Closing Bell - Closing Bell: Tech Tear Far From Over? 5/23/23

Episode Date: May 23, 2023

Tech has been on a tear … and T. Rowe Price’s Dom Rizzo says it doesn’t look like its strong run is over. He explains. Plus,  New York Life Investment’s Lauren Goodwin weighs in on new COVID concerns in China. Plus, AJ Oden from JP Morgan breaks down where he is seeing opportunity in the market right now. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9, right here at the New York Stock Exchange. This make-or-break hour begins with the tech run. Whether it has more room to run, and if so, for how long? We'll ask a top T. Rowe fund manager that very question in just a moment. Here's your scorecard. With 60 minutes to go in regulation, stocks mostly in the red for much of the day. Investors obviously watching that debt duel and another move higher in interest rates today. Key yields now at their highest level since March. Big tech also pulling back slightly, even as Microsoft briefly hits another new high. It leads us to our talk of the tape, the tech tear, why it's not done.

That is the take today from our first guest, Dom Rizzo. He's portfolio manager of the T. Rowe Price Global Technology Fund. It's good to see you. Welcome. Great to see you, Scott. Thanks for having me. Yeah, you bet. Great time to have you. Why do you think this run has room to run? Yeah, well, you know, Scott, if we look out into the back half of the year, we have a couple of things going for us. We have improving fundamentals, so revenue acceleration, operating margin expansion, and free cash flow conversion improvement for most of the stocks in the global technology universe. Moreover, when I look at the world, I see relatively reasonable valuations. You know, the global tech index is trading at roughly 21, 20 times, 22 times earnings today.

Historically, that's peaked at 27 to 28 times earnings. And then, of course, we have AI, which is going to drive a lot of demand for all of technology. Yeah, I mean, I guess arguably that's the more controversial part of your argument is valuation because it's the place where people get hung up the most. And they say, how can you possibly justify

the valuations of some of these stocks just given the runs that they've had and the kind of environment that we're in where earnings seem to be projected to and in a world of higher interest rates as well. So how do you defend that? Well, you know, it really depends on what we're looking at, Scott, right? Of course, there are some expensive stocks like NVIDIA. We all know NVIDIA is expensive at over 50 times earnings.

But when I look at a stock like TSMC, that's only trading at 13 or 14 times earnings today. Samsung is only trading at 1.3 times earnings today. Samsung is only trading at 1.3 times book. Apple and Microsoft, mid-20s multiples on earnings. I feel pretty good about the valuations in the tech space, broadly speaking. But even NVIDIA, if you have to quibble with its valuation, which is obviously high, you still think that that stock has more room to run? I mean, do you think it's overvalued at the present time or no? Well, look, we try to invest over 18 to 24 month time horizons

and we feel really good about NVIDIA over the medium to long term. You know, they have incredible GPU technology and its parallel processing is absolutely mission critical for all artificial intelligence improvements. We're seeing this company with absolute linchpin status

in the data center and there's a complete shortage of GPUs right now. So fundamentals should be very strong. I mean, it's had a couple of years worth of gains in the early part of this year, though. That's one of the headwinds weighing against it. What kind of test do you think it's going to be tomorrow when it reports earnings after the bell? Well, definitely. It's always tough when a stock re-rates. I mean, it was only 20 times not too long ago. Now it's over 50. We'll see if the fundamentals are able to outweigh the multiple in the short term. But it's really hard to bet against Jensen and his team. Yeah, well, investors have found out the hard way, I guess, when you do that, at least in the bounce back. I'm looking at your top 10 holdings. I've got Apple and Microsoft, Nvidia as the top three. I don't see Alphabet and

Meta. Why? Well, you know, we're really trying to find the companies that we think are best positioned for AI. And right now that's Apple and Microsoft, in our opinion. We also like AMD and the entire digital semiconductor ecosystem. Those are the names that are really going to benefit. All these changes that are happening in AI is really coming into question

some historical business models, right? We have a real competitor to search for the first time with Google in the form of ChatGVT. So we're going to see what happens at the application layer, but the area that we're most excited about is the digital semiconductors

because these guys provide the linchpin technologies that enable all this artificial intelligence to happen. I don't really know who's going to win at the application layer quite yet. AI is so nascent and new, but I feel very confident that these LLMs, these large language models, are going to be trained on GPUs from NVIDIA and AMD.

Those GPUs are going to be manufactured at TSMC on top of machines from ASML. You know, the EUV machine is the most incredible machine that we've ever seen. It costs over 200 million euros. It takes three different 747s to take that tool from the Netherlands over to Taiwan or South Korea or Arizona. And so there's areas in the digital semiconductor supply chain where you can invest in AI and feel really comfortable without having to worry about what's happening at the application layer.

But for all the reasons to like Apple, I haven't heard many suggest that it's the leadership role that that company may have when it comes to AI. Rather, it's meta and it's alphabet. Now, we can argue over whether alphabet seeded anything to Microsoft in the whole chat GPT ordeal, but how would you justify suggesting that Apple has more AI upside than a meta or an alphabet at a time where some suggest both of those companies are absolutely all in?

Yeah, well, this is the part that everyone gets wrong about Apple, in my opinion. Everyone says that Apple is really a secret consumer products company disguising itself as a smartphone company. Right. What we think is it's really a secret silicon company. That company has probably the second best chip engineering team in the entire Silicon Valley outside of NVIDIA. And if we think about AI at the edge, that's all going to be done on top of Apple's processors, and that's all going to be done on our phones. So we feel really comfortable that Apple has a very strong position for AI.

Moreover, if we think about where Apple is in the importance of digital semis, that's the one thing. But on top of that, Google pays Apple a tremendous amount a year in order to remain the default search engine in search. So we see that they have a very strong positioning in the billion plus affluent customers in the world. I mean, and forgive me for stepping on your toes there.

I thought you were wrapping up your thought. I apologize for that. So top 10, as I said, Apple's number one. And yes, near 15% of your portfolio. That's a large number. At what point does that become too large? Well, we feel really good about Apple today. Like I said, we have accelerating fundamentals

into the back half. It's trading at a mid-20s earnings multiple. So right now we feel really comfortable with 15%. But of course, if things change, we can always change our mind. But we like Apple for the medium to long term. All right. Well, AMD is another one on your list that you think is underappreciated as it relates to AI, right? Absolutely.

So everyone loves NVIDIA and we love NVIDIA too. But the thing with AI that's underappreciated is that you really need a full portfolio of silicon in order to make it work. Let's look at AMD's portfolio. They have best-in-class CPU technology consistently taking share from Intel. They recently acquired Xilinx, and they have best-in-class FPGA technology there. And this is the thing that we're most excited about with AMD. They have a new chip coming out, the MI300. That's going to be this combo chip between their CPU technology and their GPU technology.

And that's really going to be a great solution for the data center customers who are looking for a second source to NVIDIA. You know, when I look at the valuation, that stock's trading at roughly 26 times earnings. We have improving fundamentals. We feel good about that one. All right, Dom, I appreciate your time very much. That's Dom Rizzo, T. Rowe Price Global Technology Fund. He's the portfolio manager. We'll see you soon. Let's get to our Twitter question of the day. Now, we want to know, do you agree that mega cap tech has more room to run? You can head to at CNBC closing bell on Twitter. You can vote and we'll share those results coming up a little later on in the hour. Well, we have a developing story we are following as well. Reports of a new COVID wave hitting China, several stocks being impacted by that today.

Our Christina Partsenevelos is here with a look at all of that. Christina. Yeah, thanks, Scott. Let's take a look at some of these casino names because those are firmly in negative territory right now, especially those with exposure to Macau, which is a key gaming market. So that comes amid concerns that China's ongoing COVID surge might not peak until late June, and I should say key gambling market. And that could have an impact on tourism in the region. So you can see wind down 6 percent, Las Vegas Sands down 6 percent, MGM down almost 6 percent. And in the same vein, we're also seeing some notable gains in some of the big vaccine players. Moderna on track for its best days since mid-December,

with BioNTech and Novavax also firmly higher today. Moderna and Pfizer both expect to keep pace with new COVID strains, thanks to the mRNA technology used in their vaccines. Independent advisors to the FDA are set to meet next month to decide which strains to target in the near term. Thought I didn't have to bring up COVID, but we have to. Yeah, and we do because the stocks are reacting on those headlines. Christina, thanks. We'll see you in just a bit. Let us know if you have more. That's Christina Parts

of Nevelos. Let's bring in Lauren Goodwin now of New York Life Investment Management here at Post Nine. It's good to see you again. Welcome back. Thanks for having me. You get a headline or two about a possible new outbreak in China. And you think what as it relates to the markets? Well, as we saw in the names that Christina was outlining, this is a playbook that investors know pretty well at this point. And so while it's important, I think where we could see it impact the global macro story is in the pace of global economic reacceleration, perhaps more moderate. Again, something we know how to manage. And in terms of the wall of worry with investors, I wouldn't imagine that it makes as big of a dent as some

of the other risks we see on the horizon. Yeah. I mean, you came here today prepared to suggest without even discussing these headlines that you think a hard landing is inevitable. I do. And that's related to the global economic environment, but specifically what's happening in the U.S. and the way that the Fed has hiked rates. I mean, as a story we've discussed in the past, the economic cycle tends to evolve in very similar ways. And while there are still areas of resilience in the economy, we see the economy gradually slowing. Now, what's important about the pace of the economic cycle here is that there has been resilience. It has been slow. And so we think it's too early to be fully defensive in a portfolio.

But an acknowledgment that a valuation dips likely to come in the next six months is important. I mean, it's only part of the economy that seems to be having a more than, you know, small issue. And that would be manufacturing. As we got, you know, again today, that the services side of the economy, because the employment part of the economy remains pretty strong. Still hot, still hot. Former Fed Chair Bernanke is saying, you know, don't write off a soft landing just yet. I appreciate the perspective, but this is a matter of timing rather than substance. When the Fed begins hiking interest rates, the economy tends to evolve in the same way every time, even though cycles have

differences. Housing and liquidity-sensitive sectors topple first, then manufacturing. Only then do we see services, profit margins compressing, and then the labor market. Again, this is a matter of timing rather than substance. And that timing, of course, incredibly important for investors. And that's why, again, being fully defensive, the bear camp we don't believe makes sense at this juncture. And we have, because the Fed's been raising rates, income, ability to generate income in a portfolio, from a portfolio construction perspective, that's a tool that hasn't been available in a long time. Nor has economies overheat. I mean, that's just the way that economic cycles obviously go. But when the Fed started this whole thing, the economy was flush. And I mean, people were flush

with cash, the likes of which they hadn't seen before because of COVID and the after effects of that and the stimulus that was put into the system. We had zero interest rates for more than a decade leading into that. So the mattress, so to speak, to fall onto from all of this was like the triple decker. You know, doesn't that mean something as to maybe this time, in fact, is different? Of course it means something in the sense that myself, the street, everyone has been wrong in terms of how quickly this economic cycle would turn. Those sources of resilience have been incredibly important. And actually, they're shaping the way that we can invest, even heading into what we believe will be a recession in the second half of this year. What do I mean by that? You mentioned

the consumer. Household balance sheets, business balance sheets as well are incredibly strong. That is, corporates taking advantage of Fed and federal government programs, municipal governments taking advantage of these programs to reshore their balance sheets. I think that's going to provide an enormous amount of resilience in asset classes like municipal bonds, like even high-yield bonds heading into credit spread expansion, even recession in a way that hasn't been true in the past. But what you've described in terms of the mattress, that liquidity that was flush in the economy, that's an area of excess that has been pervasive in the last economic cycle.

The pulling down on which may cause a little more pain than investors are expecting. Even a mild economic recession historically has resulted in almost 2 percent increase in the unemployment rate. When you add a bunch of liquidity, it might be harder to bring inflation down. Yeah. So what do you make as we started our show discussing the tech trade? Exactly what's happened with that? Whether you think, as our guest does, that it actually has room to run? Two things I'd say in response to Dom's comments. First, with respect to valuation, I am sympathetic to the argument that a lot of the multiple compression we saw last year that was felt in the tech sector, that may be behind us. The Fed's likely to be nearing a pause. We believe they're at a pause at this point. And so the valuation hit that we would see from the tech sector would be because the rest of the economy is slowing and

things like ads aren't doing as well. So that might bode for a bit of resilience, again, as we head into an economic slowdown. But the structural argument, and Dom mentioned this as well, there are changes in the way, likely to be changes in the way that businesses conduct their business as a result of developments in innovation and AI. It's not just the tech sector in which that's played in my perspective. It's also infrastructure. It's digital infrastructure. It's energy infrastructure. And so I think there's a broader way to play on some of the themes that Dom's describing. What happens if we lose the tech trade? What does it mean? It's been a

tailwind, obviously, for the market itself. At what point does it become risk? If you lose that tailwind, does the market then face a greater headwind because there are already enough economic concerns where more cyclical areas of the market have not performed and they're not going to be able to pick up the slack? I think so. And I think that that's particularly the case because market breadth has been so narrow in this sort of range-bound volatile market. And that narrow breadth has been focused in the tech sector. It's a major area of weakness

for specifically the equity markets ahead. When it comes to the trigger points at which we might see a real valuation right down in the market, I'm looking for a couple of things. I think unemployment claims rising will push us in that direction. And overall, revenues in these tech sector companies, not just earnings, but revenues themselves, another major area of focus.

And what about interest rates? We've been talking almost every day. It feels like they've been incrementally going higher. The key rates now are at the highest level since March. Is that going to eventually turn into a headwind again for the market itself, which has been really resilient. I mean, let's be honest. Amid all these calls that, you know, we're going to go back to the lows or we're going lower, this is not sustainable. Markets hung in there pretty well. Markets hung in there and market rates, especially on the long end, have been,

while inching a little higher, they've been pretty resilient. I think that's part and parcel of, despite all of the risks out there in the economy, the U.S. Treasury market being the place where investors go when things are starting to look a little shaky. A debt ceiling debacle notwithstanding, unless we see durably higher Treasury rates, I think that the market remains range bound. Yeah. I want to bring a comment to you also, since I did ask you about this apparent new variant that is causing an outbreak, magnitude of which we honestly don't know. We were just going off some headlines that moved overnight. We asked Dr. Scott Gottlieb, who's out at our CEO summit out in Santa Barbara, for a comment on all of this. And he says of the variant there, which is known as XBB, that China hasn't seen the successive waves we've had here.

So they're going to be more vulnerable to new variants for a longer period of time, including variants that have come and gone in the U.S. So that's the latest from our friend, Dr. Scott Gottlieb. Of course, he's on the board of Pfizer and Illumina as well. But we did want to get a comment, if we could, from him on what his level of concern may be as the markets are still trying to digest all of this. In the face of what has been, Lauren, I think a fairly disappointing rebound in China, you know, from everything that they went through with COVID. You haven't seen the boom numbers from a retail travel standpoint and in an Estee Lauder, for example. It just hasn't been the bounce back to this point that many had thought it would be. That's right. And there hasn't been quite a bounce back in part because restrictions,

although they've been moved, there's some hesitance as to whether that is a durable change. And I think some of the variant news that we're seeing today is part and parcel of that dynamic, just hesitancy that China is open for business. And that's true not just in COVID terms, but also with respect to the U.S. and China battle over the future of the global economy, these AI developments, regulatory oversight in China. And I think these are going to be ongoing questions. Now, from a U.S.-based investor, that has to do with the investability of the emerging markets indices, which are a large portion, 35%, 40% China-based. But the innovation that's likely to come from the separation that's evolving between not just

the countries, but the financial markets, will be really interesting to see. Again, I think it's a trend that plays out not just in tech, but also in the digital infrastructure, the cybersecurity that's going to fuel the reaction to those trends. And oh, yeah, the debt ceiling issue, too, which leave me with a thought on that before I let you go. How are you thinking about that? A resolution, which we know is going to come at some point, could get messy in the interim. But what's it going to mean for the market? Well, first of all, part of the reason why investors have been looking past this issue is because it's incredibly difficult to position around. I mean, a disruption in the risk-free rate

for the global economy is just unthinkable. But even when we move on, and I agree, that's what we're expecting to happen, there are some tangible risks that investors should be aware of. The Treasury will have to start reissuing bonds and T-bills, and that's going to result in a refilling of the Treasury general account, drain on liquidity in the economy. And I think investors should also be mindful that the closer we get to these debt ceiling issues, the more reputational risk the U.S. has. That's one of the major risks for long rates, I believe, especially in a world where other sovereigns, Europe, Japan, have sovereign yields greater than zero.

There are alternatives to U.S. debt at this time. And that's something that makes it very different from 2011, an area where investors have to be careful. Okay, we'll leave it there. A lot for you to deal with, and I appreciate you rolling with everything and dealing with it great, as you always do. That's Lauren Goodwin joining us here once again post-night. We're just getting started here on Closing Bell.

Up next, hedge funds shaking up their own portfolios thanks to the current market. We'll tell you which companies they're favoring, and later, we're counting it down to a busy evening of earnings. Palo Alto, VF Corp, and Urban Outfitters among those reporting in OT. We'll give you a rundown of what to watch for just ahead. We're live from the New York Stock Exchange.

You're watching Closing Bell on CNBC. We're back. Hedge funds have been shaking up their own portfolios. Leslie Picker here with the companies they've been favoring. Leslie, maybe we got a little bit of an idea during the release of the 13 F's, which you covered so closely. We did, Scott. This is kind of a drill down from Goldman Sachs on those filings. And they say that hedge fund managers are being a lot pickier about where they put capital to work in the current environment. That new note by Goldman says, quote, rising dispersion and falling correlations have signaled a market environment growing

supportive of alpha generation. In other words, it should be a good time to be a stock picker. Goldman combed through Q1 filings and found broad selling within financials and big tech with specific exceptions. Hedge funds broadly reduced ownership in financials amid the sell off this year, but they did pile into J.P. Morgan, BlackRock and Charles Schwab. Fund managers had been increasing ownership of regional banks between 2020 and the first quarter of 2022, but in recent quarters, they'd been reducing exposure even before that March turmoil in the regional banking industry. Hedge funds also sold out of some technology names,

cashing out after strong gains this year. Goldman says hedge funds did add to positions in companies exposed to artificial intelligence, those like Nvidia. But other names like Meta and Apple were among the stocks with the largest net declines in popularity. So far, the group has yet to turn those picks into alpha. However, with equity hedge funds generating 3 percent returns year to date, just one ninth that of the Nasdaq 100. Scott, you need to get into more Nasdaq 100 names. That's the moral of this story. That's the moral of the story.

Thank you. Leslie Picker joining us there. Up next, JP Morgan's global investment strategist, A.J. Oden, tells us how he is navigating all of the Fed uncertainty. And throughout the month of May, CNBC is celebrating Asian-American and Pacific Islander heritage, sharing stories of influential AAPI business leaders. Here is Apothecary founder and CEO. All right, 30 before the closing bell, let's get back to Christina Partsinovlos now for some more stocks she's watching for you. Christina. Let's start with software named Palantir climbing again today as Cathie Wood's ARK Invest doubles down on the stock, buying another 30,000 shares just

yesterday. This stock has been on a tear just in the past month, up over 60%. It's up 6% today. And upbeat results early in May got the ball rolling and the excitement over AI, of course, has kept it going. In today's session session had hit its highest level since April 2022. But AutoZone is moving in the opposite direction today. The company posted an earnings beep it saw weaker than expected sales in March and a big, big build up in inventory, which it blamed on inflation. But executives say they expect the do-it-yourself business to remain resilient as the macro environment pushes more customers to maintain their vehicles. Nonetheless, shares are down almost 7% today. Scott.

Christina, thank you. Christina Partsenevelos. Up next, Goldman Sachs' CEO David Solomon speaking at our CEO Council Summit. We'll bring you the highlights of that conversation. Plus, JP Morgan's AJ Oden is back and breaking down where he is finding opportunity in the market right now. Closing bell right back. Stocks are broadly lower. The Nasdaq is off its lows, but still down 1 percent. Let's bring in A.J. Oden, global investment strategist at J.P. Morgan. Welcome back. Good to see you again. Thanks for having me. So let's just start with the Nasdaq, since that's that's where our lead was.

And that's really what the lead of the market has been. You like it here? Do you think it has more legs? Is it running out of gas? What do you think? I mean, we like tech right now. I mean, I think it's reasonably priced tech. And I think a lot of times what's going on is we have investors sort of moving into a bit of a safety right now.

There's still the concern of the uncertainty of what's going on with the debt ceiling and still trying to figure out whether the Fed's going to pause. But that compression that we've seen in yields ultimately a bit is making it a little bit more attractive for tech. Now, how do you make the argument that it's, in your words, reasonably priced? Because others suggest it's not reasonably priced anymore, that these stocks have had a year's worth of gains, if not more, in a handful of months, and now the valuations are too rich. Well, we like semiconductors, especially if you think, if you go back to, you know,

October lows, semiconductors or the semis are up about 46%. And so I think for us, it's about, you know, more bang for your buck. So it's not just tech as well. We're really looking at PE ratios, even looking at international stocks as well. So, I mean, when we think about European equities, it's about, you know, I think the majority of those sectors are actually relative discount to the U.S. sector. So for us, it's really about that valuation component and looking at price earnings ratios. Do you like outside the U.S. better than in right now? You know, we like the fact that we think the dollar is going to

weaken a bit and that creates a tailwind for international equities. And so we see the S&P as being a bit range-bound from here to the end of the year. And so we do like European equities, I think, going forward for the rest of the year. We know they've performed quite strongly, but we still think there's some room to go on that trade. You must think the Fed's done then. We think we've hit the or getting to the end of the tightening cycle. We're at 5, five and a quarter percent. It's possible that they could raise rates again, but we feel like they're going to hold here.

Restrictive territory and likely won't see cuts until potentially the end of this year or beginning of next year. I mean, you are J.P. Morgan global investment strategist. A certain Jamie Dimon said not yesterday at the at the meeting that they had with investors to be prepared for higher rates. Well, he said be prepared. And I think that makes sense, right? Because, you know, housing has bounced back a little bit. Inflation is still persistently high. You know, services inflation at 5.5 percent year over year basis. Labor market's still tight, right? And so there is a possibility that, you know, inflation can still move higher and that the Fed may have to raise rates. But that's about

being prepared. We expect that the Fed will likely hold from here and then we'll see cuts at some point either at the end of this year or beginning of next year. You like U.S. mid caps, which is interesting. Why? I think they're better priced or more appropriately priced for the recession that we believe is going to happen in the second half of this year. And so we're looking at the S&P 500, you know, roughly 18, 19 multiple, which is much higher than the 20, 25 year average of 15. And so we think that mid caps can perform better in the next cycle, next part of the cycle. And then we have, they have an allocation of industrials. And we think that a lot of the infrastructure that's necessary in order for some of these, these tech companies to, to move to that next phase, infrastructure is going to be needed, especially if you think about EV.

Are you suggesting you'd rather be a little early in mid-caps than late? Because if you think we're going to have a recession, and we also think that credit is going to contract, that maybe mid-caps would not be a place that you would ordinarily suggest to be. I get what you're saying there. I think what it is is about what's priced appropriately and what's pricing in the recession. And so we'd like this entry point. Ultimately, there's always a reason not to invest in markets. And we think that clients should have a long-term

view when it's about building a robust portfolio. And part of that is having mid-caps in the allocation. But our highest conviction view is bonds, right? They've created this great entry point, have rates at restrictive levels. That's creating an amazing point for investors to hop in. And that's 7 to 10-year tenor for some investment-grade bonds. So your highest conviction trade right now is in fixed income. Yes, absolutely. Investment-grade bonds, I think clients should get in now. Instead of waiting for some of that certainty for the debt ceiling, waiting to see if the Fed pauses,

let's go ahead. Let's hop in. Enough with the T-bill and chill. It's time to hop in and investment-grade bonds. Well, see, that's the problem between investment-grade and then I've got money markets and I have people saying gold is a place you want to be. It just brings to light the tremendous amount of competition for equities.

And that may be as much of a headwind as anything else right now. Of course. And like I said, diversified portfolio. I think when it comes to T-bills, you're opening yourself up to reinvestment risk, right? We're seeing that 5%. That looks attractive. But if we believe the Fed's going to cut rates and that's going to put that rolling T-bill trade in a tough position. If we look at the last seven hiking cycles, that last hiking cycle, 24 months after investment investment-grade bonds outperformed by approximately 17% over rolling T-bills. So we think that a client should get into investment-grade bonds now and not wait for that perfect entry point. Okay, so if you must think then rates have peaked, right?

If you think the dollar has probably peaked, it's going to come down more if the Fed's done. Does that mean you like defensive plays, staples, utilities, which, you know, as yields have gone up recently, obviously utilities and things that have a good dividend yield are not going to do as well. Well, we like health care right now. We think that's that's an appropriate play from a defensive side. Underperform big time. It has. It has. But, you know, as we head into recession, you know, it has that resiliency. And during those times, I think it's a balance of a barbell approach. We like the technology because we think it's about reasonably priced tech. And to your point, yes, you know, it has run up and their valuations are pretty tough. But we think semis, it's a great entry point for semis and they have done well. All right. Good to see you. Don't be a stranger. No excuse. You're based close. We'll talk to you again soon. AJ Oden joining us here once again, post nine.

Last chance to weigh in on our Twitter question. We asked, do you agree that mega cap tech, in fact, has more room to run? You can head to at CNBC closing bell on Twitter. We have the results right after this break. Let's get the results of our Twitter question. We asked, do you agree that mega cap tech has more room to run? And the majority of you saying yes. Near two thirds. All right. Up next, we're just a few minutes away from Palo Alto's numbers. We'll tell you what to watch for when those results hit the tape. That and much more when we take you inside the market zone. The inaugural CNBC CEO Council Summit kicking off this week in California with exclusive interviews and discussions with some of this country's most influential executives.

Just moments ago, Goldman Sachs' CEO David Solomon spoke with our own Carl Quintanilla. He joins us live now from Santa Barbara. What did Mr. Solomon have to say, Carl? It's been pretty interesting today, Scott. Yeah, we've handled all kinds of big topics at these panels here in Santa Barbara. We've covered China. We've covered AI, covered the prospect of recession. And as you know, the House view at Goldman for a long time now has been pretty constructive relative to consensus on the possibility of recession.

They were at 25 percent odds in the next 12 months. They upped it a little bit to 35%. Still below the streets, roughly 65% odds, if you believe a consensus. But listen to what David Solomon told me and Sarah Eisen at this panel a few moments ago. He didn't sound quite as optimistic. More in the camp that we're probably going to have a recession is because I think that inflation is going to be stubborn. I don't necessarily see rates really, you know, easing at the end of the year based on what I see now. And so I think it's stickier and harder, but, you know, also uncertain. And there are a lot of

factors that are going to have to be balanced, and it's just not clear. Pretty interesting, almost a bipolar view of what's going on right now guys when you think about some of the worrisome prospects of tensions in china obviously a hard landing if that is what's in the cards versus a lot of the upside of productivity that ai could bring us which obviously gets a big piece of the conversation here as these CEOs are trying to figure out, Scott, how much to invest. Do you go big now? Do you try to start small but early? That's all part of the calculus as we're in the very early days of what some say is the revolutionary time in productivity. It also feels like the implication of what Solomon is saying, and I'm not sure if he addressed this or not,

is the idea that maybe he thinks, I know he said that he doesn't see rates easing at the end of the year, but they might not be done going up either if he thinks that inflation is going to beat Carl as sticky as he suggests in the conversation you were having. I agree. I think he definitely laid out the possibility that maybe the Fed does pause here. But I think he just really knocked down the idea that we're in for some sort of relief in rates on the downside in the year ahead. He talked a bit about banking stress, certainly China, even the prospect of what happens if there is a repeat of the pandemic. His point was that Goldman, you know, they plan for those one to two percent probabilities.

That's inherent in what managing risk is. But I don't think he would knock down the idea of a pause in June. But he certainly doesn't think inflation is going to see a dramatic drop off the way some have suggested.

Yeah. A day after Jamie Dimon warning the markets as well to prepare for the possibility of a higher terminal rate. Carl, thanks so much. That's Carl Quintanilla out in Santa Barbara for us at our CEO Summit. For more exclusive content from the inaugural CNBC CEO Summit, go to cnbc.com slash CEO.

We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day, plus Courtney Reagan on Lowe's latest quarter and what to expect from the retailers reporting after the bell. Frank Holland looking ahead to Palo Alto earnings. They're in overtime today as well. But, Mike, I begin with you. Tough session. Not horrible, but, you know, rates were higher.

You had the headlines that we were telling you at the beginning of our show out of China. And then tech, you know, taking a breather, too. All of it leads to red across the board. Yeah. The setting was overbought. NASDAQ coming in. We knew it needed to cool off. What would the response be by the rest of the market? So I do think that at the top of the range, which is where we are, 4200, haven't been able to surmount it on a closing basis. You can accept less bad news and you need more good

news to keep us there or get us further. So I think that the slowdown dynamics coming out of China, not too surprising. China's been trading weak. But if you see it in the U.S. market with, you know, Starbucks having an outsized decline, Yum China, clearly some of that anxiety is starting to price in. And part of it is the rest of the world was supposed to be a net help to the economy globally. And you've seen the equity markets in Europe and in Japan in particular kind of confirm that idea that something good is going on outside our shores. So I do think that that's getting into the market a little bit today. It's very contained.

I mean, to me, when you get one of these rallies, the S&P gets to a new nine month high. What it tells me is, OK, we built a little bit of a cushion to absorb the inevitable eventual pullback. You still have 100 points in the S&P down to where we broke out into the current quarter in terms of 40, 50, climbing up to 4,200. So that to me is still the zone of we're holding that upper range. What do you make of what David Solomon told Carl and Sarah? Inflation's sticky. Yeah. Don't plan on cuts.

And as I suggested to Carl, I mean, almost implying, too, that don't be surprised if rates go up via the Fed. Kind of what Diamond was saying yesterday. I think I filter that stuff through financial companies. CEOs are paid to worry and therefore they do. And you can see what's going on. But also a lot of the dynamics that we're contending with are is is a recession deferred or is a recession denied? And everyone seems to be on the camp of it's taking longer. The economy is being more stubborn in terms of the consumer being in better shape and not really giving way. But ultimately, when you have unemployment this low,

when you have a Fed that seems to believe it has a role in softening up the labor market further before it gets the job done, I think you at least have to be on alert for that. Right. The Fed's not going to be looking for the first idea that the soft landing might be a possibility and saying we're going to ease off. If they're easing off, it's in response to something bad. I buy into all that. I just do think the market as a whole has been contending with that for a very long time right now. And the market's up 10 percent from the moment that, you know, Fed funds were under 1 percent back a year ago. Go to Courtney Reagan now, who obviously covers retail for us. What an intraday chart as well for Lowe's today. Opened at, you know, $202.

It's up $5 from there. What are we to make of that, Courtney? Yeah, that's an interesting point, Scott. I mean, I really think it's about Lowe's investors sort of shrugging off the dour forecast, kind of expecting it. As you pointed out, shares still higher. Likely just the expectations that it was going to be like this after what we saw and heard from competitor Lowe's or Home Depot's results rather last week. We know that Lowe's is going to be hit hard by lumber deflation. It was bad spring weather that hurt sort of outdoor products and those related projects, lower discretionary purchasing.

That's all leading to disappointing comparable sales for Lowe's. It did still beat the streets first quarter estimates for earnings and revenue, but lowering those expectations for the year. I think, again, it just it just wasn't really much of a surprise. Yeah. You want to weigh in, Mike, on what we got here? I mean, it's, you know, Home Depot. Yes. Lowe's not so dissimilar. Very similar. And again, it gets to the fact that this is we've overanticipated this downturn for a while right now. And this is a market where if you're kind of a category leader, mega cap stock, not a crazy valuation, people aren't expecting great things out of the quarter.

It's tough to get it down and keep it down, at least for right now. I mean, being large within a sector has been the formula for outperforming over the course of the last several months. Court, you got something quick on VF, what we should look for in overtime tonight? Right. Yeah. So VF Corp actually comes out after the bell. And I think that's going to be an interesting one to watch because, of course, they're going to skew to this outdoor apparel. And we know apparel has been weak and a lot of this demand for outdoor products was pulled forward from the pandemic. So it's a little bit hard to know what we're going to get out of VF Corp because they do also have very strong brands with the Vans and with the North Face and with the Timberland.

So enthusiasts do often go there. But I think it's going to be one for us to watch. And I don't anticipate the company is going to offer much beyond that cautious consumer outlook for the rest of the year, like we've heard from almost everybody else. Urban Outfitters out, too, after the bell. Yeah. All right. Good stuff. Courtney, thank you. Thanks. We'll see you after the bell in overtime, of course, with the numbers as they break. Frank Holland, as we will, on Palo Alto, which has been a really nice stock, along with the other cyber

names. Yeah, absolutely, Scott. You know, Palo Alto Network's one of those quiet beneficiaries of the artificial intelligence boom. Shares are up so far, outperforming the NASDAQ and the QQQ so far this year. So a big run up for this stock. It's also kind of moving on par with Alphabet, another one of those AI beneficiaries. So one of the big things to watch here, even though Palo Alto Networks is considered a legacy cybersecurity player, it's its next generation product, specifically its next generation ARR, annualized recurring revenue. This is kind of a proxy for demand. Estimates have an increasing 50% year over year, double digits sequentially. If that happens, that shows

strong growth in an otherwise pretty soft macro. NextGen includes Palo Alto's new releases this year in quotes of the new release products. We're going to show you some of the names right here. It may look like a little bit of alphabet soup. The last one, Xiam, is an AI-powered offering. CEO Nikesh Arora really emphasizing Palo's AI capabilities last quarter. Rosenblatt out with a recent note saying these products are quote, clearly gaining share and sustained top-line growth. Commentary on customers for these NextGen products and adoption, that's going to come on the call. Certainly something to watch. Yeah, and we will with you, Frank. Thank you very much. Frank Collins is going to be covering Palo Alto Network. Can you call these defensive software names with the valuations in which they

trade? I was looking at, you know, Palo Alto. Yeah. It's around 50 times. I wouldn't call them defensive. What I would call them is not cyclical, not particularly closely connected with the macro. At least that's the idea of how people are trading them. You did see a lot of the people who are watching the charts and are on alert for anything besides the big seven obvious mega cap growth names starting to work and people saying, you know what, equal weighted software starting to perk up, starting to perform better on a relative basis, which seems as if it's one of those responses to people saying maybe I did, you know, miss the NVIDIA move. Microsoft looks rich again. And these things took their medicine over the last couple of years, the smaller or midsize software name.

So I wouldn't call it defensive. I do think, though, that it's an attempt for people to find names that haven't yet had the big move and that might be a beneficiary of some of the strength broadening out. Now, we don't know if the clock is still ticking. You see the small cap move today outperforming, but it's given way a little bit in the last little while. So all these moves seem very tentative. We got stretched on a relative basis between mega cap and small cap and cyclicals. And you've seen some retracement back in that direction. But we just don't know if you can have that baton hand off in a way that they don't fumble it. I heard the two minute warning there as we count down to the closing bell.

Looking at yields, as we've mentioned, almost every day. Interesting split today. The the so-called, you know, debt dual yields are up. Yes. The 1-3-6 month, the one-year, two-year, most are above 5%. Of course, the two-year is not at 435. But everything else now on the day is lower. From about midday is when you saw the Treasury yields on the longer end start to come down. You saw the stock market back off its highs. and it seemed just like a little bit of a retreat from risk all around. There's definitely some impatience with the debt ceiling talks. Everybody's exasperated with the fact that they seem like they want to go down to the

wire always. We're not feeling that we have great news in terms of a resolution. And even though everyone feels as if ultimately it gets done, people don't want to have to deal with the impatience of somebody else panicking out beforehand. So I think that that's weighing to some degree on yields at this point as well. All right. So I know that 24 hours from now, we are going to be walking right into the close and NVIDIA is going to report its earnings, the latest sort of test, if you will, for mega caps, looking at it today.

How should we be thinking about it here? Sputter a couple of days into the number. We'll see what tomorrow brings. Oh, it's coming off the boil, but it's just had such a monster move. I don't know. I assume we're going to be listening for any signs of either companies are completely headlong investing in AI, giving them money hand over fist because they feel like they have to participate. Or if they say there's a bit of a hiccup, then that could color the overall AI trade.

Semis in general, down about 1% to the equal winner. We won't be counting the number of efficiency words that are said. It will be all about AI. We'll see what happens. That's it for us.