Closing Bell - Closing Bell: Stubbornly Steady Stock Market 7/2/24

Episode Date: July 2, 2024

Is this slow grind more a show of the bull market’s resilience or evidence of short-term fatigue? Adam Parker from Trivariate, UBS’ David Lefkowitz and Ayako Yoshioka of Wealth Enhancement Group break down their point of view. Plus, RBC’s Lori Calvasina revised her S&P outlook. She explains the reasoning behind that and where she thinks the market is headed in the second half. And, Amazon hit another record high – gaining more than 7% in one week. We tell you what is behind that rally.

This make or break hour begins with this stubbornly steady stock market. The broad S&P 500 working on a 10th straight day with a move of less than half a percent. Though the indexes have quietly strengthened through the afternoon. There have actually been more up days than down days over that quiet streak. Here's your scorecard with 60 minutes to go in regulation. The S&P 500 and NASDAQ composite both on pace for a new closing high. With underlying market breadth a bit firmer than it's been some days in the last couple of weeks. The S&P is about 10 points into record

closing territory right now. Tesla and Apple, big upside contributors to those index moves, and that's allowing tape to weather further weakness in NVIDIA, which remains 12 or 13 percent below its all-time highs. Treasury yields have calmed after yesterday's sharp rise. And oil remains quiet after its recent run higher. That takes us to our talk of the tape with the S&P 500 pushing past a 15 percent gain for the year. Is the slow grind more a show of the bull market's resilience or perhaps evidence of short term fatigue? Here to discuss all this is Adam Parker, Trivariate Research founder and a CNBC contributor. Adam, good to see you. Great to be here. Thanks.

I mean, looking on the surface, not a lot to complain about. You know, 5,500 on the S&P. The VIX is now below 12 as it's trading right now. The macro seems quiet enough for stocks to kind of rotate and do their thing. Is there anything you would look at and say, we're missing something here? The market maybe is either too complacent about something or it's got it right? Well, I mean, we're not going to appreciate every quarter the way we did Q4 last year, Q1 this year. So, you know, we'll take whatever 4% change a quarter every quarter forever would be fine. I think that the three kind of bold sort of legs of the stool are in case, right? Margins are going up for the average company.

Financial conditions, at least if you look at Chicago Fed or, you know, the Bloomberg financial conditions, look pretty easy. And this dream of AI earnings growth, what it could do years 3 through 10 or whatever, still seems pretty dreamy, right? So I think that's intact. I don't, we'll see. I'm not expecting to get any major negative pre-releases on earnings this week. It's a little bit of a weird week with the holiday in the middle of the week. And normally, you know, when you get worried, you're worried about a reset the second half

of the year earnings revisions. I don't think we're going to get that. So I think so far, you know, there's a sort of a positive skew to the outcomes. But the way you teed up that question of could anything worry me, of course. Well, of course. You can always go looking for something, without a doubt. To be honest, it's been a mantra of yours that the margins for the average company are going up. If that's the case, why isn't the stock price of the average company keeping pace or

even going up in the last three months? You know, obviously small caps are down. Look, one of the consensus things, you know, we're doing our big second half of the year Outlook webcast next Tuesday. And one of the things I like to do is look at what the consensus view is. So I had an intern read 15 of the second half Outlooks from all over the place. And there is one kind of consensus out there that small caps are going to do well. And I think it's always prudent to disagree with the consensus, or at least on average, that feels right. In this case, I happen to, from all the data, I don't think small caps do, I think they're an inferior asset class, to be honest with you. I think a lot of them have structural issues. They don't have the same constitution in terms of tech and industrials

and some of the themes you want to be overweight that are growing faster than GDP. So I think a lot of it is their outlook is just not as good. But even the median company in the Russell 1000 large cap, you know, is obviously there's always something working and not working. But I'm just curious if you feel as if the market is essentially waiting for the demonstrated resumption of earnings growth at the average company in the third or fourth quarter of this year. Probably there's more downward revisions coming to the small caps than the large caps. So it's all like an anticipated relative revision game. The second half of your numbers always go up. I think there's like a human optimism.

We're six months forward. The back half of the year is going to be better. In this case, the hockey stick in the back half is a little bit bigger than average. So I think to the extent that you're worried that people come back, usually in September, we found the biggest monthly revisions in the month of September. I think it's because the New York folks come back from the Hamptons or Cape Cod in Massachusetts or wherever Californians and Texans go, and they sharpen their pencil in September, and they say, my numbers are too high.

I don't know we're going to hear that in July. I think, okay, maybe we'll get a little bit of downward guidance, but I think, okay, for this July earnings season, I think you come back September, that's when maybe the average company, the median company has a little bit more risk to their numbers. Yeah. I guess the other question is you talk to clients who's, for the most part, whose job it is to create value over and above what the index can give you. And it's got to be frustrating. It's got to be as if they are competing against this indomitable force because of the AI driven moves in the mega caps. But I also feel like that actual frustration has I've been making this argument for a couple of weeks. It's almost kind of rebuilt

the wall of worry, even though the market itself's at a new high by the index level. It's sort of as if people are kind of not fully trusting what's going on. Does that make sense? Yeah. Look, I mean, the biggest five companies are 30 percent of the S&P now. So it's become, you know, my view for the last three years has basically been I don't know anything about the big companies that nobody else does. Hundreds of analysts cover them. They're pretty macro stocks. Market goes up, growth beats value. Microsoft usually goes up, right? And it's just hard to know something that nobody else knows. So I'd rather be market-weighted that group, if I'm long-only, and then take my shots elsewhere where the company-specific risk is higher and where being a fundamentalist can add value. Is there a divestiture? Is there

a deal? Is there a litigation? Is there a complex capital structure? Are they deploying capital in an interesting way? I think that's where the analysts should focus and where they can take bigger bets than normal. So look what the market's rewarded, Mike. It's been concentrated long onlys, run 8, 10 stocks. People love that. It's been huge gross exposure with low net. The multi-strat's are limiting double-digit returns. So you've got to take huge risk and be right. But the traditional kind of diversified thing, it hasn't worked for much of the last decade. Yeah, no, that's absolutely true. Well, let's bring in David Lefkowitz of UBS Global Wealth Management and Ayako Yoshioka of Wealth Enhancement Group to talk a little bit about this. And David, I know you're, you know, in terms of your formal S&P target, you don't necessarily envision too much upside from here,

but which way do you think the market is leaning here? Yeah, Mike. So, yeah, our formal target is 5,500 for a year in, which obviously we're basically out. We do have an upside case of 57. But I would take the big picture here. And similar to Adam's comments, I just think the environment is still pretty favorable. We've got a durable growth environment. You know, things are maybe cooling off, but they're definitely not cratering. Still have excess demand for labor. That's getting back into better balance.

So durable growth, broadening profit growth within the large cap space. And I think the disinflation is still in train. So that opens up the potential for the Fed to cut rates. It's a pretty good environment, durable growth. Fed has your back. And then the AI story on top of it. So it's a favorable mix that's driven markets up until this point. And we think that favorable mix generally remains in place. And to that point about the Fed perhaps having clearance to eventually ease, let's listen to what Jay Powell had to say, speaking to our eyes and at the ECB forum today about progress that has been seen on inflation. We've made quite a bit of progress in bringing inflation back down to our target.

While the labor market has remained strong and growth has continued, we want that process to continue. I think the last reading and the one before it to inflation, the one before it to a lesser extent, do suggest that we are getting back on a disinflationary path. We want to be more confident that inflation is moving sustainably down toward 2 percent

before we start the process of reducing how tight our policy is, of loosening policy. Yeah, they always seem to want to be more confident, but seem to be reassuring words, especially when he gave a nod later to the possibility of a further weakening in the labor market. They don't want to allow that to get away from them. So maybe some focus on some of the last two areas that are standing pretty sticky. And we believe that as we go through the second half of this year and into next year, those will continue to sort of dissipate in terms of their strength and contribution to overall inflation. So I think that inflation path is set. And really, it's more about, you know, the economy and the labor market. And is that going to soften sort of more so than the

overall inflation numbers? So it's a little bit of a race, I think, in our opinion, in terms of, you know, which one is going to soften faster. Right. And I guess that's been if there's been moments when the when the market has expressed concern about this it is when yields are going up perhaps and people aren't sure if if the feds either going to make a mistake or the economy can handle it so as an investor Aya what would you what are you advising in terms of a posture right now in terms of playing offense or defense with regard to economic cyclicals sure so I think going back to Adam's comments about small caps, you know, again, they're correlated a little bit more to the path and expectation

of interest rate cuts. And so we saw that in the fourth quarter of last year when, you know, the expectation for interest rate cuts were growing, you know, small caps really outperformed during that time frame. So if we continue to see that expectation continue and that Fed rate cuts are going to happen in the second half, I think small caps could be an area of some opportunity just because they are a little bit more interest rate sensitive. But because of that, they are a little bit lower in that quality spectrum. You know, large caps have continued to generate so much free cash flow and high quality names that have solid, healthy balance sheets that investors, I think,

you know, gravitate towards that large cap quality area. Yeah, Adam, you do hear that, that essentially, you know, you have to wait for a moment when either the Fed's given the green light for lower quality stuff to work or I don't know, your your intern, your AI program, whoever it is, you know, feels as if people are wanting to play that mean reverse. Yeah, I guess just to be clear, like if the market rips higher, yeah, I would agree small caps will at least pro rata participate, if not outperform. It's more in a sideways to cautious, you know, you know, David's comments resonate with me if we're kind of in a road, not implode backdrop. And I think the challenge everyone has when they have to set a price target is, can I set my, I need multiple expansion to believe in a lot of upside to get that. If you're bullish, then sure,

you can own lower quality, small caps that are rate sensitive. Yeah. Right. But if your background is like, look, it's hard for me to sketch out what what do you say, four or five percent bull case returns, maybe you got to raise your target five, seven percent return. You know, for me to buy small caps with more vol and a dream, I need to believe that these can go up 10, 15 percent. So if you're bullish as heck, sure, own small caps. Yeah. I mean, although, David, we're in the second half of the year, so we're kind of in the process of figuring out what earnings are on a multi-year basis right now, right into next year. I do wonder about the industrials area of the market, which I know is one that you favor, because I'm just looking at the charts and they've kind of lost a little bit of steam,

starting to sort of roll a little bit, even though they've been this leadership group. And I think widely embraced for a lot of the reasons for the CapEx boom and everything else. Is there anything you're seeing in that group that either concerns you or suggests that there's an opportunity here now? Yeah, Mike, I mean, I would say we see an opportunity. I mean, if you look at the ISM Manufacturing Index, it's been in this bottoming process for several months now. And just given where inventories are in the goods part of the economy, I think we will see continuous improvements in ISM. It's not going to be a straight line, but think generally moving in that direction. The freight recession should be ending.

That's been sort of long in the tooth. You've got the secular trends in terms of the onshoring, the infrastructure spending. Look, I would say one of the areas that is worth watching and is more election related is if the Republicans do come back into the if Trump takes the White House, the Republicans have the Congress. You know, what's going to happen to some of the incentives for green energy, electrification, things like that. So that's probably a risk around the election. But in general, the manufacturing and especially the global manufacturing cycle looks like it is bottoming. And I think if you want to play rate cuts, I think some of these cyclicals within large cap, like industrials, I think to me that's more interesting than, say, small caps, which I fully agree with the comments previously. They're just much lower quality than what you find in large

caps. I imagine it's pretty much a given that your clients are going to be wondering about election impacts. And, you know, mostly the market usually just wants an election to be over and they're going to try to price the various themes and policies as as possible as we get clarity on them. But how would you from a top down level think about the market path between here and through the election? Sure. So, you know, I think elections and politics create a lot of noise for the markets. And we've seen that sort of across the pond in Europe and in France. And so can we have some of that sort of sentiment and volatility creep into U.S. markets? Absolutely. I mean, I think we'll see how it all turns out.

But usually after the election, markets tend to take off. And so, you know, I think we could probably be in that same scenario post-November. Yeah, they do get a takeoff, although I know that one of the exceptions was when there was not a clear outcome in 2000. There was a delay there. But, you know, Adam, you mentioned financial conditions. They do remain pretty loose, I suppose you would say, although, you know, nominal 10-year Treasury yields,

again, kind of lifting toward the higher end of the range. Some are focusing on some corporate credit spreads that are kind of off the lows. I mean, they're still super strong. You have to squint to really see anything here. But I guess the question is, have you seen the best for the financial condition tailwinds? You know, the problem with the way some of the, not to get too technical, but the way a lot of these classic ones that people look at are calculated, Goldman's and Bloomberg's, et cetera, which I think are the two most common that institutional

investors look at, they're a little tautological. Spreads and equity markets are in there. So they go up, but it looks like conditions are easy. If you talk to your friends in real estate or other areas, it's hard to get a loan from a regional bank. So that's why private credit's taken off and doing well. So I think on the ground, conditions are a little tighter than maybe we see on those well-known metrics. But I think if you're talking S&P 500 and big companies, their financial conditions are generally okay. So I think what could cause issues, probably a slowdown of the consumer. You get worse 90-day credit card delinquencies. You get some more disruption in commercial real estate that surprises people with markdown. You could get that sort of issue. I think the macro thing I'd focus on is stronger dollar.

That could maybe derail some of the optimism if we start seeing that, and that could come from either policy differentials in the U.S. or Europe. Because really, if you look back in Q2, loonie, pound, euro, dollar was completely unchanged over the quarter. It was just the yen. I look for every mention of yen in earnings called transcripts. There just aren't that many. The U.S. companies just aren't a ton. Not as much of a factor as it used to be. And David, in terms of the macro and how it filters into the markets here, we've got a pretty reassuring

kind of job openings report today. You know, soft but still strong, softer but still strong labor market. We do have the jobs number on Friday. The economic surprises have been to the downside recently. Do you perceive that there is a little bit more slowdown risk than the market appreciates? Look, I think it's undisputable that we have seen a bit of a cooling off in the economy. But at the same time, you know, I don't think things are rolling hard because I think, you know, this whole cycle has not really been consumer credit or even corporate credit driven. It's really been more, you know, more about just the income gains and the government transfers that the private sector has had. So I don't think you're going to see an abrupt decline in activity

because the credit spigot has not been a big driver and it's not and it hasn't been completely turned off, as we were just talking about earlier. So I think what it means is that that it gives the Fed more confidence that they can start to dial back some of their restrictiveness. So, look, it's the soft landing call. But I think it is lining up in that direction, cooling off in the economy, opens up the soft landing call. But I think it is lining up in that direction, cooling off in the economy, opens up the door for the Fed to make some calibration cuts. That's what our expectation is over the next several months. Yeah, that's certainly the preferred path. Seems like still a plausible one. We'll see how it goes. Adam, David, Aya, thanks so much. Good to see you.

Good time today. All right, let's send it over to Seema Modi for a look at the biggest news moving into the close. Hi, Seema. Mike, 42 minutes left in the market here. And Eli Lilly and Novo Nordisk shares are falling after President Biden demanded price cuts on their blockbuster weight loss and diabetes drugs. Separately, there is that news from the FDA just approving Eli Lilly's Alzheimer's treatment, making it the second Alzheimer's treatment available in the U.S. We'll look at shares of Eli Lilly down just about nine tenths of one percent. Let's switch over to industrials. GE Aerospace extending CEO Larry Culp's contract till the end of 2027, which takes his name off the list of potential candidates for CEO position at Boeing. We have watched shares of

GE Aerospace quietly move higher, up another one% today, but even taking a step back, up nearly 60% so far this year, Mike. All right. Yeah, I guess he's worth over a billion dollars by my math at least. All right, Asima, thanks so much. We are just getting started. Up next, mapping out the second half. The S&P seeing steady gains so far this year. Now, RBC Capital Markets' Lori Calvacina is updating her outlook. She'll join me at Post 9 with her latest stance after this break. We are live from the New York Stock

Exchange, S&P 500, just under 5,500. You're watching Closing Bell on CNBC. Stocks getting a boost after Fed Chair Powell's earlier comments signaling progress has been made on inflation. My next guest expects stocks to continue climbing in the second half. She's raising her year-end S&P 500 price target to 5,700. Joining me now here at Post 9 is RBC's Lori Calvacina. Lori, good to see you. Thanks for having me. You raised the target. Your models are pointing you in that direction. You characterize it, though, as a little bit of a reluctant one. Why is that?

I think I called myself a nervous, jumpy bull. And look, I see the case for further upside on some of the models. You know, AAII is something I talk about a lot. I've been expecting it to go over this one standard deviation mark eminently. Yeah, the retail sentiment. And it just hasn't done that. It's stuck right below. So I have to sort of, you know, own that, right? And looking on a six-month forward basis, you still tend to be up about 4.5% from the level that it's at. That being said, if we get too much more enthusiasm in this market, I do think it's going to cross over into dangerous territory. So, you know, I can see the case for a pullback being made. I think if we end up getting one, it's a five to 10 percent drawdown, something similar to what we got in April. It doesn't derail the year. It doesn't derail,

you know, sort of the upward path, a pothole, essentially, you know, sort of how we see it on the path to recovery. Gotcha. So the other piece of it, you mentioned sentiment as being one of those things that's kind of nagging at the bull case. Valuation, you've been pretty consistent in saying that, look, as much as it seems like 19, 20, 21 times earnings seems expensive, your work said maybe not given other conditions. What is it saying now? So this is also something I had a hard time wrapping my head around. And, you know, I've sort of talked about that a lot the last couple of months. But the model, the valuation model is pointing to about a 21 and a half times P.E. on a trailing basis at the end of the year. That's due to a ramp down in inflation, a little bit of relief on the Fed, a little bit of relief on the 10-year.

And when we marry that up with our earnings number and consensus, that gives me a range about 5,200 to 5,300 on the S&P. We have made some changes to our earnings numbers. If you put in a more sort of optimistic view on inflation in the Fed, we can get that number up to 5,500 for you. So that's still a little bit over where we are. So I would say, you know, I'm in sort of a weird spot right now on this model because it does feel to me like the market's a little overbought. I've done this for almost 25 years. I mean, I know markets can stay overbought for a while, and it feels like we're more sentiment-driven right now than anything else. So we think we're going to have to deal with that at some point. But at the same time, I took my models out to 2025

and I can come up with a 6100 scenario on the S&P, just sort of looking at plain vanilla consensus arguments for inflation, moderating a little bit, a few more Fed cuts. So I can see where we can still make a case longer term from the valuation perspective. Yeah. So we're talking like 10, 11 percent up from here or something like that. Right, right. And so it's nothing heroic, you know. I mean, it's, these are not, you know, huge percentage gains. They sound like these big, crazy, bullish numbers. Yeah, exactly. Right. And they're not. And look, we've been very honest with people. Our targets are a compass. They are not a GPS. We are going to revise them. Breaking news. I mean, that is what strategists do as new facts come to light. Yeah. to light. But it was helpful to really kind of do the math and really study 2025 hard and kind of put everything into context.

This move higher just recently in Treasury yields, I mean, it always gets the market's attention, I think especially when it comes along with somewhat softening economic numbers or the fact that we got a pretty decent inflation report on Friday. Do you see it as a challenge or is there a level where it would be a challenge? It is something that concerns me a bit. I mean, I actually emailed someone this morning and said, how high are yields going to go? And I didn't get an answer back.

But the reality is I've done some work. And if you go back and just look at stretches, both rising and falling rate environments, when the 10-year Treasury yield is moving up, over that same duration, if the stock market is going to go up or down, seems to be dependent on how much yields move from their original starting point. So something kind of 300 basis points, 275 basis points, market can't handle that. 100 basis points,

200, market seems to be able to weather those kinds of storms. Yeah, I mean, you could just look back in the last couple of years, I guess. There was a time we thought 3.5% or 4% was going to be a problem on the 10-year, and we got through it. In terms of parts of the market, you know, the whole few versus the many trade, where do we emphasize now? So, look, you know, and I feel like maybe I'm still a little bit stuck in neutral on these rotation trades. I look at, you know, something like growth versus value. I think that there are a lot of reasons to be concerned about growth and seeing a rotation. Positioning is getting crowded again. Valuations have been bumping up against a 30-time P.E., which it can't seem to break through.

But at the same time, we know that for value and cyclicality and small cap to work, you need economic enthusiasm. We're heading into a period where GDP forecasts are kind of going to below average levels for a few quarters. We're seeing some downward revisions to 2024 numbers. That's not a recipe when people say, hey, I don't need any more of my safe secular growth stuff. Let's go put on some risk on cyclicality. We just have to be a little bit more patient. Right. So the way this market for a long time has played defense in part is to buy secular growth and assign a greater premium on that. You mentioned we can't get through 30 times.

So you're looking at kind of like the Nasdaq 100 or is it, you know, mega cap growth? I built my own basket. I kind of got fed up because people kept asking me to run MAG 7 baskets over 20 year stretches. And I was like, well, the MAG 7 wasn't the MAG 7 20 years ago. That doesn't make any sense. And so I took a basket of just rebalancing the top 10 market cap names in the S&P 500. We rebalance it every month and we've gone back to the late 80s to look at, you know, just different. We've run like 20 different studies, you know, from valuation to earnings and that sort of thing. And if I do that basket on a rebalanced basis in 2021 and 2022, it got close to 30 times a couple of times and couldn't break

through. And what we've seen recently, I think the highest stat I've crunched on that over the last month or so was like twenty nine point eight. And it's now drifted back down to around like 28 or 27. But that kind of 30 level, it just can't seem to break through this time around. Got it. All right. Well, we'll keep an eye on that among all the other things. Lori, thanks a lot. Thanks for having me. All right. Up next, an ominous sign for the consumer. BTIG's Jonathan Krinsky is flagging a potential warning sign.

He'll tell us what that is and how it could impact your money after this break. And don't forget, you can catch us on the go by following the closing bell on your favorite podcast app. We'll be right back. It's been a rough run under the surface for consumer stocks, with a number of discretionary groups falling by double digits over the past three months. And our next guest is flagging a new warning sign in the charts. Joining us now is Jonathan Korinsky, chief market technician at BTIG. Jonathan, good to have you. Thanks for joining. And what specifically concerns you within consumer discretionary in terms of the subsector action?

Well, good to be here, Mike. You know, it's really a lot of things. You know, we can look at the homebuilders, which are below their 200-day for the first time since November today. But really, we're flagging the restaurant group. If we look at the Russell 3000 restaurant index, which is really the broadest measure of restaurants, that peaked in late February. It's down about 10% since then, breaking below its spring lows, which is one of the few kind of industries that has broken below those April lows. So there's definitely something going on here. It clearly doesn't point a great picture for the consumer, given restaurant spending is pretty discretionary. And it's really that now there are some idiosyncratic stories still holding up well.

You can look at Kava or Wingstop. But even some of the darlings like Chipotle have started to break lower now. So it's pretty broad-based weakness across the group. And, yeah, probably not a great sign for the consumer, given given what's going on there. Yeah, I was going to ask in terms of, you know, in the past, if there's a way of describing a pattern that tends to hold, is this a somewhat of a bellwether group for the broader market? Does it just mean, you know, move away from other consumer cyclicals? Yeah, I don't think there's a clear cut, you-cut pattern for restaurants per se. If you look back, they kind of topped coincidentally with the market back at the 2007 highs, just for one example.

And to be clear, the relative weakness here in the group has been persistent for about a year now. They started underperforming last summer. So it's not so much the relative weakness. We see relative weakness across many parts of the market, including industrials, healthcare. You can go down the list, but it's really the renewed, absolute breakdown. We're seeing a lot of 52-week lows in the group. And again, it's high end and low end. It's Cracker Barrel on the low end. It's Starbucks has persistent weakness. It's McDonald's. So it's really widespread. And I think that's kind of the more concerning tone. And then you combine that with the fact, again, we mentioned homebuilders breaking below the 200 day. They've been weak the last few months, different cyclical parts of the market, including industrials.

So it's it's you know, it's outside of tech. It's hard to find things that are working very well right now. Yeah. I mean, I guess all those things you just ticked off probably are OK from a disinflationary signal standpoint, but maybe not for in terms of the momentum of the economy. You've thought for a while that this whole split market with the narrow mega cap leadership, there was more likely that the large stocks and the big cap indexes might retreat to meet the average kind of laggard stock in the market. Obviously, the ball stayed in the air for a while here. We seem like it's one or two mega caps a day. Seems like it manages to support the index. And today you have a decent sized break. Do you still feel like that's what we're in for here?

You know, it's really tough. It's, you know, at the same time that we continue to expect mega cap to falter, you'd think by now, six months or seven months into the year, you'd get some breadth expansion, and neither has happened. The spread has only exacerbated wider. We've had the biggest first half spread between the S&P and the equal weight since 1990. We actually looked at something else interesting today. We looked at, it's been 43 trading days since the last time all of the MAG7 names were down on the same day. We've only had one streak longer since 2015. That was 44 days back in June of 2016. So, you know, we continue to see this kind of whack-a-mole market where maybe NVIDIA takes a breather and then Apple steps up.

Google pulls back. Amazon steps up. So until that mentality of money just sloshing around between those MAG7 names, until that ends, it's difficult to get that broad pullback. And the trigger for that is always a difficult timing tool. But again, we have volatility on year-to-date lows here. It's been 18 months since the NASDAQ 100's had a down 2.5% day. That's the longest streak ever. So we're really in rarefied air up here. Again, calling the end to it is difficult, but I do still think at this point it's more likely that those big cap names kind of pull back. Even if it's just temporary, short term.

Again, given you've had six months for the opposite to play out, and it hasn't played out yet. Right. No, it's been confounding, and it seems almost a little bit improbable that it's gone on this long, although I'm sure people would come back to you and say, you're describing a bull market. People want to maintain exposure. They don't want to sell everything across the board.

They find something to own when one thing goes down, and maybe that's healthy if a majority of the market meantime is kind of not extended and is sort of resting. Yeah, I mean, it's certainly a bull market within, you know, mega cap, those top names. But it's anything but a bull market if you were to, you know, look historically at what the equal weight S&Ps is doing or small caps in particular. So, look, I mean, we're still open to that scenario. You know, it wouldn't take much for small caps to kind of break out of this range and get some momentum going. It just hasn't happened. And I think it's, you know, it's

frustrated many that we just can't seem to get that convergence. Yeah, it's happened in these short little bursts, right? Nothing too sustained. Jonathan, appreciate the time. Thank you. Thank you. All right. Up next, we're tracking the biggest movers as we head into the close. Seema, standing by with us. Stay tuned. Mike, there is one stock that is up about 80% this year, catching our attention. It's on the prospect of an AI boost, but one analyst says its performance is overdone. We're going to tell you what that name is and why that analyst is downgrading that stock after this break. 18 minutes till the closing bell.

The S&P right at 5,500, up about half a percent. Let's get back to Seema Modi for a look at the key stocks to watch. All right, let's take a look at home building stocks. Mike, taking a hit today, both D.R. Horton and Lennar downgraded by Citi to hold due to a slowing housing market. They talk about how the market continues to be weighed down by elevated interest rates. The S&P home builders ETF has been down four over the last five weeks. We'll see shares down fractionally as well today.

And AI Play Pure Storage has been on a roll this year, up about 80% on growing prospects for data centers. UBS out today, though, saying its valuation is not justified, downgrading the stock to sell from neutral. And you'll see the stock is down about 4% as we head to the close. Mike. Seema, thank you. Still ahead, Amazon hitting an all-time high today. That stock gaining 7% in the past week alone. We'll drill down on what is behind that rally coming right up. And speaking of records, a quick check on the S&P and the NASDAQ. Both are trying for record closes. they would get there at current levels closing bell be right back up next Tesla shares popping for a second day the company's crucial delivery data driving that big move we'll break down all the details and how it's impacting the rest of

the EV space that and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. Citi's Scott Cronert is here to break down these crucial moments of the trading day. Plus, Phil LeBeau on the big rally in Tesla shares. Peppa Stevens on a call that has First Solar moving lower. And Kate Rooney on Amazon hitting all-time highs. So, Scott, we had the S&P 500 here right at 5,500, up about a half a percent. Of course, the mega cap group doing its job as usual to get us there.

I know your posture is that, you know, we might have some further upside into year end. But you're anticipating a possible summer squall, as you call it. Make the case for that. Well, I think it begins with the fact that from a valuation perspective, the S&P has moved towards its top decile over the past 20 years.

So we have to acknowledge that that is a concern, but the concern really is the implication and pressure that it puts on fundamentals to deliver. And there are implied growth measures now at levels that we haven't seen this high since the tail end of 21. So from that starting point, our concern is that the market is beginning to price in a growth expectation that may be difficult for companies one by one to meet, particularly given the ongoing strain that we're seeing on underlying economic conditions. And then you combine that with strong flows into the mega cap growth tech and core arena and a euphoric sentiment read all suggest to us

that we do have to be prepared for a pullback at some point as the summer unfolds. So would you do anything to prepare for that tactically or to be ready to act upon it if it comes in various parts of the market? You know, the way that we're trying to position for this is that we've gone to a market weight on tech and communication services. So we're suggesting hold that mega cap growth core. We appreciate the fundamental tailwind that we're getting from generative AI. But where we think you want to begin to go with new money is or fresh money is towards those areas of the market that should at the margin be positioned

to benefit from a inflecting Fed that also have an easier valuation backdrop. So, for example, we moved overweight financials this past week. That's predicated on banks, which are not so aggressively valued. We continue overweight consumer discretionary. We've even listed telecom and have gotten a little bit more constructive on the REIT sector here. So, again, the bias is to go where there's less valuation pressure, more potential benefit from an eventual Fed pivot. Yeah, you, the bias is to go where there's less valuation pressure, more potential benefit from an eventual Fed pivot. Yeah, you mentioned the Fed pivot. Jay Powell today seemed to offer words consistent with the idea that they are looking for the opportunity to begin some easing before terribly long. I guess the question is, do you think it's going to require further weakness

or do you think we're going to get a further growth scare before we get the reality of a potential rate cut? Yeah, you know, my economics colleagues here at Citi are projecting a first cut in September with three cuts for the balance of the year. So essentially, we're arguing that under the surface, economic conditions are continuing to decelerate from here. It's a question of how far the Fed wants to let this get before being preemptive, if you will. So I think we just have to be attentive to the fact that the Fed is sort of laser focused on getting the inflation trajectory to their target level. But under the surface, you are starting to see some signs of friction or fraying around the edges, which we think just kind of is going to

be enough here that as we go into the Q2 reporting period, you'll hear more corporates expressing just a little bit of macro concern going into the back half. Yeah, perhaps a little bit more of a risk given that earnings estimates have held up so well so far. And to your point, implied growth forecast. Scott, appreciate it. Thanks very much. You bet. Now to Phil on this move for a second day in Tesla on those delivery numbers. You know, Mike, give Tesla credit. Coming into today, there were more than a few people who were speculating that the numbers would be light of expectations, which were 436,000. That didn't happen.

They reported deliveries in the second quarter of almost 444,000. So slightly above expectations, still down 4.8 percent compared to the second quarter of last year. Energy storage. We don't talk about this a lot, but it was way above what people were expecting. This is a part of Tesla that is growing. It is increasingly becoming a focus for analysts. And that may be one reason why you saw shares pop today. In spite of the news today, they still need to go hard in the second half of this year in order to hit full-year deliveries of 1.82 million. That is the expectation. So they're going to have to grow sales by at least 6% each quarter, in the third and the fourth

quarter, in order to hit 1.82 million. A few analysts out today with notes questioning whether or not that will happen. Two dates that we're focused on now, July 23rd, after the bell, that's when we get the Q2 results. And that's really where a lot of people are focused on what the impact is in terms of pricing, Mike. And then there's the robo- reveal on August 8th. That's the event that people are focused on in terms of saying, OK, what's the roadmap over the next couple of years when it comes to autonomous drive technology and Elon's vision for robo taxis? Yeah, if anything, this two day move in Tesla up 16 and a half percent really has activated,

I think, that excitement around the event on August 8th. People start to feel like it's about a little more than just the quarterly car sales numbers, Phil. We'll see how we do in the lead up to that. Thanks very much. Pippa, on this move in first solar, what's behind it? Yeah, Mike. So under pressure after Baird cut its price target on shares of first solar from $3.44 down to $3.07, although important to note that is still about 40 percent above where the stock currently trades. And the firm does have an outperformed rating. Now, Baird said that First Solar is uniquely positioned between several themes,

including the rise in AI and data centers, power demand growth and then geopolitical tensions with China. But ongoing election risk seems to be what's really hitting the name, especially after a big run in the spring. Shares gained 50 percent back in May before hitting the highest level since 2008 in mid-June. But then since then, the shares have tumbled nearly 30 percent. Now, First Solar is the largest weighting in the tan fund, so it is dragging those shares lower with installers like Sunrun, Sunova and Sunpower also under pressure. Mike. Yeah, I mean, these stocks always whip around on policy rates, any number of factors. But thanks a lot for for chasing them around for us. Kate, Amazon, a lot of fall through to the upside here after that two trillion dollar market cap level.

Yeah, Mike. So it's on track for another record close. We're really close right now. It's just below 200 bucks a share adds to about a 30 percent run for Amazon this year. Part of it is this AI halo effect we've seen around big tech. Then you got strong earnings growth as well. Mizzou this week raising its price target on Amazon to 240 bucks, says Amazon's nearing what they call an inflection point on generative AI. They're looking for about 20% AWS growth for earnings coming up. That is above the street estimates. This is one of the most loved stocks on the street. About 95% of analysts out there got a buy rating on Amazon.

Plus, there's been this sort of renewed focus on the sum of the parts story for Amazon heading into earnings season and then improving margins within e-commerce is a big part of that. Prime Day is also coming up in a couple of weeks here in July. Bank of America pointed out that Amazon stock tends to outperform heading into these big sales events, usually in the 10 days or so leading up to that event. While you get pure play, retail stocks actually tend to lag heading into these events, Scott. Yeah, no, sure. And it's interesting you mentioned the sum of the parts story. I mean, it's always been kind of out there, but it comes into and out of focus to a degree.

I've seen people refer to the fact that Costco was one of the strongest stocks out there in consumer land. It trades actually at a higher forward valuation than all of Amazon does. And it's a similar deal, right? That's kind of membership is prime and selling you everything you need. Yeah, no, it's a great point. And analysts have sort of described it as this hedge. You get the big tech AI story, but you also get exposure to consumer discretionary. You get that consumer exposure that you don't get with any of the other Mag7 or mega cap tech companies. And it's got, you know, if you just look at the sum of the parts, it's really still printing money.

Earnings growth has been really strong on all sides of the business. AWS is really the growth engine that we talk about. But e-commerce margins have really started to improve. And that investment cycle that Amazon went through is starting to show up in the numbers. And Wall Street sort of focused on that a little bit more lately, at least the last couple of weeks, I'd say. It's coming back into vogue. For sure, Kate. Seems to benefit from the fact that the stock is basically sideways for three years or so before this run. Thank you very much, Kate Rooney. Well, as we head into the close, the S&P 500 is going to go out at a new closing high. It's closing also near a tie to the day, up about six-tenths of one percent.

Above the 5,500 mark, The Nasdaq composite will also be at a record high. And this is one of those days when it's not just a tiny handful of stocks. You have about twice as many stocks up as down on the New York Stock Exchange as the volatility index goes down to below 12 as we sit here 24 hours before a holiday. That's going to do it for closing bell. We'll send it on to overtime with Morgan Brennan and John Fitts. as we sit here 24 hours before a holiday. That's going to do it for Closing Bell. We'll send it on to overtime with Morgan Brennan and John Ford.