Closing Bell - Closing Bell: Stocks Rally, Semis Surge & Recession Fears Fading? 1/23/23

Episode Date: January 23, 2023

Tech stocks leading the market higher as Wall Street gears up for another big week of corporate earnings. Semiconductor stocks among the big winners after a bullish call by Barclays. Wedbush’s Matt Bryson tells us whether he thinks the chips look cheap. Salesforce shares surging after two big investors took stakes in the software giant. Cowen’s Derrick Wood downgraded the stock on Friday and discusses whether he is reconsidering that bearish call. Former Council of Economic Advisers Chair Jason Furman reacts to a new survey showing recession fears are fading, but cautions strong consumer spending trends look unsustainable. And Compass CEO Robert Reffkin explains why he thinks the housing market may have hit a bottom at the end of 2022 despite the Federal Reserve’s plan to keep raising interest rates.

There's green on the screen to start the week following Friday's strong rally. Look at the Nasdaq leading the charge, though we're off the best levels of the day. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Nasdaq up 1.6 percent. Take a look at how things stand for the rest of the market. There's the Dow up half a percent, the S&P 500 up eight-tenths. What's leading the market? It's information technology. The chip stocks really on fire today. We'll talk about that. Communication services and consumer discretionary

with names like Tesla higher, but also a lot of green in terms of the retailers, both the e-commerce retailers and some of the traditional dollar stores as well. Small caps zooming up three quarters of one percent. The Nasdaq 100 trying to string together its best back-to-back day since November. Take a look at Salesforce boosting the Dow on news of new activist positions from Elliott Management and Inclusive Capital. We'll talk about the changes that could come at the company a little bit later on in the show. Also ahead this hour, the CEO of Compass will join us here at Post 9 to talk about the state of housing and rentals as high rates keep real estate in check. Plus, former Council of Economic Advisors Chair Jason Furman on the changing odds of a recession here in America. But first, let's get straight to the market dashboard with Senior Markets Commentator Mike Santoli.

I would also just, we haven't checked Bitcoin in a while. It's had its highest level since August, which sort of goes with the whole rebound in tech story. Absolutely. It's the story of January. Things that were really beaten up, very aggressive parts of the market have surged this year. And really, when it even comes to the broad S&P 500, you've put together a series of pretty good days. In fact, at the highs today, we were at 5 percent for the month, which, of course, is also year to date and coming into some interesting test areas, I would say. We've been talking about this downtrend that's lasted since last January for a while. Well, today you kind of poked above it, depending on how you draw it. You kind of came very close to it or made a bid to go higher.

Also, at the highs of the day, we were roughly at the December highs around 4100. So it clearly was a little bit of a grab for some exposure. A lot of the higher beta, very volatile parts of the market running. So we're easing back from there at this point. We obviously have a Fed meeting in six or seven trading days. And so probably we might stay in this zone just to wait and see. But there's some soft landing sentiment making its way into stocks or staying in stocks. Take a look at cyclicals versus defensive as two categories.

Goldman Sachs has their version of this. And you see, this has been a pretty good run, not really quite to where we got back in the fall in terms of believing that the cyclical sectors were the place to be. But the market has essentially seen no reason to believe right now that the Fed has overtightened. Maybe it will prove to be the case. But you've got the bad leading economic indicators number today, Sarah, which gives the statistical kind of technical grounding for this idea that recession is right there.

Maybe it means the Fed's going smaller. It's almost done. And yet the here and now level of activity is OK for the markets, at least at the moment. That's the upbeat way of reading it. The downbeat way is it's just a matter of time. It's so confusing, the mixed signals we're getting, leading economic indicators and the inverted yield curve, tell you historically we're going to have a recession. It's not what I heard from the leaders in Davos last week. It's not necessarily what we're seeing from the data.

What about the market? Is it cheap or expensive going into big tech earnings after we've seen this big sell-off and a little bit of a comeback? It's not cheap, right? So we can set that aside and say, no, the overall market is not cheap. But it's also not necessarily all that aggressive if earnings hold together okay. I always like to kind of slice the top five companies out of the S&P and say, we're like 15 times forward earnings. Now, earnings season started soft. There's probably some downside to estimates.

So it's a tough call to make valuation-wise to say it's a no-brainer to buy stocks. But you're seeing a lot of momentum, thrust-type activity. You see a lot of broad rallies in the last few weeks that make people think the market is sniffing out a more benign economic scenario. I don't know, GameStop up 9.3%. Yeah, and then you have the silly stuff that's running, too. so make of that what you will. ARK Innovation's having a good day and a good month,

up to more than 20% for January. Mike, thank you. So on that question about the economy, are recession fears actually fading? It seems like it.

The latest survey from the National Association for Business Economics, NABE, showed slightly more than half of respondents think the U.S. is in a recession or heading into one.

That is down from 64% reported back in October. And then over the weekend, a note from J.P. Morgan also found falling odds of a recession already priced into markets. Joining us now is former Economic Council of Advisors Chair Jason Furman. It's good to have you, Jason, and nice to see you. Where do you stand on this debate about recession? Look, I think a recession is far from inevitable. The odds are less than 50 percent. But if we don't have a recession, I think the odds of inflation coming down to 2 percent are much longer and harder than even that. In other words, inflation will come down quickly. That's a good thing. And therefore, it increases the chances of a soft landing. And that's where the market is right now. Oh, sorry. Well, I'm saying we may not have a recession, but if we don't have a recession,

we're probably ending this year with inflation above 3%. And so we're going to sort of rinse and repeat the whole concern about how to bring down inflation next year. To be clear, I don't want a recession. I hope we luck out with a soft landing. But I just think a soft landing is a hard thing to achieve. It's easy to avoid a recession. It's hard to avoid a recession while bringing inflation down. Well, it depends, Jason, on where the Fed stops, right, where it pauses, because it's not going to the market is expecting a smaller rate increase at next week's meeting, right? Twenty five basis points. And then we're getting toward the end. Yeah. Oh, look, it also just depends on what you're talking about. Monetary policy,

as we know, has long and variable lags. So, you know, in the most likely scenario, we have end the year with no recession, we end the year with inflation above 3%, and then maybe have the recession next year as the lagged monetary policy starts to affect things. There's been enough of a slowdown in inflation that I agree with you, 25 basis points at this meeting, maybe another meeting or two of 25 basis points after this. So not a lot of monetary tightening right now. If we get lucky and that works out, great. But if we don't get lucky,

you might have to have a whole nother round of tightening later in the year. Interesting to listen to Mohamed El-Erian of Allianz, formerly PIMCO. He thinks the Fed should go even bigger now. He was speaking earlier on CNBC. Jason, listen to what he said. They should do 50. They should take advantage of this growth window we're in. They should take advantage of where the market is. And they should try to tighten financial conditions

because I do think that we still have an inflation issue. Do you disagree with that? I think he's probably right. I'm willing to let them try for a couple months. Want to see what the wage data looks like. If you're seeing any slowing in wages in your intro, you mentioned that NABE survey. That NABE survey also showed a pickup in wage growth.

It's going to be very hard to get inflation under control with wages growing the way they've been growing. But anything is possible. I think 25 at the next meeting is fine. But they need to send a clear message that they're going to be very reluctant to lower rates and they are going to stay at it as long as inflation is elevated. Yeah, I mean, I feel like 25, I would call that a hawkish 25 with a hawkish spin from Powell, which we which we've gotten accustomed to lately. Jay, it really feels like it all comes down to the inflation question and how fast it falls from here. Wages, services, inflation. Those are the parts that have been sort of stubbornly high and keeping the inflation rate higher, I guess guess easier to get from nine to six and a half where we are right now. What is your

best guess about what happens next, how far it falls and how fast? Yeah, that's exactly right. I mean, I've always been on team, you know, partly transitory, partly persistent, that the inflation rate would come down from the incredible highs, because some of that really was temporary, but that it doesn't get all the way to two. In fact, it doesn't even get all the way to three. And that's because, yes, goods markets and supply chains have gotten much, much better. Housing has gotten better. It's not yet in the price data, but it will be. But there's a lot of services outside of housing that are very dependent on labor. And labor costs are growing at two percentage points faster than normal. So we are still in a world of above trend inflation. The next couple months will make it a lot clearer. I don't think there's a big cost to the Fed doing a little bit of waiting and seeing. Maybe we'll luck out. But if we don't, they need to be able to do willing to and able to do more. And I think they will. So the upshot for investors who have lowered earnings expectations but not priced in a

recession, Jason, is what? Yeah, I worry earnings expectations are a bit too optimistic. We've already seen the Fed heavily affecting the housing sector. Consumer spending, at least up until December, held up really well, and that's why GDP has done so well in the second half of the year. But consumers are burning through their excess saving. Their credit card balances are rising. Their interest rates are rising. I don't think you can count on the American consumer to continue to support the economy this whole year. I think a lot of earnings are building in, have more faith in American consumer than I do. Yeah. Although I

have to say, talking to a number of these American consumer CEOs in the past week or so, they're not seeing recessionary behavior. Yes, we're seeing credit card debt rising, but just back to levels of 2019, which was not recessionary. So maybe, Jason, there's a chance that the consumer can hang in there. Oh, I think there's a chance, but I'm not surprised. I expected that consumers would be able to keep going until about the middle of this year. They got trillions of dollars in 2020 and 2021. Their bank accounts still have more money in them than they did prior to the recession. So in some sense, consumer balance sheets are in good shape. But here's the problem. Consumers are spending about 2.5% more than you would have expected.

The inflation-adjusted income is about 1% less than you would have expected. The saving rate is incredibly low. So there's this just potential of a Wile E. Coyote moment, that you can continue this high level of spending, but you can't continue it forever. There's something really unsustainable about the American consumer right now. Jason, thank you for joining me. Appreciate it. Help us make sense of all these mixed messages.

Jason Furman. After the break, a show of force, Elliott Management and Inclusive Capital. That's Jeff Ubbin, both taking stakes in Salesforce, including, of course, Jeff Smith's Starboard Value, previously announced. We're going to talk to an analyst who just downgraded the stock on Friday

and ask if he's rethinking the position in light of all of the news today. You're watching Closing Bell on CNBC. Dow's up 150. Salesforce is the biggest contributor to the Dow's rally today. It's up 3%. Salesforce, one of the top performing Dow components right now on the back of new activist stakes in the company elliot management now has taken a multi-billion dollar position in the company and our own david faber reporting jeff ubbins inclusive capital has also gotten

involved the stock's up about 17 so far this year but still more than 33 off its highs let's bring in cowan analyst derrick wood he downgrad downgraded Salesforce Friday on growth and restructuring worries, though I don't know, Derek, are you rethinking that? Isn't all this activist involvement bullish? Well, I think we'll have to see what the plan is. There's no detail. If we have an analogy with when Elliott got involved in SAP, which was in 2019, they had actually been talking for a couple of months before there was an announcement that they had taken a big stake. And really what happened was that they backed the SAP plan at the beginning of the year in terms of driving 500 bits of margin expansion. So we do have to ask the restructuring announcement that we got

earlier this month, the 10% headcount reduction, the real estate moves that they're going to do, is this all kind of part of the plan already that maybe Elliott wanted to get the ball rolling on, or is there going to be some other bigger cuts and more aggressive margin expansion to target? And that we don't know at this point. We do know that Starboard, when they got involved a couple months ago, they did lay out a target where they thought the 25% operating margin goal for fiscal 26 was maybe not aggressive enough. And they could see a pathway to move that to maybe 28 to over 30 percent margin. So maybe that's the upside.

But the macro picture here definitely looks a lot different than it did a few months ago. And so the revenue assumptions may have to change with this whole in terms of driving profit growth. But everything you just said and everything that the activists want, isn't it everything that Mark Benioff is also already prioritizing? He's talked a lot about that operating profit, boosting margins, making cuts on the staff and on the real estate. This is his playbook already, isn't it? Right. And this is something investors have been asking for for a long time. Move away from making acquisitions, focus on organic growth, on improving cost efficiencies. And for a business of this scale, driving operating margins closer to your long-term targets, which are 30% plus.

And there's some real action being taken now at this point. But one question we had in the downgrade is the sales efficiency analysis we made last year. It just looks like sales costs went up a lot. And there may need to be a long way to go before we get the cost structure aligned with where it should be. And there may need to be multiple iterations of cuts from here. And whether we see more headcount reductions in the new year, I think is still a question. And then how disruptive that will be to the top line is also a question. Sure. But they also hired a lot during the pandemic and grew a lot during the pandemic, just to put it in perspective. So what is the play here? Do you think that, I mean, I assume a lot of these pandemic, just to put it in perspective. So what is the play here? Do you think that, I mean, I assume a lot of these companies just want board seats, right? That's

usually how some of these activists listed, probably all of them want a board seat. Is that a realistic scenario? And would that help matters? That's certainly a possibility. I think all the terms for the board members are one year. So there could be a proxy fight. Other scenarios could be to push for some business unit sales. A couple of the underperforming assets that were acquired recently have been MuleSoft and Tableau. And I guess you've got to wonder what the margin structure looks like on those businesses. And maybe you could sell off those units and drive up operating margins for the total company. You could look at trying to do a more aggressive buyback. They've already

announced their first ever buyback, $10 billion. They bought back $ point seven billion- in the first quarter. Of the announcement which was last quarter. And- that that that's not like they have a lot of cash on the balance sheet there's thirteen billion cash ten billion in debt so. Of there's not a lot of capital

look on a push back the shareholders via a buyback unless they- took on a significant amount of debt to do that but those are some of the scenarios to think about right at this in the just pushing for more margin expansion. Yeah I think took on a significant amount of debt to do that. But those are some of the scenarios to think about in addition to just pushing for more margin expansion.

Yeah, I think succession planning also is going to be a question that they'll ask. Derek, appreciate you coming on to talk about it. I know you just did that recent downgrade from Cowen. 160 on Salesforce. Thanks for having me. We'll show you what's happening broadly. You're welcome.

In the market, we're up at 186 or so on the Dow. It's the Nasdaq that's really charging forward, up one and three quarters percent, building on strength that we saw on Friday. Chip stocks, software names, it's broad. Communication services and consumer discretionary like Amazon and Tesla, it's all working today. After the break, Wall Street is buzzing about a potential new currency in the works. We'll tell you about the euro of South America and why it matters more for the future of the dollar. As we head to break, check out some of today's top search tickers on CNBC.com. The 10-year yield right in the top spot where it usually is. A sell-off in bonds today with yields a little bit higher, 3.5 on the 10-year.

Dollars firmer as well. Tesla, Apple, S&P 500, and AMD, which is leading the chip stocks higher. AMD's up more than 8% right now. We're going to talk about that chip rally when we come back. What is Wall Street buzzing about today? A South American euro? There's word this week Argentina and Brazil will announce they are starting work on a shared currency, which Brazil suggests calling Sur for South. Brazil's new president is visiting Argentina this week. The goal would be to make it easier and more cost efficient to trade between the two countries.

The other goal, to limit dependence on the U.S. dollar. The strong dollar has wreaked havoc on emerging markets' currencies and economies. But don't get too excited or too worried just yet. I ran it by Steve Hanke, professor of applied economics at Johns Hopkins University. He's one of the world's leading experts on hyperinflation and currencies. He tells me Argentina and Brazil in search of a common currency will look like two blindfolded men trying to hit a pinata. There may be some political will from both left-wing leaders at the moment, but the economics are tough. Argentina's inflation, it's nearly 100 percent. It's been locked out of the debt markets and on constant bailouts from the IMF. Brazil's inflation rate is 5.8 percent.

Its economy is forecast to grow this year, according to the World Bank. And look at this chart. The currencies have gone in opposite directions. The peso has been killed over the past few months. Dollars up 200% over the past three years. The real up 25%. The real down 25%. Good luck selling that to the Brazilian central bank and the Brazilian people that their fortunes will be hitched to Argentina's. So while it could take decades or never actually happen in practicality, there is a bigger picture here, and it's a reality for the U.S. dollar, and that is countries are eager to diversify. Russia, we know, is taking payment for oil in rubles. China's been taking small steps to boost the yuan's role, like recently extending trading hours for onshore currency to up its international

use. Remember President Xi visiting Saudi Arabia last year to talk about boosting energy purchases and famously saying he wants to settle that trade in yuan. The United Arab Emirates are in early discussions with India to trade non-oil commodities in Indian rupees. The list goes on and on. None of it means the dollar is losing its dominance anytime soon. There's really no alternative just yet. But it is worth watching as the political winds shift away from the dollar. If it ever does happen, it would certainly have deep financial, economic, and societal implications for all of America. When we come back, the CEO of online realtor Compass on the outlook for the housing market,

whether his company will be forced to cut more jobs as it tries to reduce costs like so many in the tech sector. And as we head to break, check out shares of water technology company Xylem. It is the worst performing stock in the S&P 500 after acquiring its rival in an all stock deal worth seven and a half billion dollars. We'll be right back. The latest data on housing shows existing home sales down 1.5 percent in December, 11 straight months of declines due to high mortgage rates. The current rate for a 30-year fixed mortgage now near 6%, which is actually a four-month low, but well above where it was just a year ago. Our next guest says the fourth quarter of 2022 will be viewed as the bottom of the real estate market. Joining me here at Post9 is Compass CEO Robert

Refkin. Welcome. Nice to see you. Thank you for hosting me. Why do you think we're at a bottom? Fed's still raising rates. Well, at Compass, we have a unique vantage point. We're the number one real estate brokerage brand in the country. We have nearly 30,000 agents and 18% of the top agents, top 1,000 agents in the country are at Compass. And so what I can see is our agents are getting more buyer showing requests than they have for months. So there's an increase there. And for the first time in 10 months, all the statistics that I look at are trending positive. So for example, the housing, the home builder sentiment index improved month over month for the first time in over a year, yet a 25% increase in weekly purchase mortgage

applications. And lastly, the pending closings, which in the fall were down over 30% year over year for much of the fall. So far in January, it's nearly flat in the overall market. So is it just because mortgage rates are off the high? That's a big part of it. Mortgage rates went in January from an all-time low to a 20-year high in less than nine months. Exactly. And so that created a sharper decline in real estate transactions than even in the 2008 financial crisis. But we need to see rents come down. The Fed needs to see rents come down to get inflation down. Does that mean that that's not going to happen? Well, in New York, we're seeing rents moderate and come down. There's some softening there and there's more landlord

concessions than there have been for any time in the COVID period. But you're right. 40 percent of CPI is housing. But if you look at housing transaction prices in November, they were 2.5 percent below the spring peak. And so if nothing changes this upcoming spring, it'll be 2.5% from that contribution. In other words, buyers have, what, a few more months to get in their deals before prices start going up. That would be very good for your business, Robert. The buyer strike was last fall. That's gone. And so right now, buyers are coming back. I think if there's an issue for this next year, it's going to be more on the listing side with sellers that are worried about losing. They're locked in at 2.7 percent.

They're worried about losing that mortgage rate and having to buy something in the sixes. Let's talk about your business and what all of this has meant. It's been a tough, tough period. The stock went, you went public back in spring 2001 at $18. Stock is trading $3 something per share. It's double whammy. The housing market, your tech stock. How have you readjusted to this reality? Yeah, we just had our 10-year anniversary. And for the first nine years, the world was focused on growth. And we did that very, very well, becoming the number one brokerage firm in the country and a Fortune 500 company. But in the last year, the world switched on a dime to

focus on profit. And we are switching with it. We brought our expenses down three times over the last year in meaningful ways. And we most recently brought it down to a range of $850 to $950 is what we said we are now targeting. If we would have brought our expenses down to that level a year ago, we would have been profitable last year. And we believe we can be profitable and free cash flow positive even with a 25% market decline this year because of this new expense range. What about the tradeoff between growth and profitability? We're focused on profitability.

We are a grower. In Q3, our agent count grew 15% year over year, and our agent retention actually improved year over year to the prior third quarter. But right now, the focus is distinctly and universally around profit. So cost cuts. The other question is how sustainable these cuts are. Can they last for a few years? The goal and what I've shared publicly is that we intend to keep our cost base at this new level. And the market, it will increase at some point, but will not increase our expenses in any meaningful way. And the delta is going to be EBITDA and profit that we can share with all of our investors. We've seen layoffs as part of these cuts. Are you hiring still as well? We are hiring moderately, but that's not the focus at this time. What about getting agents without offering

incentives, which you are telling me is a big change right now in the market? Yeah. In August, we announced that we're not going to give any more financial incentives to bring agents onto Compass, no signing bonuses of any kind. And we've since hired nearly 1,000 agents to come onto Compass, and the majority of them actually said they're paying Compass more than their previous firm. So this is one of the best data points for investors and for employees that are putting our careers in this company. If the majority of agents are actually paying more to come to Compass, they are speaking with their pocketbooks that they believe that Compass will help them grow their business and make them more successful.

The thing for Compass, and when you went public, I remember there was so much about this, was always the technology, that it was a technology company as much as a real estate. How differentiated is that tech at this point versus some of your competitors? Our technology is very differentiated. We've invested over $1 billion in building what we have today. The industry's first contact to close platform where an agent can go from meeting someone and putting them in their CRM and going all the way to getting paid in one single place, one platform, one code base. And none of our competitors have built anything of the kind. Robert, thank you for joining me with the optimism.

Appreciate it. Robert Repkin, CEO of Compass. Take a look at where we stand in the markets, about 23 minutes left of trading, and we've got a solid rally on our hands. The Dow, the S&P is building on its gains. It's up almost a full percent right now. Dow's up 177, and the Nasdaq up one and three-quarters percent on the back of another strong day of tech.

We're going into some big tech earnings this week, Microsoft, Tesla, and we are rallying into that. Speaking of, Elon Musk taking the stand again today as he defends his past tweets over taking Tesla private. Up next, we've got the highlights and what's at stake for Musk and Tesla. And a reminder, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. NVIDIA, Apple and Tesla leading the Nasdaq. We'll be right back. Tesla CEO Elon Musk testifying again in court today over his 2018 tweets about taking the EV maker private for $420 per share. Bill LeBeau with the latest details. So what did we learn, Phil? Sarah, a lot of back and forth on the genesis for the tweet, as well as picking $420 as the

target for going private. In fact, Elon Musk, I think he's on about his fourth hour of testimony right now. The shareholder's attorney, by the way, questioning him right now. And a lot of the questions are focused on how solid was his belief in the commitment from the Saudi investment fund. And he says, yeah, I think it was a solid commitment at the time. On the question of 420 funding, the questioning went like this. Elon Musk said, I think it was for 1960, explaining why he picked $420 as the target for going private or something like that is what Musk said on the stand. So it would make sense to round up to the nearest round number, which would happen to be $420 as the target for going private or something like that is what Musk said on the stand. So it would make sense to round up to the nearest round number, which would happen to be $420. The attorney then says, you thought your girlfriend would find it funny to say $420?

Elon Musk answered, I don't know if she found it funny or not. Then on the question of what was happening after he tweeted, the attorney said, when you did look at what was happening to the stock price after your August 7th tweet, when did you, I should say, is when he asked him. Elon Musk answered, I was in the factory working on production problems, so I was not following the stock price. As we all know, it was off to the races that day. Eventually, it came back down from that initial pop on August 7th. And there you'll take a look at shares of Tesla over the last three months. Remember, Tesla did settle the SEC case regarding these

take private tweets. It involved Elon Musk paying $20 million in a fine and also giving up chairmanship of Tesla. We will hear from Elon Musk Wednesday afternoon. At least that's the expectation after the company reports its Q4 results. And again, Sarah, so much of that conference call will be focused on auto gross margins. That's really what investors in Tesla right now are focused on. They're not as much focused on what's happening with this lawsuit. So what is the upshot of the lawsuit, though? What is at stake for Tesla and for shareholders?

With regard to this lawsuit? Yes, with how this goes. Well, with regard, remember, these are from investors who their claim is that, look, we lost money because we believed that you had this locked in to take this company private. And as a result, whether we were trading on the stock or trading on options, we lost money when we found out that you didn't have this locked in. So when you say funding secured, you're responsible for the losses that we incurred as traders. Elon Musk's response is, look, I didn't do anything to hurt people. This was not

a case where I was just willy nilly about throwing this tweet out there. I believe that I had funding secured through the Saudi investment fund. So this really this is a case that pertains to those investors and their claim of losing money. Got it. It's always interesting, though, Phil. Thank you very much, Phil LeBeau, with a nice move for Tesla today, up six percent or so after the drubbing we've seen lately. When we come back, Apple helping drive the Dow higher, a new hopes for improving iPhone wait times. That story, plus Salesforce and semiconductor stocks both surging when we take you inside the Market Zone next. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day.

Plus, we've got Wedbush's Matt Bryson on the chip rally and Steve Kovac on optimism around Apple in particular. We'll kick it off with the broad markets, Mike. Up 230 or so on the Dow. S&P is up more than a percent now and the Nasdaq up almost 2 percent. So it's an impressive broad rally like we saw on Friday. We're now 12.5% off the lows on the Nasdaq composite. And we know why, right? Smaller rate hikes, falling inflation rates, better growth prospects. The question on the equity market is, is this another one of those sort of false signals on all of those issues in the bear

market? Exactly. And it's actually getting very close to where you really have to make that call as to whether, in fact, this is just another one of those brief episodes of relief. You know, from the intraday low in the S&P to the highs today in the market, it was more like a 15 percent surge. There's been some technical improvement. People are warming to the idea that you do actually have some signs of how the market behaves a few months off a significant low. At the same time that, you know, you didn't have Fed officials pushing back against the small rate hike idea. So it seems as if there is this at least window of time where you can enjoy the idea of a Fed pause without having to face the immediate music of the economy really falling apart because a lot of things seem OK. So the question is how long that lasts from here on out. having to face the immediate music of the economy really falling apart because a lot of things seem OK.

So the question is how long that lasts from here on out. I think it's you don't necessarily want to see a rally from here on out led by the riskiest, you know, kind of lowest quality fundamental companies. So that'll be the question from here is whether, in fact, you can get some durable leadership in the market. Or how fast inflation really will come down. Compass CEO just said housing market bottomed in the fourth quarter of last year. And we're seeing signs that economic growth may be even accelerating toward the end of last year. Let's hit Salesforce, though. It's one of the top Dow stocks today on reports that it has caught the interest of a new activist investor. Elliott Management has built a multibbillion dollar stake in the company.

This after late last year, Starboard Value and Inclusive Capital, that's Jeff Ubbin, announced positions in Salesforce as well. This all comes as the company undergoes already a major restructuring, including cutting its workforce by 10 percent. Mike, have you seen anything different that would suggest, that would set up the company for a bigger fight with with any of these activists, investors? It feels like everybody's on the same page. Nobody's going after Mark Benioff, at least personally or as the CEO yet. And what they're suggesting is something that he's already doing. Maybe the speed they can they can go after. Yeah, I think a lot of it is the activists smell a possibility that the company itself is ready to take a lot of these measures

and are maybe looking to accelerate the pace or hold the company to it and maybe set a higher bar for how much they'd like to see progress on margins and capital allocation and things like that. What's fascinating to me is the activist case right now has a lot in common with what you would have considered to be the bear thesis, the short case around Salesforce in the earlier years. Go back 10 or 12 years, and it was all about it's just an undisciplined roll-up. The company exists to pay huge amounts out to the sales force of the company itself. It's not really run for margins.

It's all about top-line growth. And now you're at a point, plus they give too much out in stock-based compensation. All these things are now coming to a head. The company's at a point in its life cycle where it makes sense to try and do some of this work at a time when the valuation is no longer as daunting as it had been for years. Mike, thank you. Let's hit the chips now because they're climbing as Barclays gets bullish. Another good day for the chips, highlighting stocks with data center, PC and handset exposure as the largest potential winners. The firm upgrades AMD,

Qualcomm and Seagate to overweight from equal weight and ups its price target on NVIDIA. All winners today. NVIDIA is at the top of the Nasdaq 100. Meantime, look at Western Digital. It's rallying on reports it is in advanced talks to merge with Japan's Kaohsiung. A combined company would rival the likes of Samsung. Matt Bryson of Wedbush joins us. He's got a buy rating and a $60 price target on Western Digital. Does this move make sense to you, Matt? It makes a ton of sense to me, Sarah. So with the deal, as Bloomberg explained it, not only do you potentially have consolidation in memory space, which is a great thing for

WD as well as all the other memory stocks, but you have the potential to split out the hard drive business where I think the value of the NAND asset has been hidden within the combined company. By spinning the flash business off, you've effectively unlocked that value. You also have a lot of buys on these stocks, AMD, Micron. I think you're on hold on N on Nvidia, but do you agree with the call today from Barclays, which is really lighting a fire under some of these stocks? Yeah, I guess my concern is I think there's still at least one more cut to numbers in terms of Q1. Barclays, I think what they're saying is that the market should look beyond that cut. I'm a little bit more concerned in that we haven't seen the pickup in demand, for instance, from the Chinese consumer or from the U.S. consumer.

With data centers, we're still waiting to figure out what budgets are going to look like for this year. So maybe I'm a little bit behind Barclays in thinking about a recovery. Having said that, you look at names like AMD, I think they're a share gainer in the server space. You look at something like Nvidia, certainly if you believe in AI, they are the market leader in AI. There's really not anyone else in the space yet. And at some point, these stocks will recover. Mike Santoli, the bullishness around NVIDIA, Jim Breyer, well-known tech investor, it was his favorite stock. He loves it. He's buying it up on the weakness. I guess my question my question Mike is how cheap these stocks actually got maybe relative to other cyclical downturns or other periods in history like this and whether it was cheap enough. Yeah it didn't seem they didn't get cheap and stay cheap. They kind of had a lot

of the frost skimmed off them. I think they did retrench to a fair degree. The ones that look cheap were the ones that kept actually having the estimates go down a lot, like the memory side of things. I think what's instructive is if you look at a longer term chart of the semiconductor ETF, the SOX, it's pulled back to a level even at the lows where it had first reached on the upside in post-pandemic. In other words, it never really unwound the pandemic surge. Maybe that's because the secular forces are so strong and, you know, we're just in such a digital economy that this is just the new normal level on a pullback. So I would say that they got, you know, some of the risk taken out of them, but they didn't become no brainers on the cheap side. Matt,

you agree with that? And what's your favorite name? So I agree in the sense that when you look at the memory names, I disagree in the sense that when you look at the memory names, I think at points you could look at Micron and it was trading at close to book. And historically, that's proven pretty good low. like Nvidia, it never really got that far below 30 times, 25 times earnings, which is well above historical semiconductor multiples. To pick a favorite, Sarah, at this point, I'm going to go with Taiwan Semi. If you believe that there's a pickup, certainly they're a beneficiary, and they are going to be a share gainer through this year, continuing to benefit from the Dell struggles. Got it. Matt, thank you for joining me. Matt Freysen of Wedbush. Let's hit Apple because shares are rallying, following a note by UBS that elevated wait

times for the higher-end iPhone 14 models appear to be improving. Steve Kovach joins us. I guess they'll take any piece of positive news, Steve. Yeah, that's right. And I think the banner below my face right now on the screen says worth the wait. And that is the real question. We're just a little over a week away from earnings. And the question is, now that they've largely caught up with their production after that facility, the so-called iPhone city in China that was shut down for a lot of the late last year, is now pretty much right back up to capacity. But the question still is, even as these ship times are getting narrower and more normal,

is the demand still there? Is it worth the wait? Are people who could not get their iPhone 14 Pro or Pro Max in time for the holidays going to carry it over here? Or are they looking at the economy the way many people are and they're going to say, hey, I'm going to hold off now and rein in my own spending as things start to get worse. So that is what we're going to be looking for. We know that from Apple itself that they're not going to hit their own internal targets for selling iPhones last quarter. They did say demand was strong at the time, but that was back in November. And the real question is, Sarah, is the demand for those iPhones, is it carrying through right now into the March quarter? That's going to be the big question. So, Mike, what is the setup for earnings expectations here?

They're more muted than they had been with the stock at the highs. But I don't think the stock has really been trading off of the current fiscal year numbers um it's not supposed to show particularly much growth at all even even before they started to get cut back to me the whole proposition is what are we play what are we paying in this current market environment for a very large stable dominant company that is not growing particularly quickly and that's that's all it comes down to the one that you know distributes a lot of capital back to shareholders and the whole story that we know that Warren Buffett's not selling any you know all these things that go into the general case for Apple aside from how many phones are they gonna sell and we're at 22 times earnings right now it's not cheap it's

it's down from 30 I think it's sort of not gonna hurt you too much at this level beyond what the market does but I don't see why there's a particular catalyst to rush in at these levels either. Apple adding about 21 points to the Dow. It's up 8.5% this year. Steve Kovach, Steve, thank you. Two minutes to go here in the trading day, up 1.2% or so on the S&P. What are you seeing in the internals, Mike? Yeah, they've been strong again, Sarah. I mean, breadth has actually been one of the better features of this market so far in the last few weeks, although I don't think we're going to get to any decisive kind of push here in terms of advancing volume. If you got above 80 percent advancing volume, some people would have seen that as a trigger after we got the same on Friday. New highs starting to outpace new lows at a pretty good clip on the Nasdaq today, 115 to 35.

Now, part of this is the passage of time. We're 14 months past the peak in the Nasdaq. So that number starts to get easier to beat. And take a look at the volatility index. We're backing up a little bit, still in the 19 zone, pretty much reflects a more stable index. We are just several days out from a Fed decision. So hard to know how much it might come in from here. But it's sort of comfortable at these levels, I would say, and not really signaling too much in terms of excess complacency or fear. Yeah, it's very quiet now because it's in the Fed quiet period ahead of the meeting next week. Mike, thank you. As we head into the close-up, 260 on the Dow.

What's adding the most? Well, Goldman Sachs, Salesforce right up there, along with Apple. You've also got strength in Boeing, Caterpillar, American Express, Amgen, P&G, and United Health are the laggers. Those are the losers on the Dow. S&P 500 is up a healthy 1.2%, building on its gains from Friday,

and for January as a whole, up almost 5%. Technology leading, communication services, consumer discretionary, only one sector is lower here at the close, and that is energy. Look at the NASDAQ. It's up 2% led by NVIDIA, Apple, Tesla, and Microsoft. That does it for me here on Closing Bell. See you tomorrow, everyone.