Closing Bell - Closing Bell: The ABC’s of Alphabet’s Ai Misstep 2/26/24

Episode Date: February 26, 2024

Just how much trouble is Google’s generative AI effort in? Has it lost too much ground to Microsoft and others? Our all-star panel of CNBC’s Deirdre Bosa, Big Technology’s Alex Kantrowitz and Solus’ Dan Greenhaus break down their forecasts for the space. Plus, top bank analyst Mike Mayo explains how he is navigating the sector as financials hit a two year high. And, Strategas’ Chris Verrone is flagging a changing of the guard in the market right now. He explains why he sees more opportunity in health care over the likes of tech. 

Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This Make or Break Hour begins with the ABCs of Alphabet's AI misstep. Shares getting smacked around today as its latest answer to ChatGPT faces even more criticism. All of that only adding to questions about its ability to compete with Microsoft and others at the forefront of this technological transformation. You see what the stock is doing there, hanging around the lows of the day, down 4%. we're going to ask our experts what's really at stake for that stock in just a few moments in the meantime let's take a look at your scorecard with 60 minutes to go and regulation a mixed day for equities with really only the russell getting much going today and even that not so much

up 10 points one half of one percent dow the s&pestly in the red. And there's the Nasdaq hanging out to 16,000. NVIDIA, what else is new? Well, it's been higher for much of the day, and it still is now, another three bucks. It is that big slide in Alphabet, though, that has our attention over this final stretch. It does lead us to our talk of the tape, just how much trouble is Google's generative AI effort in?

Has it lost too much ground to Microsoft and others? Big Technologies' Alex Kantrowitz is with us on set today, along with our own Gio Giobbosa covers the company. Gio, I'm going to begin with you on how Alphabet got into this latest mess in the first place. One some are calling embarrassing now. Yeah, so essentially, Scott, Google was trying to be politically sensitive. Remember that it's AI strategy. It's not to be first, but to do it right. So that whole slogan, don't be evil. So try to be politically sensitive. But instead, the opposite has happened. Google has found itself at the center of a renewed culture war.

Its image generator, for example, criticized for creating diverse images of the founding fathers and Nazi era German soldiers. So a different kind of diversity problem that Google admits itself missed the mark. Now, its chatbot has been found to have a similar problem. In a few high-profile examples, Gemini refused to condemn pedophiles and equated Elon Musk with Hitler. Some posted different answers from chat GPT to the same question and suggesting more straightforward stances. Now, Scott, I tried to replicate some of those searches and I couldn't for the most part today. In some cases, Gemini, though, simply said that it couldn't assist with the query while chat GPT did give at least some

kind of answer. And I guess it just speaks to a broader issue, which you touched on around Gemini's rollout. It's whether it underscores a painful corporate reality for Alphabet and CEO Sundar Pichai. That question that you started your show asking, is it losing ground here or is this a blip? Yeah, well, the shares are obviously reacting. Let's bring in Alex Kantrowitz, big technology founder. He's here with me on set. How big of a deal is this? How serious is it? Yeah, it's a big deal because it's not just about Gemini making a mistake, but it really suggests that there's more organizational incompetence within Google. You know, people are trying to portray this as Google got too woke. Even a woke Google wouldn't want Nazis portrayed as people of color.

It's just crazy. So it's more of a testing. Where was the testing here? Where is the organizational competency to roll out a product that even if you're trying to encode values into it, you can't? And that, to me, is the red flag here. Who's running the ship at Google and allowing this stuff out of the door? This isn't just a minor battle.

This is a huge battle, and they're falling behind. The moat, okay, that they have, everybody knows what we're talking about, is Search, right, the behemoth. Alex, how much at risk is this, if at all, when you hear that OpenAI is said to be developing its own? Not as much as I think a lot of people imagine, at least in the short and midterm. Now, you look at what ChatGPT and Bing and Perplexity have done in recent times, and it's been impressive. They've built impressive products. But Google's lead in search hasn't really shrunk at all.

And I really think that, at least right now now you're looking at two different products right perplexity Bing chat GPT these are curiosity agents anything you're curious about you type in you can also use it for other new novel applications search really is web navigation you're not going to use these chatbots for web navigation you're going to use Google for it so I don't think that Google search is really immediately in danger of being replaced or even really hit too hard. But over the long term, this might become a way that people end up using search or navigating the web, and that's where you run into issues. Z, what are you hearing out in the Valley about that issue?

I hear it very differently, and actually some stats to back it up as well. I guess, what do you determine as the immediate? I also, like Alex, thought that this was more of a long-term problem, that Google had time to figure this out. However, this stat from Gartner, it kind of blew me away. It predicts that by 2026, search engine volume will drop by 25%. That is less than two years away. And that is a huge amount. When you look at 25%, that's all search engine volume. But Google, of course, is the leader here. It is the dominant player. And that's just really a huge stat.

And here in the Valley, there's tons of people who use Perplexity, who use Bing, who use ChatGPT, is much more part of the conversation than Gemini is. You have to wonder if Wall Street feels like they may have more time. But certainly here in the Valley, it feels like there's more of an immediacy. Interesting. Alex, do you feel like Pich here in the Valley, it feels like there's more of an immediacy. Interesting. Alex, do you feel like Pichai, the CEO, is at risk here? It's a tough question because Google did just hit all-time highs in January. So if you're the CEO, what's your job, right?

It's making sure that the core business, at least for Wall Street, is producing, and it is. I mean, Google had a 13% revenue increase in the last quarter. And it's dealing with a base of $70 billion. So you get to $86 billion in a quarter, right? A quarter. And there's questions about the CEO's job. It really doesn't happen too often.

But I will say, I'm hearing more chatter about Sundar's job than I ever have before. And this perception, this narrative could turn into a reality because, okay, so the core business is doing well, but what are you giving up? You know, Google builds that writes this transformer paper that basically kicks off this generative AI wave. They didn't do much with it internally. NVIDIA, meanwhile, is reading that and building not only the chips but the software that's enabling this revolution, and Google hasn't done that. So, yes, the core business is doing well,

but there have been some opportunities left on the table. And it really will come up to the board about whether that's OK or not. I mean, I ask you the question because institutional ownership, as we know, has weakened a bit. You know, the earnings, recent earnings slide was discomforting to many who are in the stock. Brad Gerstner, by the way, D, has tweeted out today. Remember, he was in the stock. He sold it because he thought that Google Alphabet had ceded too much ground and blew it as it relates to Microsoft. He tweeted today the culture, I'm quoting, the cultural mess at Google, which is now a product and business mess, is not surprising. Sundar Pichai may be a world-class human being, but he appears

100 percent incapable of leading the Zuck Elon reset this company desperately needs. Truth. You want to react to that and what you may be hearing from other investors out that way? I do. And let me play devil's advocate a little bit here. We are not that far from all-time highs for Google. Google had the insight to acquire DeepMind back in 2014, seen as the leading AI research outlet. They've been AI first for, since 2016 is when he first used that phrase. So they really pioneered the space. And there's one piece of this that I think is worth bringing up. It's a little bit wonky, but the whole open source versus closed source debate, what we're talking about

right now is firmly the chat GPTs, the Gemini's, the Bing's of the world, which is closed source. But I speak to people here on a regular basis who think that open source models are going to be the dominant models in the future. And what do we get from Google just in the past recent weeks? They're now opening up their own open source model called Gemma. So this race is still very, very early, which I know we hear all the time. But it's true and it's not unthinkable that Google can come back. They have the distribution and they have the data, two of the most important ingredients in the AI race. You know, the thing you hit on too, Alex, which I think is critically important, is this narrative, right? They don't say perception is reality by accident,

right? It's what people believe is happening, despite the fact of where the stock may be. They look at NVIDIA getting all the hype. They look at Microsoft, made the pivotal deal with OpenAI. The narrative is that they're behind and that they continue to lose. And how are they going to change that? How do they change that? Well, I think there's like the question, what discussion are you having with the public and what discussion are you having with the board? With the board, you're talking about, look, if we're going to make a reinvention, when do we do it? Because let's say Apple decided that they wanted to go into phones like in the early flip phone days. Right. That's the big moment where they're going to pivot to phones as opposed to when they did the iPhone.

You know, they end up looking silly. Right. It was because they waited and decided to lead that revolution from desktop computing to mobile computing that they were able to capitalize. Does Google want to give away Google search today in favor of this AI when it might be too early? We might still be in the flip phone era. So that's the conversation internally. Now, to all of us, the best way to actually change this conversation is to be competent. Put out products that you're not embarrassed of, right? It's really a low bar to clear. Of course, these innovations are brilliant, but the biggest talking that Google can do right now is on the product standpoint. And the reason why we're having this question, this conversation, is because they haven't done that to date. The other thing, Alex, to consider is you mentioned Apple. What do they have up their

sleeve as it relates to search and Siri and what they may do at WWDC come the early part of this summer? And if we're going to be having a similar conversation about Apple and Alphabet as we have been about Microsoft and Alphabet. You thinking about that at all? Oh, yeah. So for Apple, there's another there's a similar incumbency question. How much of the operating system on the phone do you actually want to compromise in order to put these AI tools like that is going to be a big question that they're asking because the operating system is their edge. Right. But that being said, they are paying how many billions of dollars to Google a year. So, I mean, Google's paying them how many billions of dollars a year to be the default

search. Can Apple then put a generative AI product where they think they can do better and create a better user experience? Because if this is the future, it doesn't matter how much money you're bringing in on search. If you're going to lose that future to another operating system, like we've seen like the Rabbit, which is another AI tool that people are going to use to navigate mobile. If you think you're going to lose that leadership, then maybe you do make a dramatic change. We'll see if Apple does it. Dee, I'll give you the last word. I mean, you have such a unique seat out there.

We think about Anthropic and Amazon and some of these other things as well, and that narrative is real hard to turn around. I'm glad that you asked about Apple because few people here in the Bay Area count out Apple. Alex said that its edge is its operating system. I might argue that its edge is its installed base of more than 2 billion devices, and it goes into the whole idea of edge computing and whether it can actually leverage all of those devices and all of those users to run generative AI on the actual phone. So what I hear, what we talked about, we did a deep dive on this as well for TechCheck, is that it could actually be the dark horse here. Of course, we'll have to see what

they announce this year, but expectations are kind of building ahead of those major developers conferences. All right. You guys got us off to a great start on a very, very big stock story today. Appreciate it very much, Dee. Thank you, dear Jabosa, Alex, thanks for coming here to Post 9. Thank you. That's Alex Kantrowitz. All right, let's bring in Dan Greenhouse now of Solus Alternative Asset Management as we turn our attention to the broader markets. Good to have you back with us today.

It's interesting. On the whole AI deal, Jamie Dimon was in the venue earlier today in which you are, in which he declared of AI, not hype, it's real. So when we had the internet bubble the first time around, eyeballs, that was the hype. This is not hype. It's real. And that's the reason why a lot of these stocks have run a lot, Alphabet included, notwithstanding today. Yeah, I think that's exactly right. And frankly, I don't think anyone really doubts that it's real. I think the issue that a lot of investors have to work through right now, and it's a conversation that you see here at this conference and more generally, is whether this is 1995 and 1996 or whether this

is 1999 and 2000. And I put myself, along with Dan Ives, firmly in the earlier camp that think we're in the earlier stages of this build- out. You know, I thought the interview with Diamond was interesting in part because he's gotten a lot of headlines for being more dour than most over the last many, many months. And you could cite, I think, you know, a number of examples that would back that up. I don't necessarily think we got that today. He doesn't perhaps agree with the 70 to 80 percent he thinks the market has declared we're going to have a soft landing exactly accurate, saying maybe he's at half that. But he had a different tone, I feel like, this time around. What was your takeaway? No, I think that's probably right. And frankly, listen, this is a high yield and distressed investing conference. This is not the most optimistic of investors, the most optimistic

group of investors. But there is decidedly a tone down here of what people are jokingly called hashtag soft landing. I think that this narrative has taken hold. And again, for the meantime, for the immediate, looks like it's probably the case. And I think you see that among the investors that are here, as well as the panels that are going on. I think he admitted as much, even when he was asked about commercial real estate and these pending disasters, pending doom that people are predicting. It's not as though he suggested we're completely out of the woods on that, but he's like, well, if the economy remains where it is now, we probably aren't going to have many problems related to commercial real estate. If you have a recession, the economy slows more dramatically. Yeah, we't going to have, you know, many problems related to commercial real estate. If you have a recession, the economy slows more dramatically. Yeah, we're going to have some

issues. I'm not sure that's, you know, breaking new ground. No, that's probably right. And I think I keep saying a lot of the conversations we're having, but I'm here at the conference, so we'll refer to them again. Yeah, I think there's a sense here among the people that I've spoken with that there's going to be more losses to be taken in commercial real estate. Everyone agrees. The question is which banks are going to go under, which additional banks are J.P. Morgan going to buy? But there's also this tone of fate, so to speak, that when something happens, much as we saw in March of the previous year with Silicon Valley, that the Fed will ultimately ride to the rescue and paper things over. And whatever losses are to be taken will be less than people perhaps think, again, because the Fed has shown itself over the last 15 years willing to do just about anything

to avoid what we'll call a systemic issue. You know, as it relates to the rally, you've got people like Ed Yardeni saying, well, this bull market and this rally aren't getting any respect. It is interesting to note, though, that Bank of America's fund manager survey would certainly suggest it's getting love. It may not be getting broad respect in some corners, but more people are falling in love with the idea that this thing can actually last and it can last longer than 2024. We're showing it on the screen now of their wealth and investment management survey. 70% see more green shoots than red flags. 77% think the bull market goes beyond this year. Yeah, this gets back to the earlier conversation about 95 versus 2000. I think there's a lot of discussion. I put

some of this on my Twitter feed. I've had these conversations in public and in private. When you look, I think the comparisons to the early 90s, or I'm sorry, the mid to late 90s, is somewhat incorrect. And I know a number of people have noted that Cisco and Intel, Sun Microsystems, JDS Uniphase, etc., those stocks of the day were trading at 70, 80, 150 times earnings. We're nowhere near any valuation like that. Again, NVIDIA, which is the poster child for the current rally, is trading at give or take 30 times forward earnings. And not that 30 times is cheap by any means. But when you look at what they just did in their last quarter, growing net income, revenue, EPS, et cetera, by not tens of basis points, but hundreds of basis points,

by multiple hundreds of a percent year over year, I think there are a lot of people who would argue that that the stocks are still cheap. If you believe forward projections and again getting back to the nineties. Those forward projections were true in ninety seven and ninety eight ninety nine it really wasn't until later two thousand two thousand one when those projections proved to be inaccurate and again for investors today the question you have to ask yourself. Is whether we're more in that environment

of the early build out, a la 95 through 97, or whether we've already reached a peak bubble, if you will, a la 99 and 2000. I mean, you may have to, maybe it's not so cut and dry. Maybe some stocks that have gotten in the tide that has been lifted by the big boats of Nvidia, et cetera, have a little bubble qualities to them. But I think it's a stretch to make a broad statement and say, well, the whole AI trade

is a bubble. When you look at away from those stocks, are you a believer in the broadening? And what would you suggest is the best proxy for that? I'm not so sure that just simply saying anymore, well, the market's not broadening because look at the Russell or the market is broadening because of the Russell. Maybe that's not the best litmus test for how we should view this when sectors like industrials have looked really good among other areas of this market. Yeah, first of all, the fascination with the Russell as evidence for a market broadening, I don't understand. The Russell is not a great index. 30% of the index makes no money. Those stocks, in many cases, are minuscule

and irrelevant in terms of the broader market landscape. There are real companies in there, for sure, but I don't think the index is necessary for evidence of a broadening. You could just look at the S&P 500 itself. You could look industries uh throughout throughout the market you mentioned industrials something i've been talking about on the air for the better part of the year the hotels travel stocks even airlines don't look terrible uh the rest a number of restaurants look great a lot of consumer focused themes are doing real well so i get that the nvidia's and the metas and the Googles of the world are doing a lot of the heavy lifting for the broader market because of their weight. But the focus on them ignores the fact that any number of other parts of the market are doing very, very well, both on a percentage basis. They're just not having the weight in the index because they're obviously not as large as NVIDIA.

But that doesn't mean they're not doing well. Lastly, before I let you run, PCE Thursday. Are you as tuned on that as most people are? Although I wonder if a little bit of the cat's out of the bag after we got CPI and PPI telling us that maybe this is going to be a little hotter than we want, but we understand the reasons why and we still believe in the trend? Yeah, so for people who don't know, you use some components of the CPI and some other indicators to proxy PCE, which usually comes out later. I think that the argument now is that you have some seasonality issues in January and February,

which are probably going to make inflation look hotter than perhaps it otherwise might have been, payback for some weaker numbers late last year, and that by the spring and summer, the trend will reinsert itself, which is a return to normalization so yes it's an important number to focus on but it's also important to remember that the trend is what matters not any individual data point and for investors again the overriding trend here is for one inflation to continue moving down the issue again is can you get to two percent quote unquote in time for the fed dan greenhouse enjoy miami beach we'll see you back here post nine soon i'm sure that

from solar cells are about that that has been joining us down from florida let's send it over to christina parts in the last now for look at the biggest names moving into the close christina thank you scott well shares of memory to make a micron up about five percent today after management said it had begun production of its high bandwidth memory three each it's which i really just use for heavy duty AI systems. These memory chips will also be incorporated

in Nvidia's upcoming H200 graphic processing units. Micron believes they should reach roughly 20 to 25% market share in this high bandwidth memory market by the end of this year, I should say. But keep in mind, SK Hynix would still remain the dominant supplier. Samsung is also expected to aggressively ramp up as well. Switching gears, Moderna shares are moving in the opposite direction after shares of the vaccine maker were downgraded to reduce by HSBC analysts.

The analyst over there wrote that Moderna's RSV vaccine may not be as effective as its competition. Shares down almost 3%. Scott? All right, Christina, thanks. We'll be back to you shortly. We're just getting started here. Up next, financials off to a strong start in 2024. The XLF gaining nearly 7% so far this year, matching the S&P. Top bank analyst Mike Mayo is standing by here post-9 to break down the names he thinks have the most room to run. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to financials turning negative today after hitting their highest level in nearly two years with stocks like Citi, JP Morgan and Goldman Sachs outperforming the

likes of Apple, Microsoft and Alphabet over the past three months. Joining me now, post nine, Wells Fargo's top bank analyst, Mike Mayo. Welcome back. It's good to see you. Why are these banks doing well of late? Well, why do they do so poorly before? I mean, the banks are the most resilient they've been in decades. Their core earnings power is 20 percent higher versus 2019, even when the stocks went down the last several years. Why are they getting rewarded, though, all of a sudden? Or at least in the we we said the last three months they're outperforming these blue chip names

that we talk about seemingly 3,000 times a day. Look, there's three issues for banks, the three R's, and that would be rates, recession, and regulation. And each one of those is less bad. So when it comes to interest rates, you can't unsee the December Fed pivot. When it comes to recession, it seems a little bit less likely than before. And regulation seems like it'll be dialed back a bit. OK, so you pose the question rhetorically almost at the top, suggesting, well, why were they down so much before as if they didn't deserve to be? But then you said, given where interest rates were, that was a substantial headwind with worries about what

the ramifications of all that are going to be to the economy. So maybe now we have a roadmap to lower rates. So these stocks are working. It seems pretty cut and dry. I think to some degree, this is the third year in a row when the industry should have lower earnings. You're looking at earnings growth for the banks to be down 20 percent over three years through the end of this year. But after that, we see earnings up by one third in 2025 and 2026. You'll see a hockey stick type projection of earnings starting more later this year. But I think the stock market's not going to wait. OK, so why do you have such differing views, let's just say, of J.P. Morgan versus Morgan Stanley? J.P. Morgan is part of the list of your names that you follow where you have overweight ratings and nice lofty price targets to go with.

Morgan Stanley's equal weight. What's the difference between the way you view both of those stocks? Well, both have performed exceptionally well. time of decelerating inflows into their wealth management business, outflows in their investment management business, and frankly, flat to slightly lower market share in their institutional securities business. On the other hand, J.P. Morgan is a clear market share gainer over the past one, three, and five years. So I'd say market share and stock valuation differentiates them. And don't leave off Citigroup, which is my number one. That's your number one pick.

My number one pick. J.P. Morgan's my number two pick. But that is a worst-in-class story that's becoming less bad. Morgan Stanley was a great story that's becoming less great. Okay. That makes me want to ask you about the leadership of these particular institutions, both the job that Jane Frazier has done in reinventing, I don't know if that's too strong of a word, but nonetheless, she's done a lot of work that's gotten applause from investors. That's fair to say. James Gorman leaving Morgan Stanley, and do you feel like Ted Pick, is this a prove-it moment for him? Is that in part any reason why you're a little iffy on that name? Look, Ted Pick has been part of the team over the last decade that has really transformed

Morgan Stanley into a higher return, more resilient firm. So I don't think he has something to prove in the short term. I think over the next three years, though, I mean, it's tough comps for Ted Pick compared to the last three or even 15 years. But they're in the crown jewel business, aren't they? I mean, Gorman positioned them in wealth management, which was this great business to be in. He saw it before most, leveraged themselves big to that. Wasn't that a winner? And why wouldn't it still be? Wealth management is a battleground. Scott, name me one bank that doesn't look to wealth management as a place to grow.

And Morgan Stanley's inflows, they did go very high. They went to the double digits, and now they've been growing 3% to 4% inflows. Their pre-tax profit margin was 30%. Now we're looking at maybe 25%. So, again, it's going from really good to great to just not quite as great. So you watched the Diamond interview today on CNBC because it was an exclusive. It was a great time to catch up with him. Anytime you start talking to him about regulations, he sits growth in private credit, commercial real estate, what possible issues are down the road? Is it because of all of that? I want you to listen

to what he said and your reaction on the other side. Okay. Jamie Dimon on bank regulations. Banks are being pushed out of a whole bunch of different businesses. And I always say, if that's what the regulators want, then do it. I'm completely fine with it. JP will do fine, but it should be done with the forethought, not accidentally. Like I said, there are some negatives. So I think if you have a major recession, you'll probably see some issues in private credit. With a systemic, you know, I don't really think so, but it might be in ways we don't understand today. How do you view that?

I think you used a word that really got Jamie Dimon boiling, and that word is regulation. And look, when I look at J.P. Morgan and the regulatory proposals, I'm looking at a $60 billion difference in the amount of capital that they have to hold. And that, I estimate, equates to $2 of earnings per share, which equates to about 25 points in its stock price. So if these proposals don't go through, that's a 25 point difference in its stock price based on the earnings that they could generate off that 60 billion of extra capital. So he's in a battleground with regulators right now, along with some others, because he's fighting for the investors and fighting for that extra $2 of earnings per share, extra 25 points in the stock price.

Okay, so if they do go through, do you need to rethink your stock prices and your ratings? Nope. I'm assuming it goes through right now. I have the much higher capital targets. If it gets dogged back or doesn't go through, then we have some dry powder for some higher earnings estimates, as does consensus. Appreciate you coming to Post 9, Mr. Mayo. We'll talk to you soon. Take care. That's Mike Mayo, Wells Fargo Securities.

Coming up, tale of two sectors. Top technician Chris Farone flagging some serious weakness in one well-loved sector, but also telling us about another group that he's betting on right now. Instead, he breaks it down after the break. First, though, a quick message as CNBC celebrates Black Heritage. The opportunities that come from being a Black man in the C-suite are enormous and so are the responsibilities. I understand that I am an example for others to look to, to inspire, and I have a responsibility to make sure that I am lifting as I climb, providing opportunities for other people who are underrepresented in the C-suite.

Welcome back. Tech stocks leading the S&P 500 again this year, but moves under the surface suggest a different sector could drive the next leg of the rally. That's according to our next guest, Chris Ferron, head of technical and macro research at Strategas, joins me now. Host 9, welcome back. Great to be here. We'll get to that in a second, show some charts that help tell that story. But broadly speaking, how do you feel about this rally right here? I think what's most important about this move is that there's still a cyclical tone to the leadership.

We see it with discretionary over staples. We see nothing from utilities. I think that's an important point. If this market's really going to change character, I would expect to see the defensives group start to show up. And there's been no evidence of that here. Also, none globally as well. And look at the leadership from the autos and the leaders in Europe and Asia and Japan. So very cyclical, pro-cyclical tone still persists.

I mean, yields may be a little too elevated still to get money into the areas you're talking about, correct? Utilities, staples? You know what's unique? When you look at this historically, I know what you're saying intuitively makes some sense. But when you look at it historically, typically the defensives will actually start to work in the last move of a rate move higher. The market begins to anticipate. Okay. The market begins to sniff out that, hey, wait a

second, yields are too high. This is going to be a problem. I think the big level on yields here is $4.50. If the market's really going to say, wait a second, I think it happens above $4.50 10-year yields. Well, maybe that trade was ready to happen until Powell said at the last news conference, OK, it's not really going to happen, folks. And then now it's being pushed even further out. I think the best clues on rates themselves are from the fabric of equity leadership. And when I look at some of the real speculative stuff that's still working, if the market was worried about yields running away here, I don't think small cap biotech would be leading or IPOs would be leading. So I think there's a tone here that generally says, don't worry too much about bond

yields running away from us. You are looking specifically, as I mentioned at the top, at a couple of sectors, one where you see sort of about to broaden out, money continue to go in, and the other maybe not so much. You have a couple of charts to back it up. Talk to us. Yeah, I think on the maybe acting better than advertised is healthcare here. And frankly, it's been a bad sector for three years. What I like over the last four or five months as we've been talking about this is it's finally broadening out. You have about 80% of healthcare above the 200-day moving average. It's the best we've seen in three years. What I like over the last four or five months as we've been talking about this is it's finally broadening out. You have about 80% of health care above the 200-day moving average. It's the best we've seen in three years. I thought importantly last week you had more health care stocks make a 52-week high than at any point we've seen really since the heyday of 2020, 2021. So there's a broadening out here. That's rarely a bad thing. I'm not sure all of these are the most

timely just given how extended this move has come in the short term. But in terms of looking for longer term performance, I think the setup in health care is pretty compelling. Looking at it now, it's up, what, five and a half percent or so over the last month. It's not like technology is not a huge slouch. It's up about three and two thirds percent. I find it hard to believe that money is not going to continue to follow the money into technology. You know what's a little unique about tech, though? Almost the opposite of what we've seen in health care.

As tech has gone on and made new highs the last couple of weeks, the percent of stocks making a new high in the index has actually been quietly contracting. Now, that's not fatal. That's not a death sentence. But it is maybe a little sign of exhaustion. And when you look at the ETF flows in particular, there's been a surge, as you know, of money into tech. On the other hand, there's been a dearth of money into health care. So I like this almost contrarian setup where what would be a logical place if money leaves tech? What would be a logical growth corner of the market for it to go to? I think circle health care in that sense. Let's say the broadening doesn't happen in any more meaningful

way, despite what the charts may be trying to position us to think now. What does that mean for the rally itself? Do you grow less confident about it if that happens? Yeah, I might push back on the premise a little bit because the market's fairly broad. I mean, 75% of the S&P itself is about the 200-day moving average. That's hardly narrow. Okay, that's fair. When we look at the equal weight S&P, right, the equal weight S&P is always the benchmark people use to gauge whether a move is broad or a move is narrow. Equal weight S&P price-wise is making two and a half year highs here. So those stocks might not be leading.

They might not be doing better than Microsoft or better than NVIDIA. But to say that the move is narrow, I think is a little misleading. Okay, no, that's fair. As we discussed at the outset in some respects, too, the idea that the Russell is the place to look maybe is misleading or a misnomer. But how would you view small caps as their relevance and importance to the overall story? Well, I think they're important from a couple of perspectives. Number one, we know what the biggest weights are, banks and biotech. One of those groups is really in gear right here. You look at the small cap biotechs, they're breaking out across the board. And I go back to kind of what we said at the top. If bond

yields were really going to run away, I'm not sure small cap biotech would be behaving so persistently. We went back and looked at all the groups that have the highest sensitivity to bond yields. Small cap biotech comes up at the top of that list. So if yields were going to run from us here, I don't think we'd see that. Secondly, when you look at groups like industrials within small caps, I mean, this has been persistent leadership for two years. Industrials broadly have been persistent leadership for two years. So I recognize the largest weight, the financials in Russell 2 isn't as probably robust as we'd like, but industrials and biotech, pretty good. Is the story here too theoretically good to pay any mind to what's happening in other global markets?

How do you view that? I mean, absolutely. There is affirmation globally. When you look at new highs in Europe, CAC, DAX, Japan, China perhaps waking up here after a very capitulative start to the year. When we look at the signals that we use to gauge capitulation, what we saw in China in late January, early February, reminded us of late 08, early 09 here. Very, very capitulative message there. Then you have Cospi breaking out. You have Australia breaking out. So again, this narrative of it's just five or seven or 10 tech stocks in the U.S. I think negates how much global affirmation there is. Okay, so what you're telling me then is that the house view now at Strategas,

we are in the early stages of a broad global bull market that could last a while? I think we're in the middle stages of a pretty broad advance. Certainly began in late 22, kind of on shaky terms. Really, the game changed for us in October of last year when you started to see the breadth surges, the momentum surges, the new high expansions. That is much more characteristic of what's a durable advance. You can get a pullback or a consolidation at any moment.

We know that. Watch last week's low, 49.50. If you're a tactical player, I think that's a big level in the short term. Very long-term support, call it 44,700, $4,750. I would be surprised if we saw anything worse than that on a pullback. All right, good stuff. Really interesting. I appreciate it, Chris.

Thanks. Chris Verone, Strategas. All right, up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is back standing by with that. Christina. Well, the U.S. government wants to block the biggest supermarket merger in history, or U.S. history, and dominoes promising to give back to investors. I'll explain all of that next. We're almost exactly 15 from the bell. Let's get back

to Christina Partsenevelos now for the stock she's watching. Christina. Well, the Federal Trade Commission wants to block a $25 billion merger between Kroger and Albertsons, arguing the largest supermarket chain merger would lead to higher prices, store closures, and job losses. Albertson says federal regulators are ignoring the dominance of Walmart, Amazon, and Costco, and said the block would only strengthen them. Switching gears, everyone wants a piece of the pie. Domino's shares are up, what is it, almost 6% right now after the restaurant chain increased its buyback program by an additional $1 billion, and also said it would raise its dividend by 25%. Domino's also posted stronger than expected sales

in the United States. A big reason was its delivery rollout program using Uber drivers, Uber becoming a critical one-stop delivery platform for customers. All right, Christina, thank you. Christina Parts and Novelos. Up next, we're getting you set for Zoom earnings in overtime. We'll have a rundown of the key metrics to look out for and what we'll be listening for on that company's conference call. That's just ahead when closing bell comes right back. Don't miss the free virtual CNBC Women in Wealth event on March 5th, 1 p.m. Eastern that brings together top financial experts to help you build a better platform and save for the future. You can scan the QR code to register or visit CNBC events dot com slash women and wealth. Up next, your big

earnings set up workday and zoom among the names reporting in overtime. We'll tell you what to watch for when those numbers hit the tape at the top of the hour when we take inside the market zone. We're down the closing bell market zone, CNBC senior markets commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, we are watching two earnings out in overtime today. Kate Rooney monitoring Workday. Pippa Stevens on what to expect from Zoom. I'll begin with you, Mike, and I want to zero in on Alphabet. Sure.

I want to talk about the tale of two mega caps as it relates to the biggest story in the market. The best performing mega cap stock over the last month is NVIDIA. The worst 10 percent, 30 percent, excuse me. The worst performing mega cap stock over the last month, Alphabet, down 10 percent. Sure. The differences are front and center yet again today. They are. The first observation would be, and this goes back to even late last year, that you want to see differentiation in this

group. So obviously, it's not great that Tesla has fallen away and Alphabet is lagging seriously and is trading like it's sort of value trappy on some level. On the other hand, I think you also have to go to the fact that earnings momentum is behind all the parabolic moves in things like NVIDIA and Meta. So those have been the ones setting the pace. And Alphabet is conspicuous in not really participating there because there's questions about longer-term earnings momentum and cost discipline and all the elements of the story that are in there. Now, whether it has broader implications in terms of hurting the position of the aggregate index

and the market as a whole, it's not clear that it does just yet. It's massive. It's widely held. But it's sort of being eclipsed by the other better fundamental stories. It could change. You know, you can't have too many of these really buckle. But for now, it seems as if you have a market that probably should cool off on some level. Semis are running on tilt. They're up again a percent and a half as a group today. But, you know, I don't think that Alphabet soils the overall picture. You make a great point. The MAG-7, what you're saying, can become the MAG-5. Yeah. It just can't necessarily become the MAG-3 or 2.

Right. Exactly. Well, it's certainly in the absence of other parts of the market doing better. And we've seen that. You know, I mean, right now you have Berkshire Hathaway is actually having some sell the news response today, but it's bigger than a couple of the mags at this point. And I do think that there's a way around it. But if you have too many of them, it's going to be like, OK, we get a nowhere to hide type of type of instinct kicking in. And that might cause some actual selling, which we're really not seeing here. Kay Rooney, workday after the bell. What are we expecting here? Hey, Scott.

Yeah, so the stock hitting an all-time high today. I had that fourth quarter result and multiple results after the close. Analysts here looking for an adjusted earnings per share, EPS of $1.47. That's on revenues of $1.9 billion. Subscription revenue is really the key metric to watch for the workforce platform. Guidance is most likely going to come on the analyst call. That's what we typically get with this name. Workday has a pretty solid track record of beating expectations.

Its revenue has beaten consensus all of the past 20 quarters, while EPS has beaten consensus in 18 of the last 20. Analysts over at Morgan Stanley have a pretty positive view on Workday heading into the print, citing durable demand, conservative guidance. And then they talk about muted investor sentiment. The stock is up 12 percent near today, nearly 70 percent in the past year, Scott. Yeah, not that far at all from a 52-week high. So we'll see what happens there. Kay Rooney, thank you very much. Pippa Stevens to you on Zoom. Yeah, Scott. Well, this stock is down 11% this year.

And earlier this month, Zoom cut about 150 jobs or roughly 2% of its workforce. All those said, the layoffs weren't company-wide and that it was still hiring for AI roles, among other things. This comes as Zoom continues to struggle in the post-pandemic era. Now, out of the report today, key things to watch include enterprise numbers, paid Zoom phone users, as well as contact center, since all three are key drivers of the company's growth. Online churn also important. BTIG estimates that it's at roughly 3% per month.

Now, the company has never missed on earnings and only once on revenue since going public in 2019. Shares down, Scott, about half a percent. Back to you. All right, Pippa, appreciate that very much. Pippa Stevens, I turn back to Mike Santoli. Wondering what you make of sentiment and maybe the technicals turning a little bit. Chris Verone, earlier, Stratega's House view, positive.

Bank of America survey that we cited today, 70% of those. It suggests this could last longer than 24. Even Wolf, which has been more negative than most for a while, this can go at least till spring. Yeah. I mean, if you defer to the trend and what the trend is telling you, then you say, you know, this market is certainly innocent until proven otherwise. And so you kind of go with that and say all pullbacks are probably kind of random and probably not that damaging at this point. Now, sentiment has gone, certainly in positioning, has gone from being an asset to the bull case,

I would say, five, six months ago, to being neutral at best at this point. The Goldman Sachs positioning indicator got to the stretched level recently. That combines retail and other things. If you look at a chart of the CBOE, the stock of the options exchange, it's taken another leg kind of vertical to the upside at this point. That's because of all the huge call option buying that really is going to their bottom line. So I would argue that it's it's a very well-recognized bull market at this point. You've seen some capitulation by bears, but that does not by any stretch mean everyone's all in. Cash levels are at rock bottom and people assume big upside. You still have strategists right now in aggregate are not calling for huge upside to this market because the market

is sort of raced ahead of most targets. The mystery broker doesn't seem like they are all in. And this is one of those things. If you look at a lot of the traditional metrics, if you think that inverted yield curve matters, if you think all the historical patterns about cycles are going to come to bite, then you still can't get comfortable just yet because it seems like you would have had more payback. I bring up the mystery broker because you're tweeting about it, so it's all on the table.

Lights stay on totally. We'll see you tomorrow. All right, bells ringing. We'll go out negative on the Dow by just about 50. S&P in the red as well.