Closing Bell - Closing Bell: Stocks Sink in Final Hour of Trade 12/20/23

Episode Date: December 20, 2023

Stocks sunk in the final hour of trade today. But Fundstrat’s Tom Lee is sticking to his bear case. He explains why. Plus, Warren Pies from 3Fourteen Research tells us why he thinks weird could be the new normal next year. And, JP Morgan’s Gabriela Santos breaks down how she is navigating this downturn and where she is seeing strength in 2024.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the biggest bull on Wall Street, Tom Lee. He is here to make his case why stocks can keep climbing even after this record-setting run. He's with us momentarily. In the meantime, take a look at your scorecard with 60 minutes to go in regulation because it is a changing scorecard. A bit of a sudden sell-off in the market. Looks like the Dow's nine-day win streak now in jeopardy as we begin the final stretch. Take a look at all three of the major averages. That's not how it looked for most of the day. The Dow is down now by about 250 points. S&P down by near 1%, as is the Nasdaq. A lot of these mega cap tech stocks, which were green throughout the day,

have since rolled. Alphabet is holding on to positive territory. Caterpillar, Home Depot, Microsoft, among the better performers, at least for much of the day today. Apple was clawing its way back towards $200 a share. Again, it's turned negative by about a dollar or so, one half of 1%. We're going to keep our eyes peeled there, of course. Yields, too. They're lower. That has the Russell extending its amazing gains. It's still holding on to positive territory today as well. Not that strong, though.

VIX picking up a little bit, up near 2 percent as we speak. Takes us to our talk of the tape. The continued bull case for stocks from Fundstrat's managing partner and head of research, Tom Lee. He is with us here at Post 9. Welcome back. Thank you, Scott. What do you think? We just got a little, you know, ahead of ourselves or I don't know, maybe we just need a breather because it's been remarkable. Yeah, that's right. I wouldn't be surprised if there's some profit taking today. I don't think it changes the case that stocks are probably going to do very well between today and the end of the year. And we get a pretty important report on Friday, which is PCE deflator. Yeah.

You're surprised that this market has continued to just ramp higher, almost unabated. I think there was a sequence of events that justify the move, because we know last week we got a Fed that has made a dovish move, ending its inflation war or shifting it towards managing the business cycle. We know that 65% of fund managers are underperforming their benchmark. And we know $240 billion was pulled out of equity. So between now and year end, which is a small window, you do have fund managers trying to catch up.

And I think a lot of investors reorienting their portfolio towards a nicer Fed, you know, less hawkish Fed. And I think stocks are up. Investors need to allocate to stocks. Unless investors need to, like, take a breather themselves. I had a conversation yesterday with Eric Johnston of Cantor, who's been as bearish as you've been bullish, and told me he just can't show up now and all of a sudden change. Here's why. I would not be able to come here and say high conviction bullish based on the current multiples, where we are in the cycle, where earnings are, where positioning are. It's just not even close.

Okay, well, what I would need is to see either a recession or close to a recession where people think that it's coming. We've got a big growth scare and the unemployment rate starts to go above 4 percent, a little bit of a cleansing and lower prices. In other words, you're going to get all bulled up, you know, even more so now with multiples expanding to where they have. Well, you know, I mean, as you know, valuation isn't really why anyone should ever sell a stock nor why they should buy a stock. It really should be whether earnings momentum is accelerating.

And next year, it looks like capital spending is going to pick up. There's a lot of surveys showing this and there's a gap between the hard and soft data. So there's a capex cycle. We also know mortgage rates could drop to something like a 475, 5-2 next year. Well, I mean, that's a little, that's not ahead of ourselves a little bit. That would be taking a normal spread to the current 10-year. five five two next year i mean that's a little that's not ahead of ourselves a little bit that would be taking a normal spread to the current tenure and that 200 basis point drop in mortgage rates we know would stimulate the consumer um and we we reliquify regional bank balance sheets

which is an earning story too so i'd say earnings momentum picks up next year we have a fed that's trying to at least maintain the business cycle. And investors are bearish. There's a lot of anchored views. We just heard one clearly articulate that they're going to only turn bullish if there's a recession. Yeah, but I feel like the bears are kind of dropping like flies now, right? I mean, there maybe aren't that many of them. I've seen some strategists who were very bearish over the course of the last year suggest,

yeah, well, stocks can continue to go up. This Fed pivot is that powerful. The other side of that, though, is what Eric Johnston and others would suggest, that it's a little too early to think that earnings are going to live up to all of this hype. A lot of hype that you have. I mean, your earnings number last time you came here,

like the best case. For 2025. Amazing case. Yeah. Unbelievably incredible case was like 280 bucks. Do I remember that correctly? You are, Scott, but that's not a prodigious feat. It's about a 10% CAGR.

So it's like saying 5% from buybacks, nominal GDP and weaker dollar get you there. I don't think it's a lot to ask to get to 280 in earnings. But I think most importantly, the market internals don't speak to what happens at a top. This is really early cycle behavior, you know, a huge expansion of market breadth. Stocks really peak when you get good news and they go down. We haven't had good news.

I mean, today, sell-off isn't off some great headlines. It's just year-end rally. Do you think the market is at all ahead of itself in the idea that there's going to be as many cuts as one would like to think based on what happened at the Fed meeting? I mean, I think the Fed is trying to figure out how to communicate future cuts. And the market's going to figure out how to communicate future cuts. And the market's going to get anxious about it in the first half of next year. That makes a lot of sense to me because we're going from a data-dependent fighting inflation now to under what conditions does real rate get defined and when should we titrate that and cut rates? I think that's a debate in the first half. That's kind of why our 2024 view is most of the gains happen in the second half.

Do you think we're pulling forward gains at this point? Yeah. Yeah, I think December is going to end up very strong. And I think the last time I was here, I thought it could be parabolic, which it does seem like it's going parabolic. But a move like that isn't consolidated sideways, right? Maybe there'll be some payback in March or April. I just want you to hold your thought for just a moment. I want to bring in John Spallanzani of

the Miller family office, who is a portfolio manager there. He watches the market like a hawk. What do you make of what's happened here within the last 30 minutes or so of what you think is a culprit of this sudden sell-off? If there is one, anything more than just saying, hey, we've reached some pretty lofty levels, let's just take some chips off the table for a minute and catch our breath. Hey, how you doing, Scott? Hey, Tom, how are you? Popo as well.

Yeah, so it just seems like there was some big prints in the zero-date options, which is not a surprise. It's an expiration today. There's about a half million, almost a million calls and puts that printed a little while ago, right before the sell-off at the 475 strike. So that was also the VWAP level, which is, you know, for those technical people, the weighted average price that guys are pegging for some orders. And then once we pick out 475, it seems like the selling just got selling, you know, knocked us down 50 handles here.

So, you know, we had a stair-step rally with no real, nothing really hitting on the VWAP all the way from really kind of, you know, probably the 5th or 6th of December. So once we broke the VWAP, technical guys got a sell, and the options, the zero-day guys just kind of piled in. I think it's just like maybe a little bit of an air pocket for a moment there. It seems so. You know, volume obviously is lighter as we get closer to Christmas, people taking off. And it was definitely an air pocket because we went down 50 handles pretty easily from 475 to 469.

But, you know, some people said that there was a couple of stories out there that might have done a couple of tweaks that might have been put out there. You know, some trainers, some other stuff, but I don't think it was bad. I think it was more, you know, the technicals and the zero-date options, which everybody's been talking about for a long time, where, you know, you have huge gamma levels. I mean, you could imagine what a million options that are expiring today, how much the hedge is if you got that trade wrong. So that's right kind of

yeah that's like the latest and greatest trend as we're learning I think more and more every day in options trading whether it's from the most experienced people who are out there to more novice investors who are trying their hand at options trading as well I'm gonna let you run I think you're with me tomorrow anyway so we'll catch up about the rally where we think 24 is gonna go John thanks for calling in. I just wanted to get some insight. Yep, just wanted to get some insight on this tick by tick here as we head over the final stretch.

At this point, the market's come so far so fast. I mean, bar's high. I mean, there's a lot now to live up to. You've got to have the cuts when we think we're going to have the cuts. You've got to have earnings live up to what now expectations are going to rise to. You've got to have the economy hang in there to justify the multiple. You've got to have rates come down to help justify the multiple. Is it is it too much at some point? Well, you're describing a great wall of worry. And as you know, markets climb a wall of worry.

I know, but that's like maybe a wall of reality, too. Well, you know, I'd say that the start of this year, a lot of the bear arguments you played for me earlier were exactly what people said on January 2023. We're going to have a hard landing. You can't buy stocks until we employment goes up. Earnings are going to be disappointing. And the year played out. Earnings were good and we didn't have a hard landing. Look at labor supply. It's growing now, so I don't know if unemployment has to go up. And inflationary pressures are decreasing. Look at the Consumer Confidence Service. Today they're back to October 2020 levels.

I mean, inflation is disappearing from consumer expectations. So I'd say that the thing that the bears might get wrong is multiples will do a lot more increasing than people expect next year. All right, let's bring in Christina Hooper sitting here as well from Invesco. This sudden move aside, what is your view as we sort of race towards the end of the year here with these extraordinary gains since November started? Well, I think the key is that monetary policy, really since the Great Recession, has had an outsized impact on markets. It's really been such a critical driver of markets. And a perfect example of this is what we've seen this year, and especially what the Fed has communicated. If we look at the September dot plot, that implied

50 basis point cut after an implied 100 basis point cut in June was the start of a big rise in yields. And now, of course, we're getting the Fed communicating finally that we have actually seen the end of the tightening cycle in July. And that has had an outsized impact on markets as it should, because monetary policy has been so important. So you say it's so justified. I mean, we we to your point is we have as an investor class become conditioned to the don't fight the Fed because we've learned it, how powerful it could be after 08. And any time there was any crisis of magnitude, the feds had our back. And the time they didn't, we had a terrible year

last year because they were raising rates rather than cutting them. Now the paradigm has once again changed in our favor. That's the argument you're making. So this is all justified, the way the market's reacting. Absolutely. And the economy is cooperating, right? We have an economy that has been quite resilient, and we also have disinflation very much underway. People were very skeptical earlier this year, and I think finally in the last few months, there's a realization that the disinflationary process is happening, it's very significant, and we will ultimately get close to that 2% inflation target within a reasonable period of time. Yeah. What about the broadening, the Russell?

I spoke too soon, of course, when I said it was hanging on still a positive because now it's rolled over with everything else. It's down about one half of 1%, but it's been a remarkable run. The Russell, even with today's pullback, is up more than 11% over one month period of time. Oh, absolutely. And I anticipate a continued broadening of the market. And I think small caps are going to play a critical role, as are cyclicals, because what they're doing and what the market typically does is it's discounting an economic reacceleration in the back half of 24. So it makes sense that the more cyclically sensitive parts of the

market are performing better. This is your playbook. Yes, that's right. And then, you know, when it comes to valuations, I mean, S&P 600 is, you know, 11 times next year's earnings. I mean, you could see a lot of multiple expansion there. That's why I think small caps could rally 50%, you know, next year. Yeah. Something huge.

You continue to make that case. At the expense of what? At the expense of what? Well, most people would say at the expense of maybe mega cap. Yes, I think that's probably correct. That mega cap, actually someone pointed out, and I think I actually checked it was correct. FANG's actually cheaper than it was at the end,

today than it was at the end of 2021. Because earnings have gone up like 30% and the price level is only up two. But next year, the multiple can be harder to expand for the FAANG, so it's just more EPS growth, whereas things like financials and small caps can see 50% increase in multiples plus earnings growth. So I think you're right. I think that if you're talking about PE expansion, it's more the small cap names.

How do you see that? Well, I think it's at the expense of cash. It's at the expense of a lot of different asset classes. But where Tom and I differ is that I don't know what is going to happen in the back half of this year. In fact, I suspect what we're likely to see is a leadership shift and more of a focus on defensives and quality because markets will be discounting 25. And maybe that's... Not to mention a presidential election where who knows what's going to happen, how messy it might get. Just don't know. Right. And let's also not forget the long and variable lag of monetary policy. So if we use that rule of thumb that it's 12 to 18 months

between monetary policy implementation and when we see it show up in the economy, well, that could mean it really hits in 24. We really don't feel the cumulative effects until the end of 24. So could we potentially see that recession in 25, which markets could potentially start to discount in the middle of 24? I don't know that yet. We just don't have enough visibility. What if I mean, I saw a headline, I think, earlier today from the Fed's harker saying that, you know, the economy is slowing faster than the data is suggesting.

What, in fact, if that is the case? Well, I think, one, that sets up for a growth scare in the first half. And it sets up for the market to really be debating with the Fed about what they should be doing. I would say that makes sense. That's why I think the first half isn't where you make your money next year. But does the Fed have the tools in place? I mean, Fed funds is at 5.5%. They could do a lot of cutting, and they have a lot of tools to really stave this off. Yeah, but part of, I would like to believe that part of the bull case is yes, the Fed's going to cut. It's going to cut because it can. It's not going to cut because it

has to. You're painting a scenario in almost in which it doesn't matter. They have the tools. If the economy slows worse, if it looks like we might go into a recession, well, they're going to cut, so that's positive anyway. Is it really, though, if they cut for that reason? It is, because it's one thing to be slowing if the consumer and corporates were over-levered. They're not over-levered today, but they're paying a lot of money to borrow money.

So it's a cost-of-money issue that's slowing the economy. So if the Fed cuts rates, you're actually alleviating the biggest pressure valve on growth. Yeah, but how do we justify multiples if the Fed cuts rates because the economy's gotten that bad? Well, it's actually, that's one perspective. But the reality is they're cutting rates because real rates are too high. That's really what's, you know, it's not appropriate to be at 5.9% if inflation is running at 2% because you're running a real rate scheme that causes a recession.

And I think, in fact, if we're slowing, it's proof that the real rates are actually too high right now relative to inflation. Inflation is tracking at 2%. So I think that there's going to be a bear argument. But to me, it's actually perfectly in alignment with the idea that inflation is falling. Real rates are too high. The Fed actually has to make cuts. But that's a debate in the first half. The idea that, you know, there's no way this market is pricing in a recession.

No way. I mean, we've already placed our chips all in the middle of the table that we're going to have a soft landing. We're placing our bets that the Fed's going to cut because they cannot, because they have to. If they have to, does that change the whole paradigm about the market? I think the question is moot because they don't have to this year. I think they're 24. You mean this? Yes, exactly. I think they start to cut in the second quarter because they should, because they admit they are in restrictive, very restrictive territory right now. And so the reason for cutting is the right reason. Again, I think that what is undecided at this point, undetermined at this point, is what happens in 2025.

But I anticipate something of a bumpy, brief landing in 2024, a mid-cycle reacceleration, and then we could see more problems in 2025. But it remains to be seen at this point. What about, Christina, fixed income? Where are people supposed to be right now? Well, if you anticipate a bumpy landing as I do, I think investment grade credit looks really attractive. Also, emerging market debt. It's a supportive environment in emerging markets. We're seeing a dollar that's weakening. I think that's going to continue. So those are two areas that are attractive.

In terms of duration, long. You have a view of that real quick before I go? I think all that makes sense. I think bonds are going to do pretty well. But, of course, if bonds do well, P.E. goes up. That's why you have a big smile on your face as you finish that statement. Thank you, guys, very much. Happy holidays to you both. We'll see you on the other side. I'm sure of that. Christina and Tom. All right. Let's send it over to another Christina. Christina Partsenevelos for a look at the biggest

names moving in this market right now. And they're probably a lot more now than there were before, just given the makeup of this little sell-off we find ourselves in. Yeah, it was a little shocking when I was just at my desk and seeing that switch right now. And the stocks that I'm going to talk about don't pertain necessarily to that sell-off. But let's talk about CRISPR therapeutics because the chief medical officer is stepping down from her role only a few days after the company just received approval from the FDA for its CasGevid gene editing therapy, which is for the treatment of sickle cell disease. The regulatory filing assured investors there was no disagreement with the company.

JMP Securities says CRISPR has sufficient backup to manage the departure and maintains its outperform rating. You can see shares are down 7 percent. And to your point, Scott, following just post 2 p.m. Let's talk about shares of Illumina. Lower slightly. They were higher. So again, to your point about the downturn in the markets after the company said on Monday it would sell its cancer screening company, Grail, because of antitrust issues. Activist investor Carl Icahn wasn't happy about this purchase either in the first place. And he said he now plans to oust board directors because of that deal specifically.

So you can see it's barely negative at the moment. Scott. All right, Christina, thanks. We'll be back in just a moment with you. We are just getting started here. We're all over the market as well as it shifts towards the downside here. Dow heading for its first decline in some 10 days. That's the kind of market we've been in. Now, Warren Pies of 314 Research joins us after the break with his take. We're live from the New York Stock Exchange. You're watching Closing on cnbc welcome back just want to keep you up to date on where things stand over this final stretch that's not how it looked about an hour or so ago dow's down now 275 and counting we're negative across the board even things that were up quite nicely earlier like the russell they've rolled

over russell's down by more than one percent many Many mega caps are in the red as well. Now let's bring in Warren Pies. He's the co-founder of 314 Research joining us today. Welcome to our program. Good to have you on. Hey, thanks for having me. So judging from your notes, you must be pretty bullish. At the moment, yes. I think there's been a pretty important change in the markets that I don't believe everyone has fully appreciated really going back to late last month. And so that was when I think the soft landing went from being, I'd say, a less than 50 percent probability to the base case. And the reason for that, our view has been you need a resilient economy, rapid disinflation, and then a hyper reactive Fed to pull off the soft landing. We didn't think the Fed would be hyper reactive, but there were some important changes that took place starting with the Christopher Waller speech

last month that signaled that they're ready to cut rates. And so my theme for next year is that yesterday's tightening becomes tomorrow's stimulus. I do not think this is the consensus yet. So there's a lot of people to get on the bandwagon still. It feels like it's the consensus, though, doesn't it? Like now we've priced in all these cuts. We're all giddy about the prospects that the Fed has made this great, the great pivot of 2023, and that's going to save the day for 24 and beyond yeah i mean i think there's a few things i would consider number one the the if you go through everyone's saying okay soft landing is base case now or the consensus i don't see that yet if you go to bloomberg survey of economists it's a 50 50 odds of recession next year that's down from 60 at the end of last year

when everybody knew recession was a consensus call so that's number one look at the end of last year when everybody knew recession was a consensus call. So that's number one. Number two, look at strategist forecasts for next year. The average strategist forecast is 48, 33 for the S&P 500 next year. We're like 2% from that right now or whatever it is, 2.5% right now. We've quantitatively studied that. And whenever the S&P 500 gets within 5% or the targets are less than 5% above the S&P 500, it's very positive for the market going forward. So I think that's career risk. Everyone's going to have to raise their targets going into Q1, Q2 of next year leading into this Fed cut. And finally, everybody's talking about it, but it's a real important dynamic in this market is the money market fund sitting on the sidelines.

Flows in the money market funds, $1.2 trillion over 2023. Outflows from stock funds were $200 billion this year. So there's a lot of cash that's going to try and get through a very small door here in the first part of next year, in my opinion. So you got a lot in that in that last comment. Let me start with the cash idea, because there are those who throw cold water on the idea that all this money in money markets is just going to flood into the stock market. People like Jeffrey Gundlach who say that's not going to happen. A lot of that money may very well go into fixed income. It may go into treasuries. If it looks like these lag effects may have an effect, that may be the case more so than what people are expecting about cash coming into the stock market. When is your first cut modeled in?

Number one, I think that you don't need all that money to come right back. And it doesn't have to come right back into the stock market. If it goes even out the, if it just goes out in duration a little bit, that impacts term premiums, credit spreads all the way out down the risk curve. And so when liquidity comes in the system, it sends a ripple effect through the entire market structure. So that's how I would handle that. So it's kind of a longer, more complicated discussion. But our first cut is for May, the May meeting of the Fed. And why that's important, when you go back historically with soft landings, you get about a 10% rally in the six months leading up to the first Fed cut in these soft landing cases. That puts the S&P 500 at 5,200 by May of next year. And so I think targets are kind of only worth the paper they're

written on, but that's an important number, I think, to keep in mind going into the first cut. You don't think we've pulled a lot of that forward already, given the nature of this move? No. I mean, I would go back to the fact that I think there is the cash on the sidelines, and I would go back to the strategist. I mean, these strategists are all going to have to up their targets going into next year. It feels bullish right now, but if you start really looking at the sentiment and positioning data, you go through what economists are saying for next year, I don't think so. I think that we're on the precipice of a really powerful move. And you look at the technical signals, which we've had like two or three really important breadth thrusts over the last month, things you just don't see very often

historically that they don't happen at the end of moves. They happen at the beginning of moves. The final thing I'd say on all that is next year is a presidential election year. When the incumbent is up for election, we haven't had a down year in the stock market since 1950. And I think it's a really simple reason for that. People who are in power want to stay in power. And it goes back to the first thing I said. Yesterday's tightening becomes tomorrow's stimulus. All these the tightening of 2022, 2021 can be unwound.

And each step along that path is a potential catalyst for the stock market. I mean, these are normal political times. I think we can both agree with that. Let me look at the Dow real quick as I as I ask you one final question. So it's down about 350 right now. Do you have an opinion as you're watching this like we are as this market has had this what's felt like a sudden reversal an hour or so ago? I mean, I don't have like a strong opinion. I think that we're up nine days in a row and you should expect pullbacks. You know, I think it's healthy actually to consolidate here for a little bit.

It doesn't go up in a straight line. And so I don't see it as any nothing. There's nothing really, no signal in this move yet in my mind. So no, I just think this is a healthy pullback, as they would say. Warren, I appreciate your time very much. it as any nothing there's nothing really no signal in this move yet in my in my mind so no i just think this is a healthy pullback as they would say warren i appreciate your time very much we'll see you soon warren pie is joining us on closing up next jp morgan's gabriella santos is here breaking out her 2024 playbook we'll find out how she is navigating the downturn today more importantly where she sees strength in the year ahead just after the break closing bell right back we're selling off in the final hour of trading the dow heading for its first decline

in some 10 days joining me now at post nine with her 2024 playbook gabriella santos of jp morgan asset management welcome back thank you well it's been a while since we've seen red on the screen has it has it has sit here searching for, wow, you mean stocks actually go down now? Crazy. Yeah. So what do you think lies ahead, given how far we've come in a reasonably short period of time? In a very quick moment of time. I was reading this amazing stat that the equal weight index went from a 52-week low to a 52-week high in 33 days, the fastest since 1982. So just one of many ways to see how quickly the narrative has changed.

And I think we've gotten to the other extreme, one where it's become too focused on just chasing whatever is cyclical, whatever has lagged. And that's the story. And pricing in rate cuts as soon as March. Now we're talking about six. You know, we've gone to the other extreme. So I think it would be perfectly natural to have certain down days to consolidate a bit, maybe even have a bit of a pullback early next year before ultimately we move higher. We do have somewhat of a broadening of the rally, but still focus more on quality than just pure cyclicality. Has more than the narrative changed? You say the narrative changed. It obviously has. Have the fundamentals changed along with the narrative, given this pivot

that the Fed's done, some of the data around inflation and around the economy itself? I do think that something did change last week, and it's important. And that was really the Fed's reaction function, right? For a year and a half, it was all about fighting inflation, the economy, you know, be darned, whatever happens there. It was all about the inflation side of the mandate. And very clearly, we heard last week that that's not the case anymore. There's more comfort about the disinflation process. There's more of a balance between the two sides of the mandate. And the Fed is not willing to tolerate economic pain because they feel more comfortable we're going in the disinflationary route anyway. So they can be more proactive versus reactive. And so you took the

risk off the table that real rates can continue to rise next year and that they're continuing to step on the brakes. The risk of leaving rates too high for too long at this point, rather than suggesting, well, they might not be high enough, which is where we were not that long ago. Remember, it was like err on the side of doing too much. Don't make the same mistakes we've made 40 years ago. Let's err on that side. Now it's sort of, well, let's not do too much and wreck a good thing. Exactly. And there's been so much debate since the meeting last week about what exactly led to the pivot. There are many explanations. We take the view that it's more actually the constructive explanation, which is just that inflation

has continued to move down. We've unwound 60 percent of the core inflation pandemic surge at the same time that the unemployment rate has stayed below 4 percent for 22 months. So you can have resilient growth and continue to make progress towards a 2 percent inflation mandate. And for us, it took a while actually for them to acknowledge it, but better late than never. And it actually increases the odds of the cycle extending next year. You're a believer in the broadening? We are, but too much of a good thing. We had too much of a good thing lately?

I think so, because if you look at the top performers since late October, it's very, very cyclical bits of the market, like regional banks, homebuilders, small caps. And just saying that the Fed is proactive and we're extending the cycle, like regional banks, homebuilders, small caps. And just saying that the Fed is proactive and we're extending the cycle, it doesn't mean everything is rosy and perfect. It still means the economy slows down a bit. It still means we're late cycle. It still means real rates are very restrictive. You still think we're late cycle, very late cycle. And I think that's where I'm excited for the conversation to go next year. Less hard landing, soft landing and more, where are we in the cycle?

And we do think if you look at the unemployment rate and that stat of it being below 4% for nearly two years, that's screaming late cycle. But late cycle can extend for years. We saw that with the last cycle. It doesn't mean we're expecting an imminent recession. It just means you have to focus a lot more about quality in that kind of environment and not just lean purely to cyclicality. What do I do with these large cap tech stocks that have ruled the day? Do I stay as exposed as I have been? What do I do?

I think the number one thing we would say to investors is make a decision about what you want to do with them. Because even if you're just a passive investor, you've got 33% of the S&P in these hyper mega cap tech stocks. And not every single one of them deserves their market cap weight that they've reached at this point this year. Maybe some actually deserve a little bit more, some a little bit less. And ultimately, we think there are plenty of other sectors and companies that deserve more of a weight. Like what? Like what? Give me a good example of one or two that you think. I think just sticking to the tech theme, these are hyper large cap stocks.

What about just large cap tech stocks and mid cap tech stocks? I know, but what do I want? I could say, OK, you're right. I'm going to look at semis. Oh, wait a minute. Semis have had the best year in, you know, I don't know, feels like 20 years. But after they've had a horrendous previous year. And I do think semis is an interesting theme, whether it's related to artificial intelligence and the move from CPUs to GPUs, for which there's not just one winner in that theme, but more broadly, the turnaround in the demand for electronic cycle that seems to be taking place around the world if we look at exports from Taiwan and Korea. So that's just one example, but there are other themes in there too.

We could include cybersecurity as one. We could include software to process all the AI data. All these stocks have gone up so much, right? I was talking about CrowdStrike is up like 150%. This year, there was a positive call on Zscaler today, which is up 100%. So many of these stocks have gone up so much. The biggest problem I see for investors right now is over the last month, almost any sector you pick, stocks have surged a lot, like double digits, if not more. So you're like, now what do I do? Do I take profits? What do I buy if I believe?

And I think that's where late last week we started to see money flow into equities, into the bond market, into emerging markets, finally leaving money market funds. But I think we're likely to see a little bit of a slowdown in the flood of money moving away from money market funds. But I think we're likely to see a little bit of a slowdown in the flood of money moving away from money market funds until we see a little bit of a pullback. Exactly. Because we are hearing from investors, look, I believe in the theme of lower yields. I believe in the theme of the broadening out of the rally. I believe in the soft landing narrative. But I just have gotten a little bit uncomfortable with how quickly we've come. Yeah. And do you think this cash, that however much cash that's being debated, but however much cash is actually in money markets comes into stocks?

We think it comes into assets more broadly, right? This is money that's not needed for liquidity. That's money that's meant to be long-term money that needs to find a home in the bond market, in the equity market, in the private market. So we do think so, and we do think it will come more broadly than just those large cap stocks. And that includes value. We like industrials. It also includes more defensives like utilities. There's a lot. There's a lot there.

Have a great end of year. Good holidays to you. You as well. Happy holidays. Yes, thank you. We'll see you in 24. Gabriela Santos joining us here at Post 9. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevalos, of course, is standing by with that. Christina? Well, consumers right now are fed up with higher prices, and one retailer is feeling the pushback.

More on that story and other stock movers after the break. We're 15 from the closing bell. Let's get back now to Christina Partsenevalos for the stock she's watching. Christina? Well, let's talk about consumers have had enough of higher prices. And General Mills is feeling the pullback. You can see shares down about 3%. Management cut their annual sales forecast and said their recent price hikes have pushed consumers to buy smaller quantities or opt for cheaper private label alternatives.

Net sales and overall volumes in North America both fell in its most recent quarter. Even without the dark lighting and intense perfume smells from the stores of the early 2000s, Abercrombie & Fitch has once again proved it's a relevant brand. And that's why sales have been soaring this year. The stock is having its best year ever and its longest win streak in 25 years. Yes, it's down 1% right now with the greater sell-off, but it's one of the best performing retailers this year, up 280%, Scott. All right, Christina, thank you very much. Christina Partsenevelos. Up next, Alphabet shares. Well, they are still higher despite this late-day sell-off. We're going to break down the new report that's sending the tech giant into the

green this afternoon. Closing bell is coming right back. About 10 minutes from the close and we're still decidedly red across the board. There's the Dow, the S&P and the Nasdaq all in the red. Nasdaq's down by a little more than 1%. The Russell is as well. We'll have much more on this late day drop. Plus your earnings rundown. Micron reporting in OT. We'll do that in the Market Zone next. All right, we're now in the closing of the Market Zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of this trading day, plus Deirdre Bosa on a possible reorganization at Alphabet. That stock's higher today. Christina Partsenevelos is watching Micron today. Those earnings are in OT. Get your first word, though, Mike, on this rollover we've had late in the day.

Yeah, I mean, the market in so many ways was wound very tight. We were talking about all these streaks, right? Up seven weeks in a row, the Dow up 10 days in a row. Frank Capillari, technical strategist this morning, pointed out that for nine straight days in 13 of the last 14, the S&P 500 closed above its midpoint for the day,

meaning we had these late day rallies. It was on autopilot. So with that as the backdrop, normally, once you get overbought and keep going higher, I think it just makes things a little bit vulnerable in the short term, not really in the longer term. We cracked those levels you were talking about earlier in the hour. It seems like once it's once the game change, once pattern of late-day bid and this autopilot Execution programs did not show up. It was sort of like okay game over for now. We have to reset I don't think there's a lot of real damage done But maybe we change the rhythm of this market just a little bit

We first crossed above 4,700 on the S&P a week ago And so now we've kind of retraced back to that. And we'll see if that's enough to take some of the froth off. I'm going to take you away from this conversation for just a minute. We're following some news regarding Citigroup. Hugh Son has that for us as the overhaul by Jane Frazier continues, it appears, Hugh. It is, Scott. So the latest from sources with direct nod to the situation is Citigroup has decided to kill yet another Wall Street business with many decades, you know, in terms of the markets. So it is calling the distressed debt business.

Now, for those who don't know, that is essentially the bonds and other instruments of companies that are in bankruptcy or approaching bankruptcy. They've been, you know, experiencing a lot of turmoil in this business since 2008. Lots of co-heads, lots of departures, people leaving to start their own hedge funds. And finally, you know, in the midst of CEO Jane Frazier's overhaul of the business, she has decided to cut bait, to kill this business. There are approximately between 30 and 40 traders and salespeople, other highly paid individuals in this business,

who will learn in the next few days that they are being let go. Scott. Hugh, I appreciate it. Thanks for the update. We'll continue to watch that stock as we head towards a close down 1.5% Husson with that story on Citi for us. Deirdre Bosa, I've got red all over my screen here except for alphabet. Yeah, that's right. It is one of the biggest S&P gainers today. And that's really on the back of a report that says the company is already monetizing AI in its ad tech business. The information setting a source puts a number on one AI tool in particular saying it will generate an additional 15 billion dollars in search ad revenue per year

and that can ease investor worries about the impact of AI on Google's broader search business and potentially give it room for Alphabet to cut costs further. The report also says that Alphabet is planning a reorganization to rely more on such tools, so less actual salespeople would bring costs down. It could also help as Google faces challenges to another less profitable part of its ad business that, of course, is subject to a DOJ lawsuit, and that is going to play out next year. So that green on your screen, that's Alphabet. Yeah, appreciate it very much, Deirdre Bosa. Thank you.

I've got red on my screen from Micron, Christina Partsenevelos, and that's ahead of these earnings in OT. Yeah, it is. Let's start with the positive first. You've got the long period of sustained declines for memory prices overall, but we're starting to see a little bit of an uptick in memory,

and that could be a driving factor for Micron. Three reasons for that, generative AI models, which require high bandwidth memory, which sells at a higher price point, stabilization of PCs and smartphones, and lastly, the general cyclical nature of customer inventory levels starting to come down, which sounds like a nice setup for Micron, but to your point, Scott, the company already pre-announced on November 28th, and although they increased their Q1 revenue guidance, it's their higher than expected $990 million in operating expenses that remain a big concern and why they are expected to operate at a loss. Micron CEO warned at a recent UBS conference that the higher expenses were due to the timing of R&D and asset sales. Investors will also be looking for signs of a gross margin recovery.

So that means today, Scott, at just post-4 p.m. Eastern, all the focus will be on the February quarter guidance for gross margins, with the bulls looking for further signs of improved memory pricing to help keep this recovery story intact. But like you pointed out, shares are lower right now. All right. Christina, thanks. We'll see you in OT. I have a news alert now on Warner Brothers Discovery and Paramount. Pippa Stevens, what do we know here?

Hey, Scott. According to a report from Axios, they are reporting that Warner Brothers Discovery is in talks to merge with Paramount Global. According to that report, CEO of Warner Brothers, David Zaslav, met with Paramount Global CEO Bob Backish on Tuesday to discuss a possible merger. Warner Brothers' market cap is about $29 billion, while Paramount's is just over $10 billion. Once again, Axios is reporting that the two companies are in talks to merge. Scott? All right, Pip.

Appreciate the update there. There'll be some more media deal news to talk about in the days ahead. Mike Santoli, we have a minute to go. We've had a lot of late-day escalators on this set together. It was only a matter of time before we had to get on an elevator. Yeah, when the horse breaks stride, you know, you've got to wait until the next lap to regain it. I think that everything we've been talking about, all the superlatives, the fact that everyone's referring to the rally as relentless,

all that goes into the mix to say, look, ultimately, it's always supply and demand. We had a little bit of a break in demand right here. The volatility index has not made new lows as the equity index has been making new highs in the last couple of weeks. A lot of people pointing to that. So basically bracing for it being not so easy as it was, a six-week indiscriminate buying binge, and we're getting a little bit of indigestion today. I mean, the VIX is not, like, going crazy either.

No, it's not going up much, but it didn't go down to new lows as the S&P was making new highs. Yeah, well said. All right, there's the bell. Dow's going to go out, well, almost 500, 477 as we speak. So we'll see where we settle out. I'll see you tomorrow.