fed has your back. And so you need to stick with the stock market. I mean, there's really some of these concerns I've heard, they're kind of created. I don't think that this yen story is really something to worry about. Yeah, there's some political uncertainty and things like that, but, you know, that's kind of just table stakes in the markets these days. Yeah, when hasn't there been? And just to emphasize, the equal weighted S&P is less than 2% off its high, and it's now up to about a 7.5% year-to-date gain. So not too bad, closing the gap slightly with market cap weighted. Avery, I guess the question when it comes to, you know, the idea that the Fed has your back or that it could relieve some of the pressure if we get a rate cut.

It seems like the playbook is if the Fed is cutting, you know, in this kind of measured way because it feels like inflation is in check and not because the economy needs saving, that's ideal. And therefore, maybe it's a slow and prolonged, slight easing process. How do you think it'll go from here? Right. I mean, yeah, it does feel to me like the Fed is more likely to go for hawkish cuts unless we start to see real deceleration in the economy. And what happens to stocks? I mean, I think it's jittery because, again, we've had so many stocks that are already pricing in, you know, even starting to price in three rate cuts this year. Right. So so I think that those companies that are pricing three rate cuts, if you get these hawkish cuts, they're going to suffer. But if you get these hawkish cuts like, you know, like Warren was saying, you you know in areas like autos in areas that

are more more interest rates sensitive you could get a real relief on that that could kind of propel them along. So I think that it means that you're going to see just a lot of movement under the surface I think it's really hard to call

where the market's going as a whole except because also you know the big the magnificent seven comprise so much of the market cap. And I do think that those CEOs have more control over their valuations than the market might anticipate based on their decisions around CapEx. Like, you know, of course, if growth is massively outpacing expectations, then they can go to the moon. But even if growth is a little softer, they have some things under their control. But even if growth is a little softer,

they have some things under their control. And that's going to move indices, at least the market cap weighted indices, a lot. So I think it's a tougher call. I think it's very much a stock picker's market. One thing, though, I would say on consumer spending is that spending a lot of time looking at spending data, yes, spending is positive, but pricing pressure is building. And you're seeing consumers spend when they perceive more value, when they perceive innovation. But overall, they're much more discriminating, and that's making it much harder for companies to be able to deliver meaningful earnings growth. You have to have that value or innovation or operational efficiency. Otherwise, companies, I think, are going to continue to struggle. Yeah, I mean, that certainly would seem to explain a lot of the messy reactions to some of the corporate commentary with this earnings season and the consumer-facing

companies. Hey, great to talk to everybody. Avery, Warren, Max, thank you very much for the time this afternoon. Let's now send it over to Pippa Stevens for a look at the biggest names moving into the close. Hey, Mike. Shares at 3M are having their best day ever, up more than 20 percent. And the biggest gainer in the S&P 500, after the maker of office supplies and adhesives, reported stronger than expected quarterly results. Shares are at their highest level in nearly two years. And another stock having its best day on record is Newell Brands. Those shares up nearly 40 percent after the company blew past earnings estimates for the second quarter and also raised its full year outlook. The company said it's making, quote, significant progress in driving Newell's turnaround.

And Colgate Palmolive hitting a new all time high. The consumer packaged goods maker beat on the top and bottom lines with organic sales growth of 9%. The company also backed its full-year net sales outlook and said the consumer environment is, quote, pretty good, though shares up 3%. Mike? Pippa, thank you. We are just getting started here, and we are all over. Today's big bounce back in the index is up next. Bitcoin has seen some serious strength so far this year. Bill Miller, the fourth, is back breaking down how he's playing the crypto space right now. That is after this break. We're live in the New York Stock Exchange. You're watching Closing Bell on CNBC. The price of Bitcoin climbing on day two of this year's Bitcoin conference in Nashville.

The cryptocurrency now topping 67,000, actually 68,580 at the moment. MicroStrategy also getting a boost today ahead of Executive Chairman Michael Saylor's speech this afternoon. Joining me now from the Bitcoin conference is Bill Miller, the fourth of Miller Value Partners. Bill, great to have you join us today. And, you know, I'll start maybe facetiously to say what's new to be said at this big conference of Bitcoin believers that hasn't really been in place since the dawn of the asset class, let's say, because it seems as if it's always just sort of reinforcing if you believe in the attributes of it, you should own more and more people will own it. But what's your message going to be to the group? Mike, thanks for

having me on. There's always something new and cool happening in Bitcoin. And so I don't know if you saw just yesterday or the other day, Ferrari said they're now accepting Bitcoin for payments. But what I'm really excited about is the fact that at this year's conference, we now have additional companies coming out and saying, we're going to put Bitcoin on our balance sheet as a strategic treasury asset. And you haven't seen that before. Before it was MicroStrategy and they were doing this funny thing and, oh, it's working out. Well, now guess what? You're seeing other companies come to market and start doing the same thing. And from my perspective, if you continue to see Bitcoin gain adoption, which it has a 15-year track record of doing, not owning it is a bad idea, you're going to see these companies outperform. And then other

people are going to look around and say, how can I outperform? The world's a competitive place. Bitcoin is a great way to do it. And so the momentum just continues to gather. I guess the question I would ask, and certainly if more companies decide that they want to buy and never sell Bitcoin, it's going to increase the demand relative to the fixed supply. We all know that that would work in favor of the prices. But what problem is solved by companies doing that? I mean, I just don't know how many companies are really going to want to place that sort of an asset on their balance sheet and have that be an

aspect of their story. Well, I think it's worth asking what their alternatives are. And the alternative is you can buy a Treasury asset whose white paper says it's going to depreciate at 2% a year at least. If you look back at the history of the Federal Reserve, they printed approximately 6% supply growth over an incredibly long period of time. Six percent supply growth. That just happens to correlate with the long-term growth rate of nominal GDP. What do you know? So here's the real deal. Bitcoin is the new global denominator for capital. So the problem it solves is it solves, you don't have all these politicians running around trying to curry for favor and redistribute wealth and change taxes

and change all sorts of things. You get what you get. You get 21 million Bitcoin and that's it. And so, you know, we're incredibly optimistic about it over the long term as these dominoes continue to fall in favor of Bitcoin. I guess, I mean, you know, not to argue the point too directly, but I mean, you haven't seen companies over the years say, I'm going to hold a bunch of gold with our treasury cash, right? I mean, it would be a similar idea. Yeah. The issue with gold is you can't divide it. You can steal it. It's hard to store, et cetera, et cetera. I also don't think you're going to see a lot of companies come out and say, yeah, we're starting an Ethereum strategy just because liquidity is not there. What Bitcoin has now is path dependence behind it.

And so you're getting this critical mass and things are moving in the right direction. Let me ask you quickly about MicroStrategy. You said the kind of casual case is, oh, they're doing this funny thing. This funny thing is raising a lot of money and selling equity or convertible debt, buying Bitcoin with it, holding the Bitcoin. But the stock now trades at a huge premium to the value of the currently held Bitcoin. And, you know, that premium has kind of waxed and waned over time. Why does it make sense to pay effectively a premium for the Bitcoin on MicroStrategy's books? Well, because you have an incredibly intelligent owner who's thinking very carefully about capital allocation and how to use that premium to maximize value over the long term for all

of its constituents. So if he can sell shares at a premium to the price at which he can pay for Bitcoin, that's incredibly value accretive on a Bitcoin per share basis on their balance sheet. So if they can continue growing Bitcoin per share at an attractive rate, that's incredibly attractive. So that's why you don't. Yeah. But I guess what you're saying is buy the stock today because they might dilute you by selling to new investors at a higher high valuation and then put it and recycle it into Bitcoin? Well, no, there's actually optionality much longer term to the extent Bitcoin continues to gain value. So you think about what a major, what are the largest financial institutions in the world worth?

You know, hundreds of billions, trillion dollars around there. And so that could be a potential business line longer term for MicroStrategy. You have the world's scarcest collateral. All right, Bill. Hey, I really appreciate you giving us a taste. So enjoy the conference and we'll talk to you again soon. Thanks, sir. I appreciate being on.

All right, Bill. Up next, believe the bounce. Stocks trying to take back some of this week's steep losses. Data Trek's Nick Colas is here with his forecast for the market and where he sees the mega cap trade heading. He'll join me after this break. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. Welcome back. Stocks attempting another rebound today. The S&P 500 and Nasdaq both trying to claw back some of this week's losses after new benign inflation data,

but still on track for their first back-to-back weekly decline since April. Joining me now is Nick Colas, co-founder of Datatrack Research. Nick, good to see you. I know you've been pretty much favorably disposed toward the market most of this year. I think you probably figure this choppy period will resolve somewhat higher. But how does it look right now in terms of, you know, tactical? Sometimes you get these fits and starts once a pullback's been initiated. Yep, totally true. We've been positive all year. But however, we do see some volatility coming up, some more volatility coming up. Look, we've had a great run in the first half. July has proven

choppy. And it's pretty clear that we've got to resolve this imbalance between very large cap techs valuations and the Russell's valuations. The Russell's about $9 trillion. The top three tech names are roughly $9 trillion. The capital is moving from three assets to a whole bunch of others. That's going to take some more time to resolve itself and volatility will be elevated between now and then. We're looking for a bottom when the VIX hits 19 to 21. That's happened twice in the past 12 months and the S&P bottomed four to five days after. So our near-term look is still to the downside. The VIX did click above 19 yesterday, no? It did, but you want to see a close. I mean,

we look at closing VIX levels. 19.2 and 21.7 were the highs for the VIX over the last year in those two down drafts ending in October and ending in April. And so, you know, I think along the way, as the largest stocks and the ones that were most owned and had the best growth, and, you know, we call them the Magnificent Seven or whatever else, as they dominated this market, there's a lot of stories about why it wasn't a bad thing necessarily. You know, bill markets take all kinds of forms. These were the best quality companies out there. So do we have to unwind them all the way and have them converge with everything else in valuation?

Or, you know, how much do they have to give back, I guess? Well, we had a lot of enthusiasm on one particular new technology, generative AI, which is a totally valid investment thesis. But I think we can all agree in retrospect, things got a bit overdone and the hype behind that trade kind of maxed out at the end of June. And now we're cycling into another kind of trade, which is more cyclical in nature, more of what we would call a mid-cycle market where industrials outperform, financials outperform, the more classically cyclical parts of the market outperform. And they're playing catch up right now, both because we have a good economy and we're expecting rate cuts and because markets think there is some level of certainty about the election in November

that might favor Republicans. And so we have a classic trade in that direction as well, favoring sectors that would benefit from deregulation. So you put it all together into the pot, stir it up, and you get this market. I mean, it is certainly mid-cycle or whatever you want to call it until proven otherwise. But one feature of those environments is that you always have anxiety that it's falling away or that there's something that's going to deviate from the expected trend. I mean, right now you see a lot of anecdotal stuff or collective anecdotal stuff sector-wise about weakening consumer. You saw the auto stocks this week, or maybe the unemployment rate has shown a little bit of lift. So how confident are we that if the Fed's cutting, it is going to be into a

resilient economy? Yes, you're right. Mid-cycle markets are just as hard to trade or invest in as any other kind of market. You look back in history and say, oh, the 90s were easy. You made a ton of money. Or the mid-2000s were easy. Or the 2010s were easy. They weren't easy. We always had things to worry about. And these are exactly the same kind of issues you're coming up with now, which is, is the consumer okay? Is the Fed going to be able to cut enough? These are constant parts of mid-cycle markets. And until you get a really catalytic event that ends the cycle, like the financial crisis or Iraq invading Kuwait or the 2020 pandemic crisis, until you get a real catalyst, these cycles tend to continue on for years and years and generate very good returns.

Yeah. I guess the counter to that, at least from some folks, would be, look, we never had a true valuation reset, even at the lows in 2022. And it feels as if you've kind of pulled forward a lot of the benefits. Do you rely on, hey, not every stock is that expensive, even if the S&P is? Yeah, it's a fair point. I mean, the issue with valuations is they're always about market expectations. And as long as expectations are stable or a little better, valuations will rise. It's not necessarily fair because there is some mathematical notion that you discount cash flows and get a particular answer. But at the same time, that's the way markets seem to work. As long as

markets are confident in the economy, confident in Fed policy, confident in earnings, valuations don't go down very much. As a matter of fact, they tend to rise. If you look at the 150-year history of the Shiller PE, it's up and to the right. So it's hard to argue. That's for sure. It's super hard to argue a short-term valuation, as we all know. Yeah, on some level, its valuation is sentiment or expectations, as you say. Final point, you mentioned on the market seeming confidence in a high probability of a Republican win, at least in some form. It seems as if that

if the race for president tightens up in the polls, it's red as net negative. Maybe the market kind of retreats or chops around and goes to the sidelines. Does that make sense? It does make sense. The most freakish thing about this small cap rally this month and the whole rally in the market is it is exactly like the rally from election day 2016 to the end of 2016. The Russell was up 14 percent over that period. The S&P lagged, the Nasdaq lagged, and Rex of World was negative and China was negative the most. It's exactly the same playbook we're getting this month, which makes it feel like we're beginning to discount some kind of outcome. If that outcome is now more uncertainty, then yeah, you're going to see more volatility because the market's assuming this is the outcome. That is true,

although I have to say, you see some work, too, that it coincided so perfectly with the good CPI reading on July 11th that who knows? I mean, the market doesn't exactly show its work and say exactly why it's happening, but I get it that it does rhyme with that period. Nick, great to see you. Thanks so much. Have a good weekend. Thank you. All right. Up next, we're tracking the biggest movers as we head into the close. Pippa standing by with those. Hey, Michael, one medical device name is having its worst day ever. The reason for the 40 percent drop coming up next. A little under 19 minutes till the closing bell. S&P 500 up about 1%. Let's get back to Pippa Stevens for a look at the key stocks to watch. Pippa. Bristol Myers is pacing for its

best day in nearly a decade after beating estimates on the top and bottom line. The company also raised its full year guidance as it looks to cut $1.5 billion in costs by 2025 and reinvest that money into key drug brands and research and development programs. And Dexcom plunging 41 percent, its worst day on record, back to its 2005 IPO. The company's Q2 revenue came in below expectations, and the medical device maker also lowered its full-year revenue guidance. The company attributed the challenges to a restructuring of the sales team, fewer than expected new customers, and lower revenue per user. Shares are sinking to a restructuring of the sales team, fewer than expected new customers

and lower revenue per user. Shares are sinking to a four-year low. Mike? Pippa, thank you. All right, still ahead, let the games begin. Some big moves in the entertainment space. Shares of IGT and Boyd Gaming popping in today's session. We'll tell you what's behind the moves in that sector coming up. Closing Bell, we'll be right back. We are now in the Closing Bell Market Zone. Diana Olick is here looking at the recent rally in the real estate sector. Contessa Brewer on two big deals in the gambling space. Steve Kovac is setting us up for big tech earnings next week. And Invesco's Brian Leavitt is helping break down the crucial final minutes of this volatile week in the markets.

Diana, some life here in multiple parts of real estate. Yeah, Mike, let's start with CBRE. It took off yesterday after reporting better than expected Q2 revenue, profitability and cash flow. The stock jumped 10 percent yesterday and is also slightly higher again today. It raised its full year EPS outlook, both sales and leasing better than expected. Then came a note from Evercore ISI suggesting a, quote, less bad sales environment. Doesn't get any better than that, right? But really, it's all about interest rates. CBRE and the broader S&P real estate sector stocks popped in the last four weeks because interest rates came down. Simple as that. And today, homebuilders got a boost again from

falling yields, with Toll, DR Hortons and Lennar all hitting record highs today. The average rate on the 30-year fix dropped five basis points today to 6.86 percent. And the prospect of it going even lower this fall is what has the builders so very happy. Mike? Yeah, you said it about all being about rates and Fed rate cuts really do matter for commercial real estate, if nothing else. Thank you very much, Diana. Contessa, tell us about these deals in Vegas. Yeah, when you're seeing some really crazy stock moves, Apollo has now made a $6.3 billion bid for two gaming companies. You've got international game technology, which makes gambling equipment and software. It will sell its gaming business a $6.3 billion bid for two gaming companies. You've got International Game Technology,

which makes gambling equipment and software. It will sell its gaming business for a little more than $4 billion and keep its global lottery business. Every, which leases and sells equipment and provides fintech solutions to the gaming industry, will get $2.25 billion or $14.25 a share. IGT and Every, interestingly,

had made this merger deal in February, Mike, and the shares have been on the decline. Today, though, they are surging. Apollo says it will take the company's private when the deal closes. They're aiming for the third quarter next year. But look at that. IGT up 18 percent, Every up almost 41 percent. And look, this has been a big week for acquisitions. Standard General Sue Kim won approval from Bally's board for a takeover. The stock up 23 percent this week. And rumors have been swirling about a Penn acquisition. It's up more than 8 percent because Boyd, in its earnings call yesterday, didn't squash rumors that it's interested. And we're

seeing both of those stocks going higher. Mike? It is interesting, Contessa, given that these are generally opportunistic potential acquirers here in an area where the stocks have kind of struggled. So it seems as if you have a little bit of a rescue bid in there for the likes of Valley and Boyd. Yeah. And don't forget that Sue Kim had made an offer of thirty five dollars a share a year or two ago for the same company now getting it a little more than eighteen dollars a share. Pretty interesting. No, it is. It is fascinating. We'll see how that all plays out. Thank you, Contessa. So, Steve, you know, we thought this was a busy week, but nothing compared to next week is going

to be if you thought this was crazy. Wait till next week, because, look, let's start with what happened this week, though. Tesla and Alphabet just kind of set this horrible tone ahead of those Mag 7 earnings that are on deck next week. And that's putting enormous pressure on Microsoft, Meta, Apple, and Amazon, not just to beat expectations. They've got to smash them now. The big concern that Alphabet's results raised, the massive spending it has been making in

CapEx to build out AI capabilities. Pay attention in particular to Microsoft and Amazon on the AI hyperscaler side of things. Microsoft said last quarter it can't meet the AI demand it's seeing, and later had to cut a deal with Oracle to offload some of that. And Amazon may have a similar story to tell. It has deals with major AI companies like Anthropic and Hugging Face. Meta, it's spending a lot on AI CapEx as well. As for Apple, a different AI strategy that we got a hint of last month at the Worldwide Developers Conference.

And Raymond James, analyst this morning, called it a more stable AI investment after that volatility we saw with Alphabet this week, Mike. Yeah, it's fascinating because these companies were rewarded by the street handsomely for really aggressive CapEx players. So that was a little bit of a backward reaction to what we used to. How does it play into NVIDIA at this point? You see some other chatter about how the greater availability of GPUs, and then there's acute sensitivity to tell us how the payoff to all this investment comes. Yeah, and it's the latter part that's really worrying people. It's when is the spending going to stop?

What is your forecast for the spending? And when do we recoup on that investment? The answer is no one knows. I mean, I'll go back to what CEO Sundar Pichai said on the earnings call. He just said, I'd rather overspend on these capital expenditures, misread demand on that side of things rather than misread it and underspend and then be left with not enough capacity again. He also said, if I do overspend, well, I can use all that cloud capacity for other parts

of the business as well. Right. Clearly, no one bought that one, though. Well, nobody bought it or nobody has real faith that it's going to be money well spent in the end. For Alphabet in particular, I wonder if there are the other companies that have a little more credibility or something like that, that they spend more wise. It's going to be a huge question with microsoft which is spending just again these all these companies are spending enormous amounts of money and i don't recall the exact amount that

microsoft is planning to spend uh in this quarter that but we'll get those numbers uh and look they're saying the same thing though we just don't know we know we have a ton of demand we don't have much visibility that far into the future what that demand looks like. But we're just spending tons of money on it. Microsoft, in the last six or seven months, they've been announcing just all these billion-dollar deals to invest data centers all around the world, in Asia, in Europe, you name it. That is all part of this AI buildup that we're seeing. Amazon's doing the same thing. Yeah, we just actually just heard a slight bull case, which is, look, if it turns out that it might be ahead of itself or too much, they have the immediate ability to dial it down. That's also what Microsoft said. And their

businesses are very strong. That's also Microsoft. They kind of made it sound like, at least on the last earnings call, we could be more dynamic with our spend and kick it up if we need to and dial it back if we need to. All right, Steve, thanks a lot. Rest up. Brian, let's talk about these markets here, what we're seeing. You know, a little bit of a halting attempt at a recovery here. We got the 5% pullback in the S&P 500. The ongoing rotation has persisted through this week. What's your take?

So my take is this was highly anticipated. We've been waiting for broadening out of markets. And so what you have now is an economy where growth is slowing a bit, but resilient. And you've got inflation back in the comfort zone. So we get the rate cuts this year, maybe probably two, maybe even three by January. And, you know, that starts to normalize the yield curve and it's obviously broadening out the market. So are you not concerned about what people will throw out there about, well, you know, it's when the yield curve actually un-inverts that you have to worry about a recession or we're kind of coming a little bit too close to having unemployment get to uncomfortable levels before we get that first rate cut? Is it going to be a close call, I guess?

Yeah, I mean, you would look at the usual guideposts on a path to a recession. And of course, the inversion of the yield curve is certainly one of them. But the good news is there's not a lot of leverage in this economy. There is not a lot of cyclical excess in this economy. And, you know, if you look at things like bank lending standards or corporate bond spreads, they're not signaling recession. So those things would be moving in the wrong direction. The job market's certainly weakening a bit, albeit from very strong levels. So investors are looking for the Fed to move ahead. Some of us have been know, let's get going with this. Let's start to ease policy. But look, it doesn't mean we're going to get through this without, you know, some concerns about a growth slowdown. But ultimately, it looks like one where we come on the other side and the Federal Reserve is able to to move us through without a hard landing.

Meantime, as much as there's been some sell on the news response to some big earnings reports, they are tracking pretty well as expected. Beat rates more or less like the historical norm. We're about toward $250 in S&P earnings this year. Now, the expectation for next year is another 10 percent on top of that. Is that believable at this point? And what parts of the market look better positioned? Yeah, it is believable. You know, you will see some slowdown, but you're also going to see policy accommodations to support growth. And the expectation is likely to be a pretty good nominal growth backdrop. So I think for investors looking out over the next couple of years, you know, they may have seen what small caps or value have done in the recent days and wonder if they miss. I mean, small cap rallies off of bottoms tend to last a handful of for companies and should should have a reasonable nominal growth environment to support earnings. Yeah, I suppose nominal growth is still going to be, you know, five percent ish at this pace for a bit.

Thanks a lot, Brian. I appreciate the time. Have a good weekend. As we head into the close of this week, the S&P 500 now up about 1% on the day, still below yesterday's highs and looking at about a 9.10 to 1% decline for the week. So not quite recouping what was lost before then. You do see positive breadth once again in the market today so that rotation remains in place. NASDAQ up also 1%. Russell 2000 up 1.6% as the market calms a little bit and the VIX

closes towards 16 from a high above 19 yesterday.