Closing Bell - Closing Bell: The Broadening Bounce 12/18/23

Episode Date: December 18, 2023

Many lagging sectors have ripped over the past six weeks – including banks, materials and industrials. Is the better breadth just beginning? Trivariate’s Adam Parker and NB Private Wealth’s Shannon Saccocia break down what they’re expecting. Plus, Tony Pasquariello from Goldman Sachs says now is not the time to give up on mega cap tech. And, we break down the move in Adobe as it calls off its plan to buy software company Figma. 

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wadner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with how to play the rally in stocks. A question no longer about whether stocks can continue to rise, but how to maximize this incredible move in your favor, especially if a sizable rotation is just getting started. We will ask our experts that question over this final stretch. In the meantime, take a look at the scorecard with 60 minutes to go in regulation. Stocks have had a pretty good day trying to build on that seven straight weeks of gains. Alphabet, Amazon, Meta, they're leading tech higher today.

That's why the S&P is doing quite well. Interest rates, they're holding steady. The 10-year is still under 4%. It does take us to our talk of the tape, the broadening bounce, and how so many lagging sectors have ripped over the past six weeks from banks to materials to industrials and so much more. Is the better breath just beginning? That's the key question. Let's ask Adam Parker, founder and CEO of Trivariate Research, a CNBC contributor. He's here at Post 9. Welcome back. Thanks. Good to see you.

Let's take stock of where we're at because we've come a long way over the last visits that we've had, you know, over the last six weeks or so. What's the message of all this, do you think, to you now? To get that broadening rally you teed up, I think you need to believe profit margins can expand for the average company. That's what you need to believe. Most of our work has been focused on gross margins, you know, the costs around materials, depreciation, labor, pricing, mix, all those things. Can companies' profit margins expand? Can they? I think they've troughed here in the last, after being reselled, they've troughed here recently, and I think they can. I think there's many companies, lower logistics costs, better productivity, a little

bit less wage pressure, can maintain the pricing they've already taken? I think they can. And I think, you know, it's not a slam dunk, but I think a lot of them will be able to. And if the median or the average company can, maybe that's the balance for, you know, a surprisingly good market again next year. And you're starting to see guys who did their year at Outlooks in November already raise their price targets a month later for next year. David Koston, highly respected strategist over at Goldman Sachs, like a month ago was at $4,700 for 2024. For his S&P target, he goes up to $5,100. Better macro backdrop, economy doing well. You can actually support higher multiples for stocks. Do you agree? Sounds like you do.

I think the distribution of outcomes is probably skewed to the positive for next year versus what the big firms are saying. But I think it comes down to belief margins can expand, and I think it comes down to what the Fed does. It looked to me like the big firms who got more bullish already were responding to the Fed pivot a little bit more than the earnings outlook. But it's hard for me to parse exactly what people are saying. My own personal view is the case for market breadth and a really good market is margins expand, and you just start believing that earnings are going to grow for the next few years in a row. And then all of a sudden, what looks cheap on 26 or 27 might look a little expensive on 24. And I think that's what happened. If you look back a decade ago,

earnings grew all the way to 2019 and people were, it's expensive in 2011 to 2012 and it worked out well. So I think we could be setting up for earnings doing fine for several years again. Do you think the market's over its skis in any way and how it reacted to the Fed? I mean, I ask that in the context of the market has gotten it right, largely,

as it relates to the Fed. The market sort of guiding the Fed rather than the Fed necessarily guiding the market. The market had priced in cuts. The Fed came to the market. Right. Yeah. So now it's a question of when are they going to cut? It's not even that we've been raising the question on this program or the idea that who cares as long as they cut for the right reason, not the wrong reason, the right because they can, the wrong because they have to. Right. I think, yeah, if you get six cuts or whatever's in the price, it's probably because things really got worse than it's expected. I don't think it'll be smooth sailing through that.

If they do two or three times in the second half of next year, I think that's the right kind of risk reward for equities. But I think if they have to, because you get much worse employment trends, that's all bets off. So I don't think that's what we're talking about. I think we're talking about they stamp out the worst part of inflation. If I look at equities, which I focus on, things like home builders and select retailers and semiconductors and electrification industrials have all ripped. We wrote about that in our note this week. Home builders like all-time highs. Semi-trade has been one of the hottest of the year.

Space, you know as well, if not better than most, given your prior career as a semiconductor analyst. I look at all and I think, you know what, most people I'm talking to in my meetings think we're going to have a pretty big rotation in January. It happened last year because, and you remember, it seems like 10 years ago, but Meta and Tesla and Nvidia were awful stocks in 2022, and they troughed on January 3rd, the first trading day of this year, and they had great years this year. So I think people are trying to figure out what's hated that could could could benefit is it health care which everyone just thinks automatically that is it is it payments you know is it um you know maybe it's uh and energy materials which are you're on that bandwagon yeah all right yeah they benefit yeah

look i i'm tethered to a view that we that demand will exceed supply for oil in the medium to long term. It's very hard in a six-month view to get the oil price right, as we've seen over and over again. You know, nobody knows nothing camp in terms of that view. But I don't see how we can produce what we need given demand. So I like that. And the question is, will it benefit in rotation? And Jerry, we'll see. What I can tell you is a recession is more in the prices of energy or materials than it is in Lululemon or MercadoLibre or other consumer-facing entities where the stocks are top left to bottom right. What do you think about things like small caps, which are kind of the place to predict? That's where a lot of the sentiment seems to be going. Tom Lee, for example, thinks some small caps can do 50 percent, five zero percent next

year. Is that overly ambitious? What do you think of the space in general? I think for small caps to go up that much, you need a big risk on trade. I think it's unlikely, but it's not, you know, it's not going on a limb to say less than 50% return is unlikely. For that to happen, look, the reason why small caps ripped starting November 1st is because 30-year, 10-year yields came down. And that makes sense as the initial part of the trade because those that are going to have financing problems, they have high interest expense, if they had to refinance at much higher rates, it really hurts their P&L. So when rates come down a little bit, sure, financial conditions are easing, knee-jerk reaction, these stocks go up.

For you to get another leg there, you need the economy to grow. I don't think the next leg of going from 4% on the 10-year to 3% is going to be greeted with the same risk on trade. If that happened, it's because things get worse and you're nervous, and then you buy the 10-year because it's risk-off. So I think that's very unlikely.

If that happened, you would need big economic expansion. And I don't think that's the base case. I think the base case is a slow erosion in the economy, not a big risk on trade. So one of the areas that may be the most hotly debated, contested, and will likely remain so for a while, financials. Ripped over the last month, right? Up, I think, seven-something percent. Yeah. Hadn't done well before that. Yeah. Ripped over the last month, right? Up, I think seven something percent. Yeah. Hadn't done well before that. Right. You're kind of conflicted on that, that area. Right. But you'd like to be a little more warm to it. Right. I think for the first time, you know, I guess I spent most of the last 15 years not really liking the banks, but I look at them now and I think, you know, the choices people were given a year ago, it was like they were only given two choices. It's a hard landing or a soft landing. You decide. Banks act bad in both because you don't want to own banks right before you get into a severe

economic slowdown. And that got priced in. I think they've participated since November, actually outperformed because I'm getting the most shareholder return of any industry, buyback plus dividend. I think what's in the price is some kind of economic slowdown that's probably more severe than what happens. And if we get any kind of uptick in activity, the risk will look pretty good. They don't look that expensive to me on tangible book. And I think the more hairy parts were the whole hold to maturity thing that happened. But now with yields coming in, that's obviously going to be less of an issue

when they report in January. So I kind of look and I think, can I have upward earnings revisions? I think so. Could I have compelling valuation? That sentiment isn't that great. Feels like maybe a candidate for rotation in January as opposed to maybe buying Lulu or something that's already up to. Of the regional banks, you don't love them all. I mean, you do sort of break out the long ideas versus the short ideas. Yeah. Based on what? So our quantitative model we use to predict returns, we have different models for different parts of the market. It has a bunch of, you know, valuation, sentiment, accounting, ownership. It works really well in banks. It's because it's up 50% year to date,

just longing the good ideas, shorting the bad. So we've for years told people banks- Your basket's up 50%. Yeah, just within banks, the long, short idea. So our ability to pick winners from losers is pretty good. And so we continue to offer those ideas. Almost, as you see in my research, almost all of our notes end with long, short ideas to embody the principle. Right. But I mean, you like things like M&T Bank, Columbia Banking, Synovus Financial. You don't like United Bank Shares. You short First Financial, First Hawaiian, Community Bank System. So you really break it out. Yeah. And the reason we do that is because historically, banks that the sell side loves, banks that have a lot of upside to the target, massively underperform. Stocks that are controlling

their provisions, controlling their expenses, tend to outperform so we have eight or nine factors we use we add them up and the ones that the model likes have beaten the ones that it doesn't like by 50 this year so i think it's a sector you can pick winners from losers historically it's been a sector you didn't want to have a big overweight in you just wanted to stock select now maybe i think you could set up for a little bit of both so i i believe the you, the big rally and everything. I kind of believe the banks have a little bit more leg to it than other parts of the market. Oh, interesting. Yeah. Let's bring in a CNBC contributor, Shannon Sakosha, now of Newby Private Wealth, NB Private Wealth.

Join us now. Shannon, hey, so give us your view here. We've come a long way. And what do you think lies ahead? And as I laid out at the very beginning of the show, how can we all maximize what looks to be a more broadening rally? Well, I think we're clearly seeing that evidence that's compounding what we had started talking about maybe five or six weeks ago, that we felt like there was going to be this potential broadening out of the rally. I would say that there has been a lot of benefit, I think, in some of the Fed speak that we got last week. But Scott, it's really more than that. It's really thinking about what are the other 400

companies or so in the S&P 500 likely to do next year? Adam makes a lot of good points here. We could see that rotation in January, but is that rotation going to be out of the 10 names or so that have performed really well in 2023 and into other places? Or are we going to see a rotation from areas like cash and short duration fixed income into the equity market? And that's the big question. Four or five months ago, we were talking about the risk of the reinvestment risk in cash. We're certainly feeling that hearing that now because we are anticipating those short term rates to start moving lower. Timing is up in the air, but at least by a couple of rate cuts next year.

And so now the question is, do you see people pushing out on duration given the moves we've had in the long end of the curve? Or do you see some of that money coming back into some of these areas of the equity market that have underperformed? That's a different type of rotation that might be setting up for the first quarter. Well, how would you answer the question you pose? I mean, do you see money coming out of short duration and cash into into stocks, into, you know, either everything or lagging areas? Why don't you answer your own question? I think you do, because, I mean, I think if you you've been being paid to be patient for a long time and at this point, there isn't something that theoretically is going to increase your potential return on cash. And so unless you think that we're headed for a significant economic contraction, you know, to to Adam's point, we're kind of seeing expectations

of slower growth next year, but not significantly lower growth next year. Then I think you have to think about, OK, I actually am going to have an opportunity cost by keeping my money in cash and very short duration fixed income. And so therefore, where should I put that? I'm getting paid from a yield perspective, particularly in investment grade credit. But there are opportunities in areas like small cap. But I would caution. I think everybody's focused on small cap, which makes sense, given the performance. There's also a number of places within the large cap space that are also fairly attractively valued. And so I think that there will be a rotation of some of this cash from money market funds to the equity market. I just don't

know the strength or the pace of that, whether that's all kind of first quarter loaded. Talk to Gundlach after, you know, Jay Powell finished the news conference the other day and he, you know, scoffed at the idea that all this cash is just all of a sudden going to flow into equities. He thinks it's going to be into bonds. Now, I can understand the bond king would suggest that money is going to go into bonds. But nonetheless, should we really believe that all this cash is just all of a sudden going to fly into the equity market? It's probably both. I think Shannon probably said both. I agree with her. It's probably both.

I think you could get, look, people, cross-asset people came in this year, underweight equities, worried about rates rising, right? You know, everyone had down in the first half kind of call. And then within the equity market, they were underexposed to the magnificent seven and growth. So not surprising there's a big chase on when they massively do well. And I think now people think, well, maybe we'll set up for a rotation next year and see what happens. I think that's the consensus view. We'll see. The consensus is often not correct. When you say the rotation, now I want to be clear because I think this is going to end up being one of the most important. I mean within equities. I mean like people sell some of these. Mega caps. Yes. See, I feel like this is the most important conversation that's

going to take place over the next month. I think people are going to sell some of the, if it's not the mega caps, it'll be some of the other names that have participated huge recently, like. Like the non-profitable growth? A little bit that, yes. Anything non-profitable that's up a ton or could just be, you know, I look at all these stocks in every sector and I'm like, wow, MercadoLibre, wow, you know, Lulu, Lulu. These charts are discounting massive performance. So I think you can look at some of those winners, sell them and say, I can buy maybe a bank or two that looks like it's got upside. I can buy an energy company. I can buy health care services where they have pricing power. And you see those rotations. It can be sharp in January. I know when I come back in January, it'll probably already be underway.

I wouldn't be surprised to see big movements. Your second question, rotation between bonds and equities, is a little trickier. To a knucklehead like me in terms of fixed income, the two-year yield looks a lot more attractive to my personal account than the 10-year does, and no equity person would ever buy the 10-year yield and hold it to duration ever under any circumstance. Because if I can't beat 4%, I've got to be worried about what I've been spending the last 25 years doing. Shannon, is this going to be one of the great misnomers of 24 where people get off sides expecting? Because once you start getting a herd expecting that mega cap is going to sell off a bit and then that money is going to go elsewhere, you turn around and you realize that mega cap continues to outperform. Very few people saw mega cap doing what it did this year. There was a lot of offsides to it given the performance of twenty twenty two. Are we setting up for another surprise. Well Adam made a great point earlier about margins right and margin resiliency and perhaps more importantly margin recapture. And so if you think about quality balance sheets, free cash flow, pricing power, you know, and you don't get

a meaningful economic contraction, it's hard to see these names that have done well not being still afforded some premium in the market. Perhaps there is more differentiation, Scott, and maybe that's, you know, you don't get all seven of them or all 10 of them. You know, we've seen some pressure, for instance, on certain of those names more recently. But I think that if you're making the assumption that all of this movement into other sectors in the S&P in particular, areas like healthcare is going to come directly straight out of the Magnificent Seven or the Super Seven and into those sectors, you know, that's probably not going to be the case because there isn't a lot of compression that's going on in terms of margins and earnings for these

companies. And they historically have been afforded a premium in the market. I think it's much more important that it's a broadening out coming from places that have maybe underperformed or maybe that investors are trying to look for that broader diversification rather than expecting a one-for-one binary move out of big cap tech into other names, because that's probably going to be a little bit more nuanced than that. Yeah, I totally agree. I don't think it directly comes out of them. I think the challenge is a lot of the way money is run with risk controls is people can't own the biggest five positions more than 25 percent, the old 525 rule.

Or they can't, you know, some firms have even larger diversification requirements. So these stocks have gotten so big, they just don't own enough no matter what. And even if they have an individual thing that's done well, they're not going to sell it because they're not even allowed to buy it back up to where it is. So there's all kinds of sort of money management and risk management reasons why big institutions are underweight. So I think it'd be more some of the, you know, other four letter names or other things that have really participated that may be, say, I'll take some money off the table on some home builders or some electrification beneficiaries that maybe are at record high, you know, inventories and multiples. And I'll rotate into something that is maybe discounting more of a recession. And if I don't get that.

To your point, what about materials? If you don't think there's going to be a recession, and China's been a huge disappointment, right? Right. What happens if there's a big China comeback in 2024? For whatever reason, stimulus or whatever they do. Yeah. And that leads to China's performance being a lot better.

What are the stocks that are going to do? Yeah. What would you want to be in? Yeah. Energy, materials, select industrials, semis. Would you play for that or no? I think- You think you're gonna be down forever?

No, and I think that's part of the reason I think a more pro cyclical tilt makes sense. The problem is when you're trying to beat the S&P 500, you have to own two thirds high quality growth and one third some kind of value that can benefit from a recovery. It doesn't look quality today, but you hope, you know, you buy your little dream today and you sell it to a sucker with a bigger dream later, right? So that sucker with a bigger dream later will be when stuff gets positive on China, right?

So I think you're going to own the MAG-7, some other high-quality growth that's two-thirds of your performance, and the rest is what bounce to your cyclical that looks cheap. I think it's energy and select banks and select materials. That's I think you beat the S&P next year. Shan, I'll give you the last word to agree or disagree with Adam on those three areas. Yeah, if you're thinking about China recovery, Scott, it's not just in materials or industrials. It's outside of the U.S. It's in Europe, for instance. I mean, you know, you want to find value. You can find it in Europe and they certainly would be a beneficiary.

So you might actually see, you know, China recovery potentially weaker dollar. You might see some international developed interest. So I would look not just to here in the U.S., but we do see that

that China story improve. I've got to bounce. I think Europe's great for vacation, but not for stocks. That's my view. But, you know, whatever. Shannon, good to see you.

Happy New Year. All right, guys. We'll see you. Shannon, thanks. We'll see you soon. Adam, of course, thanks as well for being here post-9. All right, let's send it over to Christina Partsenevelis now for a look at the biggest names. She's watching as we head towards the close.

Christina. Well, let's take a look at Etsy because it's rebounding today after a steep sell-off that happened last week. The online merchandise platform is cutting roughly 11% of its workforce as the company looks to restructure its business, of course, amid a competitive environment. Etsy shares are up around almost 5% right now in today's session, but relatively flat compared to this time last week. Let's talk about VF Corporation shares. Those shares are sliding after the apparel company, which owns Vans and North Face, disclosed a cyber incident in an 8K filing. VF says the incident happened earlier this month and would likely have a, quote, material effect on its business, you know, just in time for the busy holiday shopping season. And that's why you're seeing shares down nearly

7 percent. Scott. All righty. Christine, we'll be back to you in just a bit. We're just getting started here. Up next, tech is heading higher today. Goldman Sachs' Tony Pasquarello is seeing some strength in that sector in the year ahead. He makes the bull case, breaks down that opportunity. We're live from the seven week winning streak. My next guest says, though, investors are starting to look at the other parts of the market. It is not time to give up yet on mega cap tech heading into the new year. Let's bring in Tony Pasquarello from Goldman Sachs. Welcome back. Thanks, Scott.

Head of hedge fund client coverage, of course. So I think the last note said something to the degree of there's still some juice left in this rally. Is that how you feel? I think there's a little bit of gas left in that tank. I say that for a couple of reasons. On the fundamental side, I think the interplay between where we've landed on the Fed and growth itself is in a very favorable position. And then you have market technicals.

I think flow of funds are still on the side of the bulls. I think basically the seasonals, which have worked like a charm all year, are still on the side of the bulls. Now, we've had a scorching move. We have. Since the end of October. Yeah. So it is for sure more demanding setup as it relates to positioning and sentiment evaluation.

So I would expect from here, it's more of a grind, less of a gap, probably less upside convexity than what we've enjoyed. So I'm looking at some of the notes that you gave to our producers where you say U.S. equities are still the best game in town. You ever think at the beginning of the year you'd be writing that today, given what the Fed was doing, where many suggested the economy had to go? Are you surprised you're writing that today? If we were sitting here in January, coming off a bruising year for the market, when the kind of consensus call was very much in the hard landing camp, not our call, but the consensus call, and I said, hey, Scott, here's what's going to happen.

The Fed's going to blast away four more times. They're going to take $800 billion off the balance sheet. We're going to have a regional bank crisis. The geopolitical backdrop is going to get worse and worse. But wait for it. And in mid-December, I'm going to write that U.S. equities are still the best game in town. And NASDAQ's up 50-plus percent on the year. That would have felt like very long odds. So how do we get here, Expo? What we know is the U.S. economy proved to be much more durable than expected. We'll grow 2.5 percent this year, create 2.7 million jobs. And then we revealed a couple of right tails along the way in the form of AI and the form of GLP-1. And so U.S. economic resilience, American innovation, that was the story that carried the year.

Yeah. Props to Hatsias, you know, chief economist over at Goldman. He's been on the right side of the economy trade for a while. David Koston, in the span of a month, takes his S&P target up next year to 5,100 from 47. Are people getting too bullish? Is there too much euphoria developing over a six-week run that's one of the most remarkable we've ever seen? Valuation for me is never a roadmap for how to kind of tactically trade the market. It's not about the next two days or the two weeks. It is a signpost for forward returns. So here we are, the better

part of 20 times. In the past 50 years, we've only sustained a multiple higher than that once, which was the tech bubble. So like I said at the outset, it is a more demanding setup. Now, if Jan Hatsias and David Koston are right and they've had a magnificent 2023, the big ball is the Fed's going to start cutting next year five times. March, May, June, bang, bang, bang. Then they cut again in September and December. So they cut five times. But U.S. GDP growth, again, if we're right, is 2.3 percent next year. Again, I'd say that interplay between the growth rate itself and the Fed is in a very accommodative place. Enough to justify that higher valuation that you say. A little bit. And David, I think, he essentially said, look, it's not 4,700 anymore. It's 5,100.

It's not because we changed our earnings estimates. Not at all. We're just calling earnings plus 5% next year. It's that given what we've learned about the Fed, given the inflation backdrop, real rates can kind of allow for that higher multiple. So for me, it's more about supporting the market and kind of truncating the downside than it is opening up some wild upside tail from this starting point. OK, so rotation in two different places for questions. Number one, we discussed it earlier in the earlier segment. Is money going to come out of cash and go into the stock market? How would you view that? I think there's plenty of income and cash to go around such that households don't need to hit the bid

on the best companies in the world, which are U.S. mega cap tech stocks. So what do I mean by that? 3.7% unemployment rate, continued wage gains, real household disposable income getting better and better as the year goes on. That's your income piece. Then you've got the cash piece, $6 trillion in money market funds. Market showed its hand a little bit last week, $16 billion of outflows, first outflow in two months. So I do think a couple chips came forward. It showed its hand a little bit last week, $16 billion of outflows, first outflow in two months. So I do think a couple chips came forward.

And then you've got $150 trillion of net household worth in the U.S. So I think the idea that people can kind of go on the couch and pull out some quarters and dimes and buy short-dated upside in the market, I have no problem with that. I think the idea there's going to be a wholesale exodus from cash is a bridge too far for me. But you're also making the case, though, that because of all of those factors, you don't see mega cap used as an ATM to pull money. And then that rotates, which is the second part of my question, rotates into these laggard areas. So as it relates to the rotation within the mix of the market, I think we understand why what's played out in the past couple of months, which is to say huge outperformance of the underperforming parts of the market. Small cap kind of being state's exhibit A. I think we understand that. Again, the fundamental backdrop improved in a way that was more friendly for those parts of the market.

We've had very serious short covering of those kind of underrepresented parts of the market. The seasonals on the side of rotation typically happens in December, typically favors small cap from the December through February period. One in three small cap companies are probably going to be unprofitable next year. I look at tech and I think, well, it should generate 10% earnings growth, which is two times the index and more than any other part of the market. If we have a bull steepener in the rates market, which is our expectation, the best sector in that context, historically, is tech. And so I think the idea that you're getting, you're going to sell the best companies in the world with the most attachment to the new theme to buy every part of the underrepresented part of the market. To me, that doesn't make sense. So what's the one

area of the market you've got your eye on that you say, this is the one that could likely surprise investors this year? We're going to look back a year from now. We're going to sit on this desk and say, man, who saw that coming? And you're going to say I did. I'll give you two. I'll give you I'll give you an old economy, new economy barbell, old economy industrials. I think that is your play on this reshoring, onshoring, reindustrialization of the United States theme has hooks into the green theme, new economy, biotech. So it was kind of in the Fed's frying pan, the long duration frying pan. I think you have a huge amount of innovation. If you get M&A cycle from Big Pharma, I think that's a primary beneficiary.

All right. Look forward to spending many of these visits next year with you. Tony Pascurillo, thanks so much. Thanks, Scott. All right. We'll see you soon. All right. Up next, trouble in the charts.

Top technician Chris Verone is mapping out his forecast as we head into a new year. We'll find out where he thinks we're headed from here. And, of course, the key levels that we all need to watch. We're live from the New York Stock Exchange. Closing bell right back. S&P 500 coming off its longest weekly winning streak in some six years, with a number of sectors hitting new highs again today. Our next guest sees some possible short-term trouble in the charts heading into the new year.

Let's bring in Chris Farone, head of technical and macro research at Strategas. Welcome back. Great to be here. So technically speaking, are we looking a little dicey? What's the story here? Well, I just want to nuance this here a little bit. We've had this incredible momentum surge over the last six or seven weeks. And when you look at kind of the long-term track record behind that, whether it's getting 90 stocks above the 50-day moving average or the surge in one-month highs or the seven weeks in a row with market up, that tends to foreshadow very strong returns six and 12 months in the future. Okay.

When you look at the returns over the next one to three months, it's more random. I just want to be mindful that you had this momentum surge. You could get a consolidation or a pause as we kind of go into a presidential election year. The seasonality around that tends to be a little unique. We have primaries starting in mid-January. Just something to keep our eye on here. That's fair. I feel like we need to separate, though, the what from the why. Like the what is like, oh, my God, we've we've done so much in six weeks.

Look at the look at the numbers. Look at all these. Look at the small caps are up. X, this sector is up that the why is more important than the what? And in my estimation, why did we get here? Well, we got here because the economy's holding up better than most people thought. And the Fed's we anticipated this pivot. The market anticipated a pivot that the Fed ultimately seems to have made. Absolutely. And I think when you look at kind of what are the harder questions for 2024,

at what level, for example, do 10-year yields no longer reflect a pivot? At what level do they start to reflect real concerns about the economy? And I think using the market as our intuition to make that judgment is going to be key. Look at things like consumer discretionary. It continues to work. I think so long as things like discretionary is better than staples or transports are better than utilities, you'd say the market's okay with the economy here. So in terms of the longer term call, that is still very much intact. Just be a little aware of some of the sentiment work here. I don't think it's a huge issue in late December, early January,

but the flows are getting hotter. And what's the immutable rule of Wall Street? As prices change, so do attitudes, right? And attitudes of the last four or five weeks, rightfully so, have certainly changed. I just want to be a little bit aware of that into the first part of 24. I feel like you are more positive on the market than you've been in a while. I mean, it sounds like you're fairly bullish into 2024, dare I say, with a couple of just little caveats. Yeah, I think you have to be. And the reality is the trend of the market is up. It remains up. We've had this very impressive momentum surge. I think the change really came in the last six weeks. We went through this 10-month period where the first 10 months off last year's low looked nothing like the bull markets we're accustomed to.

And then you finally began to see the confirmation, the surge in new highs, the expansion in breadth, all the things you'd want to see early in new advance. We've gotten that here. You can correct from that in the short term, but I think you're absolutely right. The trend of this market is still very much intact here. So we're having these debates over what happens with mega caps. How do you view that sector? It's not as monolithic as it once was.

I think that's probably the subtle change at the margin. And it shouldn't be, right? We're seeing the rest of the market participate. I thought it was notable last week you had Google and Lilly actually making three, four-month relative price lows versus the S&P. A subtle change. I mean, Amazon's at new highs today. Meta's at new highs. So it's just not quite as monolithic. I think the bigger question is, is there anything on the macro front that

could introduce a new piece of information that could change this whole game? Watch the dollar here, right? This whole move in the Magnificent Seven all year has largely been associated with strong dollar. That seems to be changing's going to be weakening. Right. Yeah. Are you are you suggesting that dollar weekends like commodities get a bid, which we start talking about rising oil and gas prices again or inflationary things? What do you mean? You know, it's interesting to me as dollar weakens here, we're really not asking why. Right. Is it because inflation expectations are actually going to reaccelerate at some point in 24 dollars weakening because the Fed has pivoted, right? Well, I mean, if you think about it from a growth differential perspective, growth in other parts of the world is worse, right?

So the dollar, weak in light of that, I think, important clue. And when you talk about some of the changes in leadership, look at the metals and miners. Look at the Aussie dollar starting to turn up. Freeport, Southern Copper, all these things that we haven't seen in two years might be starting to inflect here. The leadership of this market has been the tech names, the discretionary names. Be open to a little subtle change. I think you're seeing it with these resource-oriented groups. All right, good stuff.

Chris, I appreciate it. Thank you. Great to be here. All right, Chris Verone joining us from Strategas. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is standing by once again with that. Christina. Well, we've got some serious doubts about whether some power can survive as a company. And Netflix and chill is gaining in popularity again.

More stock movers next. We're about 15 from the close. Let's get back to Christina Partsenevelis now for a look at the stock she's watching. Christina. Well, Netflix shares are moving higher thanks to analysts over at Morgan Stanley. The bank is raising Netflix price target from $475 to $550 per share. You can see shares are trading at about $486.50 right now. Morgan Stanley citing renewed confidence in the streaming giant's return to content spending. Shares are currently higher by about 3% at the moment.

And SunPower is plunging lower after filing a delayed 10-Q form for the third quarter. The company disclosed liquidity concerns and, quote, substantial doubt about the company's ability to continue. And that's why you're seeing shares losing nearly a third of their value after Goldman Sachs downgraded the stock over the weekend. Stock price is down 32% right now, Scott. Wow. All right, Christina, thank you. Appreciate it. Christina Partsenevelis. Up next, Apple shares sliding. We're off the lows, but we're going to break down what's weighing on that name today, especially when a lot of other mega caps are going the opposite direction. Many are in the green. We'll find out what it means for Apple inS. Steel.

Take a look at that stock. Rocketing higher today is Japan's Nippon Steel, set to acquire the company for roughly $7 billion in an all-cash transaction. Meantime, shares of Cleveland Cliffs also sharply higher today. That company initially bidding for U.S. Steel back in August with a 7.3 billion dollar offer the company now saying it would pivot its capital allocation plan to quote aggressive share buybacks and on that note a programming note don't miss the CEO Cleveland Cliffs Lorenko Goncalves he's no I'm solves he's coming up top of the hour in OT. And the president of the United Steelworkers at

7 p.m. Eastern on last call. So a couple of really good bookings there all around this deal today. Up next, Adobe shares are popping. We'll tell you what's behind that move, that and much more when we take you inside the Market Zone. We're now in the closing bell market zone. Wealth enhancement groups, IACO, Yoshioka, here to break down these crucial moments of the trading day. Steve Kovach on the new holiday hurdle. Apple investors are watching today. And Christina Partinello is back as Adobe

calling off its plan to buy software company Figma. Aya, it's good to see you. Welcome back. Thanks for having me, Scott. Give us your market view here as we head into a new year. You know, it's as we approach sort of all-time highs in the market here, you know, we're a little leery as we approach January. You know, things tend to reverse a little bit in January.

So in the short term, a little cautious here. However, you know, all of the reasons why the market is at the levels it's currently at are substantiated. The reason why the Fed is looking to cut rates in 2024 is that it's potentially won the battle against inflation. And that's going to be a positive for markets. Are you a believer in this broadening? You know, it's obviously been tremendously strong. Do you think it can continue? Absolutely. I think if we do thread this needle here, we are going to continue to see a broadening. Valuations really do favor some of these stocks that have left behind. And we've seen it before. 2022, you know, we saw a lot of stocks that were down and a lot of the stocks that were laggards in 2022 were the ones that

did really well in 2023. So you can continue to see that happen in 2024. How do you assess mega caps, whether you think there's going to be some money coming out or if it's that trade that you just want to continue to stay in? I don't think you want to completely abandon them altogether. However, I think there are greater opportunities to outperform the overall market because of that broadening that we talked about. And we see that in other areas such as the industrials. I know a lot of the guests have talked about that. And you can still play a little defense by owning some consumer staples that had really sort of been bouncing around the bottom, just given the higher rates.

Why is 2024 going to be the year for energy again? We really like energy. Again, if we're seeing the broadening out and the economy is really going to continue to grow just at a slower pace than we saw in 2023, then energy should continue to do well. We saw crude oil hit a five-month low recently, but it's starting to bounce back a little bit, and we should continue to see that as the supply-demand dynamics favor lower supply and higher prices. All right, Ayako Yoshioka, I appreciate it very much. Have a great holiday season. We'll see you on the other side of the new year, I'm sure. Now to Apple, Steve Kovach. So I've got every mega cap in front of me is up and up quite nicely today. And Apple's sticking out like a sore thumb. What's happening?

Yeah. Hopefully you don't want an Apple Watch for Christmas because you're not going to be able to buy one unless you go out right now. Apple is pausing sales of its latest Apple Watches. That's the Apple Watch Series 9, Apple Watch Ultra 2. Those are the two top models, the ones that came out just in September. And this is all because, Scott, it lost a patent case against a health tech company called Mossimo. This is all over the sensor on the latest Apple Watches that can read your blood oxygen levels. Mossimo went through the whole process with the International Trade Commission that ruled an import ban on these devices, saying it violates that blood oxygen patents that Mossimo owns.

Import ban means, of course, those Apple Watches are made overseas. Therefore, Apple won't be able to import them and bring them and sell them in the United States. So let me give you a couple of dates here. December 21st is the last day to buy one of these watches online. And then Christmas Eve, end of day, December 24th is your last chance to buy one in stores. Now, there could be a rescue here from the Biden administration. By Christmas Day, it has to rule whether or not to uphold the ITC ruling or overturn it. If that happens, Apple can start selling the watches again. No problem.

But if the Biden administration doesn't, then those that's pause is going to continue. No, there's top tier, most expensive Apple watch models for sale in the United States and a big dent to the wearables business. And I'll just point out that Joe Chiani, who's the Mossimo CEO, he's going to be on closing bell overtime here with John and Morgan in just a couple of minutes talking through this. Oh, interesting. I'm not really expecting a huge material impact on earnings, are we? No, I mean, it is available until Christmas Eve. So, you know, there might be a little bit of an impact for this Q1 holiday quarter. But keep in mind, this is also the quarter, Scott, that Apple is trying to prove at least it can return to that top line revenue growth. It needs wearables, not just the iPhone.

As part of that picture, Apple likes to say only about a quarter of iPhone owners have an Apple Watch. So they see a huge room to grow the Apple Watch market. But the United States, one of the most important markets for the Apple Watch, maybe the most important. They can still sell the lighter versions called the Apple Watch SE. It has some stripped-down features. It's a lot cheaper. It doesn't have the blood oxygen sensor. So that will still be available. But as far as the latest and greatest Apple Watches, it's unclear when Apple is going to be able to sell them in the United States again, Scott. Appreciate it, Steve. Thank you, Steve.

Kovacs, to fight or not to fight, Christina, I guess Adobe and Figma say it's not worth it. Exactly. Not worth it right now. And you have to think of it too, like $20 billion that now could be spent on shared buybacks for Adobe. So that seems to be the positive consensus right now from Street Commentary. Even if both Adobe and cloud-based tool design firm Figma, like you mentioned, Scott, just now, both, quote, strongly disagree with the recent regulatory findings. This, according to an Adobe CEO statement today. Why did this happen? We know mounting regulatory obstacles were most likely the reason for this termination.

But it's just, Scott, it's really kind of crazy because last Wednesday on the earnings this happen. We know mounting regulatory obstacles were most likely the reason for this termination. But it's just, Scott, it's really kind of crazy because last Wednesday on the earnings call, Adobe's management said they were, quote, excited about working with Figma. So this news today is a little bit of a surprise to some investors because of the positivity just last week. But we know the regulatory hurdles have been ongoing for quite some time. Morgan Stanley suggesting that Adobe's core fundamentals are on much firmer footing than when the deal was first announced back in 2022. Adobe demonstrating some gains with generative AI, also more specifically with its Firefly machine learning model. So it may not need Figma as much as it did previously to drive growth. And then there's other positives from this deal failure. I don't want to say failure, but termination. Adobe would also avoid initial

dilution in margins and earnings per share as well. So right now, Adobe's stuck paying about a billion dollars in a breakup fee to Figma. But as Jeffrey says, it still leaves Adobe in strong footing, especially given their free cash flow. All righty, Christina, thank you as always. We'll see you again tomorrow. That's Christina Parks in the Netherlands. The clapping has started, as you can clearly hear. Dow is going to fight it out to the last moment to see if it goes positive on the day.

S&P is not going to have that problem. Pretty broad-based move today, led by ComServices. But many of those mega-ca-cap names in the green today, several hitting all-time highs again. That does it for us. I'll see you tomorrow in the O.C. with Morgan and John.