Closing Bell - Closing Bell: The Broadening Bull Run 6/20/23

Episode Date: June 20, 2023

Cyclical sectors like industrials, materials and small caps are posting a pretty good month. So is that a sign of even brighter things to come for your money? Liz Ann Sonders from Charles Schwab gives her market forecast. Plus, Capital Wealth Planning’s Kevin Simpson is ringing the register on one hot sector. He explains why. And, Leslie Picker breaks down what the IPO landscape could look like post-Cava’s market debut. 

Welcome to Closing Bell. I'm Scott Wapner. This make or break hour begins with the summer playbook for stocks and whether the bulls can keep up this newfound momentum. Schwab's Lizanne Saunders answering that key question in just a moment. First, though, your scorecard with 60 minutes to go in regulation. Stocks have been red for most of the day. We are keeping an eye, though, on Apple closing in on three trillion dollars in market cap. It's been just about five bucks away for much of the session. There it is, 185.52. Shows just how tech crazy this market has been since the beginning of the year.

That stock is up 42% year to date. It takes us to our talk of the tape, the broadening bull run as cyclical sectors like industrials, materials, and small caps are posting a pretty good month. Is that a sign of even brighter things to come for your money? Let's ask Lizanne Saunders of Schwab. She's with us now. It's good to see you again. Judging from your notes, you still don't seem to be fully sold on this market. Well, I think that the breath widening out is a pleasant development. It may

just be short lived enough that we can't- assume it's a trend but it's one of the key things that. I'm watching and- again we've seen a little bit in terms of percentage of stocks within these various indexes. Trading either at fifty two week highs or- shorter moving average but it's still fairly. A low so I'd be looking for that. The other potential rub, maybe not quite there yet, is that sentiment conditions are not quite into frothy territory, but certainly have moved up off that wall of worry level of pessimism. And that's both on the attitudinal side and the behavioral side. For now, it's been a positive for the market. But were those conditions to move into real frothy territory, I think that might be a near-term strike against the market, but were those conditions to move into real frothy territory, I think that might be

a near-term strike against the market. What do you make of the fact that, let's just say for month to date, for example, industrials are up 7.5%, materials are up 6.5%, the Russell 2K small caps up 6%, S&P equal weight up 5%, S&P 500 value is up five. This isn't that market that was just dominated by large cap tech and then everything else was terrible. Are you moved at all by what I just read to you? Oh, yeah. No, absolutely. I think it's a good initial sign. I just we haven't seen it last for a long enough period of time in terms of things like equal weight doing better relative to cap weight to be able to stamp, okay, new trend is in place. But if it continues, I think it's a very positive sign for the market. I think very near term, what we're seeing on a day like today is the market

technically got a bit overbought. So you're seeing a little bit of pullback. And I think that can continue to happen on a day-to-day basis. But yeah, no, I think it's a positive sign. But at this point, it's a it's a sign. It's not definitive yet. I mean, principle, I think, among the the bear arguments is that earnings are still just way too inflated, at least expectations are that, you know, the economy is going to take a continued downturn and earnings are going to continue to get hit. Where do you come down on that perspective? Well, earnings for the calendar year 2023 have trended up solely because of first quarter having come in better than expected and better than a lowered bar. Second quarter, third quarter, fourth quarter, all estimates have actually been trending down for those three quarters.

You just had enough of a beat in Q1 that it's lifted 2023. I also think what's unique in this cycle is even though there are more companies providing some semblance of guidance relative to the record share of companies that just withdrew guidance altogether during the worst part of the pandemic, I think analysts are still making decisions about adjustments to out quarters over a more limited time frame. During reporting season, they might make adjustments to the following quarter based on what they're hearing from their company managements, but not doing much three quarters down, four quarters down. I think that's just the nature of this cycle and the unique uncertainties associated with it. So I think we're soon, in three or four weeks, we'll now be in a point where we can get a better sense of what the second half of the year's outlook. My guess is given the relationship between PMI's lending conditions, the 10 year, that suggests there's probably at least a little more downside to coming estimates for the second half of the year. But we may not get a color of how much more until we're in second quarter

reporting season. If we had a mild recession, what would the stock market look like, do you think? What do you think is priced in and what isn't? Well, we've already had recession in some segments of the economy. Scott, you and I have talked about this. We've been in rolling recessions or a rolling recession, however you want to define it, with manufacturing, housing, housing related, a lot of consumer-oriented goods, certainly survey-based data, CEO confidence, some of the CapEx trends. The question is now whether we're starting to see some stability, and we're seeing more than just that in things like housing, such that if services starts to falter more than the tiny little cracks we're seeing, do we have offsets in terms of stabilization or improvement in those areas that already got hit?

And I think the market probably does have priced in, for the most part, a continuation of the role nature of this. If something more calamitous were to happen and it started to look more like bottom falls out, no, I think the market probably hasn't priced that in. But to me, best case scenario is not a traditional soft landing because that ship already sailed for many of those segments of the economy that already got hit. But a continuation of the roll through where new pockets that get hit are offset by pockets that had been hit and their strength. And I think the market would probably

do fairly well under that scenario. I mean, in other words, you'd think maybe that the overall blow is lessened because you've already had a rolling recession. So you've already had a bottoming out of certain sectors along the way. It's not like we're going to feel this all at once and then have to have a major correction. Right. You know, the labor market really holds the key. It holds the key to everything. It holds the key to Fed policy, obviously, because I think they're they're pretty confident in disinflation continuing, maybe not imminently getting to the target, but disinflation continuing. Now, I think it's the labor market. So I think both of their dual mandate becomes in clearer focus. It's also key in terms of consumption

behavior. We know there's still in aggregate anyway excess savings, although that's starting to dwindle. And it's really gone for the most part well down the income and wage spectrum. But what's kept consumption afloat is confidence about the labor market. Services being stronger than goods, that's a larger employer. That's kept the labor market afloat. I think if we started to see more than just the cracks we're seeing in the labor market, if something happened more acutely over a condensed period of time, I think the ripples into the parts of the economy that haven't yet suffered could happen a bit more quickly. That's the needle that the Fed is trying to thread. They want to loosen the labor market.

They want to crush job openings without crushing jobs. You know, so far, so good. But it is a pretty narrow opening in the needle they're trying to thread. I do find it interesting that when you look at what's happened with mega cap tech and all the hype and euphoria around AI and the unbelievable gains that we've seen in the real players there, it doesn't remind you of 99. But like others have suggested, maybe, you know, earlier in that period of the Internet, early 90s, 95, right? Yeah, I think there's probably a common thread in terms of the early to mid 1990s,

just the enthusiasm around what the technology could bring to the world in terms of productivity and just being life-changing. The key difference that developed in the latter part of that period, the late 90s into early 2000, is that you actually had the pocket of internet stocks that were non-profitable actually were the ones seeing their stocks go up even more than the more established profitable companies. That's not the case this time. It's non-profitable tech is doing relatively poorly compared to the profitable companies, either directly tied to AI or not. If you look just broadly at ROE, much higher now than it was then,

valuations much higher then than they are now. That doesn't mean there isn't some froth developing. But on a side-by-side comp to that 1999-2000 period, I think there are more differences than similarities. But it's part and parcel of this sentiment environment that I think is always key. Launching up off an era of pessimism into the beginning stages of optimism is actually a very positive backdrop for the stock market. I think that's a lot of what we're seeing. It's when it's when it gets into frothy territory that you can run into trouble. But I'm not likening this to the the ninety nine two thousand period. I think you're right that it's probably akin to a few years prior to that. Yeah. At what time, though, you know, at what point do you get a little uncomfortable with where valuations have

gone? I use Apple as an example where some would say, OK, here it is. It's got a new high. It's on the doorstep of three trillion dollars in market cap, but it's 30 times earnings. And the critics of that would say it doesn't deserve to be at 30 times relative to where its fundamental earning story not only is today, but where it may go in the in the quarters ahead. Perfectly valid statement. I think too many people get sort of caught in this notion that valuation can represent a timing tool for an individual stock or a sector or the overall market. And we think of valuation as a fundamental factor. We've got the plugs. In the case of a P, we know what the P is. We know what the E is. Even if it's on a forward basis, we have a number we can plug in based on consensus. You can look at some scale over history of what might be considered cheap or expensive. But the reality is valuation is a sentiment indicator, or maybe better put, an indicator

of sentiment. As we all know, markets, stocks, sectors can get wildly inflated and stay there for an extended period of time. So be really careful about using valuation as some market timing indicator. It's sentiment. And so, yeah, you could argue based on history that those types of stocks are expensive, but that doesn't mean they can't get more expensive before the sentiment tide shifts. Let's bring in our CNBC contributor, Greg Branch, Lizanna Veritas Financial. We'll continue the conversation. It's good to see you. I'm glad to see you here on set. You're still as bearish as you've been, unmoved by anything that this market has done, the resiliency that it's shown. I am unmoved. Why? The macro backdrop hasn't changed. And so there are things that could

move me, but none of the things that you recounted at the top of the show are those things. And so there are things that could move me, but none of the things that you recounted at the top of the show are those things. And so let me count why I am unmoved. As Lizanne recounted, I think that when we look at the consensus numbers in terms of valuation, while it's not everything, markets trading at 18.5 times consensus numbers, which by my numbers means that we're probably trading in excess of 20 times. And so one of the few things I disagree with what she said is that this market is taking into account a softening, a weakening, or any type of recessionary or what looks like recessionary environment. The other thing that why I am unmoved is that I agree with her wholeheartedly that this rally is in part based on the fact that we were relieved that we got a better first quarter than we all expected. Consensus was looking for around negative 6 percent.

We came in at around a 2 percent contraction. And we have to examine why that is to some extent. You know, the Fed spent $700 billion of apex consumption, $700 billion of money they did not have to borrow, so it did not take liquidity out of the system, money that was untaxed. In addition, the Fed supplied liquidity in the form of loans of $500 billion to the banks. And so that helped the first quarter, and it's going to help the second quarter to some degree as well. But I have no idea how we're going to get to 2% growth in the third quarter and 8% growth in the fourth quarter. But so you say the macro backdrop is unchanged.

Now, you thought we'd be closer to a recession by this point than we are i did that's changed you thought that earnings were going to be worse by this time than they are that's changed you thought the consumer was going to be worse off than they are at this point right that's changed too i just gave you three things on the macro backdrop to your perspective that have changed. All three of those things were buoyed by the two things I mentioned prior. We had a Fed spending $700 billion of untaxed and borrowed money and putting in $500 billion of additional liquidity. And so let's see if those things remain the same when we're reversing that and taking liquidity out of the system as we replenish the Treasury. And as the consumer, we all see the signs that the consumer balance sheet is deteriorating.

We have record credit card debt, more than a trillion at this point, at the highest possible APRs. The losses across the banks, and we'll watch for this provisioning in the second quarter, but the delinquencies are increasing. The 89-day credit card delinquencies have ticked up. Losses in auto have ticked up.

Losses in mortgages have ticked up. And so credit is deteriorating, and the loss experience is going to increase. So, Lizanne, when you're having a conversation about the market and you have an unmoved bear, as I do sitting right to my left, what's the counter? How do you counter their perspective, which certainly sounds like it makes a lot of coherent sense about why Greg remains as negative as he does. Well, I actually I think Greg made a lot of good points and I'm not a I'm not a wild economic bull here. I just think that, as I mentioned, best case scenario, which maybe the market has priced in, is just a continuation of the roll through. That said, I think more likely than not, we get an officially declared recession by the NBER.

They're always just very late in the game. And it's a little trickier in this environment because of this roll through nature of it. This is not an Apple we compare to history's Apple. So it does make it a unique situation. I also think we're sort of at the moment of truth here, broadly for the economy, but also for companies. More than all the revenue growth in the past year has been tied to inflation. There hasn't really been pricing power. It's just been pricing availability because of higher inflation. As disinflation continues here, we start to see that there's not as much real pricing power, because real revenue growth is actually non-existent. And given that the biggest cost is labor for most companies, I think we're sort of

at the moment in proof where companies are going to have to say either we maintain our profit margins or instead of just cutting hours, we're going to have to cut people. That could ripple through and make it more obvious that an actual officially declared recession is upon us. And that's probably not priced into the market. But this continuation of the roll through, I think most of that damage probably is reflected in what the market has done, both on the surface and underlying in terms of where performance has resided outside of the magnificent seven or whatever we want to call it now you suggest greg that market breath right is voting quote no confidence in the sustainability of this one i just read to lizanne at the very top of this interview and i know you heard me read the numbers because you

were sitting here at the time industrial seven and a half percent this month material six and a half and i could go on and on in In other words, what was a very narrow rally to where your argument would work has broadened out. Breath is actually better. Breath is better than it was. And I'll even add to that. The S&P 600 has outperformed the S&P 500 in June as well. So I am keeping an eye on these things. But just because we've gone from extremely narrow to very narrow doesn't mean that we're at the type of breadth that would sustain a rally. But I mean, industrials, seven and a half percent in a month. Materials, that's in a month. That's pretty darn good. Month to date. Month to date. That's pretty darn good, isn't it?

Yeah. Yeah. It is encouraging. It is encouraging that we are seeing the performance broaden out. But I think we need more than three weeks of data to say that this is a sustainable and this portends that everyone will participate. I think of it more as a relief broadening, to be honest with you, Scott. You know, we're past the debt ceiling. The Fed has paused. And so I think that folks interpreted that as being it's safe to go and dip your toe in the water. I think that we'll get other data to say that it's not forthcoming. By the way, speaking of Fed pausing, you still are sticking to your terminal rate above 6%, aren't you? I am. Which the last time we were, I mean, you were implying that we had 75 to 100 basis points more of tightening. I am. What leads you to have that view?

Are you still incredulous by this? So I'm not incredulous. Here's what I don't understand, okay? You seem to be unwilling to move in any way, even when the evidence suggests that it might be time to move. I think that's where the bulls would come at the bears and say, here's my problem. They refuse to acknowledge that the goalposts have changed from where they were. Okay. So three weeks of a broadening breath is not to me a goalpost. Now,

if we're talking about three months, that would get me to rethink. If we're talking about the Fed moving the goalposts and moving to 3% in terms of their target, that would get me to change my view. But the Fed itself on the dot plot had another implied two interest rate moves. And so I'm at 75 to 100 basis points above where they are right now. They've indicated another 50. And so I don't think that I'm that far outside of at least the Fed's thinking. No, but that's not a prediction. I mean, that's a forecast, right?

Fair enough. Weathercaster makes a forecast. It doesn't come to fruition. Fair enough. I'll tell you what would get me to come off of that as well. And I think it's one of the reasons why the Fed paused. Not because they saw inflation moving down meaningfully, because quite frankly, we haven't experienced true disinflation in a few months. Core inflation has grown by 30 to 40 basis points consistently since October.

But what the Fed wants to see is how much of this is going to happen organically, how much liquidity is going to be pulled out of the system organically by the banks. We see this in the sluice reports themselves by other events and so you know if we have some dislodging events if we see liquidity coming out faster than we thought it might that would get me to reconsider as well then we don't need the terminal rate to be where it is now lizanne you know when you have somebody suggest that the fed is far from done and greg's clear point is that the market is just taking this whole thing for granted, that, you know, assuming that this pause means they're done or at most there's one more. What do you think about that?

I think we have we don't know whether the Fed is done. The Fed doesn't know whether they're done. You're right in pointing out that the dots plot just represents individual members assumptions about where the Fed funds rate is going to be. It doesn't represent a roadmap in any way. So perhaps if you can go into the future and tell me what the inflation reports and the labor market reports are going to be between now and the July meeting and then between then and the September meeting, I think we could all make an educated assumption of whether it's one more hike, two more hikes. But when you have a Fed that is very firm about their data dependency, it's a function hike, two more hikes. But when you have a Fed that is very

firm about their data dependency, it's a function of the data. Where I think the market is still not quite in line with the Fed's thinking is the period of time that the Fed is inclined to stay at the terminal rate. The sort of high or higher for longer is not quite, I think, in the expectation of the market. And I think, in fact, it's often the case that this notion of Fed pivoting sooner than people think or sooner than they're telling us to rate cuts, that that's sort of wrapped in the bullish narrative. That, to me, doesn't make sense because the conditions that would give the Fed the green light to start cutting, not just pausing, would be pretty ugly in terms of the backdrop. So whether it's whether they're already at the terminal rate or it's one or two more, I'm not saying it doesn't matter,

but I think it's the firm we're going to stay there for a while that maybe the market still doesn't quite believe the Fed on that one. I think the other and last word to you, Greg, I think the other side of the what causes a Fed to cut doesn't necessarily have to be the situation gets so ugly they're forced to. It's that inflation continues on the trajectory that it is, which is lower and it is coming down quickly. Now, core services, things like that have proven to be a little more sticky. But nonetheless, inflation is coming down. Right. No, it has come down. I don't know if we can use it interchangeably with it is coming down. It has come down. You know, when we look at the CPI that we last got, most of that was energy and base effect. And so we didn't see any meaningful declines in the housing component. We didn't see it in autos. we didn't see any meaningful declines in the housing component.

We didn't see it in autos. We didn't see it pretty much across the board. Well, used car prices are coming down. And that was a lag. That's coming down. Right. It's been volatile. So is housing. Some months has been up.

Has housing come down in the way that we expected the housing component to come down? We've been talking about this for six months. But it was up 50 basis points. Whether it's come down to the degree you were expecting versus coming down or two different things. Fair enough. It is coming down. Fair enough. So so I would certainly agree just by the numbers that inflation has decreased. I guess where you and I have a difference is I don't know if it is actively doing so right now. And I don't know that the Fed is confident that it will continue to do so without their action. And if they were, we certainly wouldn't see a dot plot, even though it's forecast. We wouldn't see a dot plot with over half of the members saying that we need further rate cuts.

We don't necessarily disagree. I'm just taking the other side of your argument, whichever side you want to argue. I love you doing that, Scott. I love you doing that. It's good to have you here. I appreciate it. It's Greg Branch. Lizanne, thank you. We'll see you soon. Lizanne Saunders of Schwab joining us once again here, too. Let's get our Twitter question of the day now. We want to know, will the S&P 500 get above 4,500 sometime this summer? You can head to at CNBC Closing Bell on Twitter to vote. We share the results a little later on in the hour.

In the meantime, let's get a check on some top stocks to watch as we head into the close. Christina Partsenevelos is here with that. Christina. Thank you, Scott. Another electrical vehicle maker is agreeing to adopt Tesla's charging ports. Rivian saying it'll join GM and Ford in giving customers access to Tesla's battery charging network, adding momentum to Tesla's bid to set the industry standard. Piper Sandler reiterating an overweight target for Tesla and they're citing Chinese EV sales. And then Canaccord Genuity reiterates Rivian a buy on highly desirable and well-reviewed vehicles. You can see Tesla up almost four and a half, Rivian up buy on highly desirable and well-reviewed vehicles. You can see Tesla up almost 4.5%, Rivian up almost 5%. Shares of Nike, though, are falling the other direction.

Nike down almost 4% right now. UBS expects Nike's full-year guidance for 2024 to fall short of expectations, leading to a downward revision. The analyst trimmed his price target to $145 from $155 while still maintaining a buy rating on Nike shares. Keep in mind, Nike's earnings are going to be out June 29th. Scott. All right, Christina, thank you. We'll see you in a little bit.

We're just getting started, though, up next, five-star stock advice. Capital wealth planning. Kevin Simpson is back. He's right here at Post 9. Tell us why he's ringing the register on some tech stocks, trimming some of his key positions. He's at Post9. Next, we're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. The big tech rally driving the broader market so far this year, the Nasdaq's up 30 percent year to date. And my next guest says that it's time to ring the register on that sector.

Joining me now here at Post9 is Kevin Simpson of Capital Wealth Planning. It's good to see you in person. So you're bringing the register, but you still have large positions in Apple and Microsoft. Give us some context on what you're doing. I think you've talked so much today correctly about valuations. And at some point, you have to look at these things and say it's not the worst thing in the world to take a little bit of a profit. And as portfolio managers, we do this to right-size positions, to rebalance, looking at everything from a risk management perspective. Too much of a good thing can sometimes be problematic. So we own Apple, Scott, and we own Microsoft. Both of these names have

been, let's face it, doing pretty well this year. And what we've been doing is just trimming into strength week after week. We're maintaining a 5% position in each of them, but we don't want to be overweight in either one name. But if you're keeping that size position, that says to me, you're not overly concerned about valuation or you'd be keeping a much less position than 5%, wouldn't you? Well, I'm no market timer, Scott. So I think a 5 percent position, having a 10 percent weighting in tech has a good risk budget for us. Quite frankly, it would have been awesome if we were all tech this year. Imagine the celebration. But we allocate across all sectors. So from my perspective, I want to have an exposure to it, but I don't want to be overexposed. Do you think Apple is too expensive at 30 times?

Oh, I do. Yeah, absolutely. You do? Yeah. I'm not going to sell the stock because momentum can move things. Markets can move stocks even higher when you get that kind of trade. But from a valuation standpoint, I think it's a little ahead of its skis. Are you thinking of valuation differently than you otherwise would because of the unknowns of AI? And I mean that in a positive sense to what that ultimately could mean for earnings of these stocks? Yeah, you know, that's a great point because you were talking earlier about comparisons to 1999. And that's the difference. These companies have earnings. There's another untapped revenue stream that can come into it. When we were talking about stocks

in 1999, forget revenues, forget earnings. You know, that was a hype train. So I think you can. And I think people always pay up for growth. I'm not sure what that valuation should be, but I have the confidence to keep an allocation to both names. You have a new position in Starbucks. Why? Yeah, Starbucks is a name that we rotated into. So we're taking some profits from the big winners

and we're looking for things that have underperformed. We haven't owned Starbucks in years, but it's off 15% since earnings. It pays over a two percent dividend. They've had pretty strong dividend growth over the past three years. And for me, the multiple is a little bit strong. But relative to Starbucks over time, it doesn't seem that overpriced. How are you judging what is an obviously critical growth area for that company being China, which has been a disappointment. And that's one of the reasons I'm sure why the stock is where it is.

Well, I've never put too much value on what China says they're going to do or not do. So I'm kind of discounting that from our equation. If the China reopening story does happen, well, that'd be great for us because it'll put the stock at a higher price than we're pricing. But how can you discount that part of the story if it's such a significant part of the overall story? Yeah, well, I think that's why the stock's down 15%. Is because the reopen hasn't been as robust? It hasn't played at all. No, that's my point.

Yeah. Is that if that becomes the base case at this point, that it's much further pushed out than we thought. Yeah, that stock could go lower. Yeah. And what I did is I took an initial position with a 15 percent pullback on the stock. We took profits on things that are up 40. Yeah. And we took a small position. I'm not convinced that China is going to reopen if that

stock trades lower. We'll add into it. Oh, I got you. OK, so FedEx reports in overtime in just a little bit. You added to UPS. Why do you choose UPS over FedEx? Well, I think FedEx is in a much better place than I have historically, but I still think from a logistics company, UPS is head and shoulders above what FedEx is trying to do. I give them tremendous accolades for the initiatives that they're doing, but UPS is just so far ahead. Now, they've got problems, Scott. That stock is down 10% since earnings, and they've got to fight against the union in terms of what that's going to look like. And I'm expecting that that could look like another billion dollars to keep labor satisfied, correctly, properly and keep them in the game. Super quick. General Mills, right. You wrote a covered call on GIS.

It's hard to write covered calls when there's no volatility on a consumer staple. But we were able to write a call for 55 cents, five percent out of the money. Doesn't sound like much, but it translates to a 7% annualized return. When you add that to the dividend, you're getting almost a 10% yield on a cereal company. Good stuff. Kevin, thank you. Kevin Simpson, Capital Wealth Planning, joining us here at Postline. Up next, an end to the IPO drought. CAFA made its big market debut last week. And now investors are wondering, is it really going to open the flood gates for more IPO action? We'll tell you what the experts are saying. Do it next. Banks are under pressure again, lagging the market for a second day in a row. This as the

Justice Department says they're rethinking the way they'll evaluate bank mergers. Let's get to Leslie Picker now for more following the money. Leslie, what do we know here? Hey, Scott. So Justice Department officials are rethinking the way that they evaluate bank mergers and figure out what is market concentration. Jonathan Cantor, who runs the antitrust division, spoke at the Brookings Institution earlier today. He said it's time to update the way regulators evaluate those mergers. Now, the current guidelines date back to 95 and focus on deposit levels as a proxy for market concentration. But Cantor said the banking industry has changed so much in the last three decades. The division is modernizing its approach to investigating

and reporting on the full range of competitive factors involved in a bank merger to ensure that we are taking into account today's market realities in the many dimensions of competition in the modern banking sector. He says the agency will bring back what's known as competitive factor reports, analyses which pull in various data sources to calculate market concentration, not just local deposits and branch overlaps. These would include things like fees, interest rates, branch locations, product variety, network effects, inoperability, customer service,

to name a few. Now, of course, the potential revamp comes amid an industry that's experienced tremendous turmoil in recent months. Consolidation, a heavily debated topic here with one camp believing that mergers could stabilize the industry, the other, which thinks that smaller banks are an important part of the local economy. So perhaps today's market reaction to this is sort of reflective of kind of the tug of war here. Yeah. You know, I know that banks are also thinking, Leslie, and I'm sure you know a lot about this topic, too, from the people that you've been speaking to lately about a return of the capital markets business. Oh, yeah. And, you know And whether it's M&A or Kava, for example, there was a lot of excitement down here. And there's a pretty big pipeline of companies that we know want to go public. It's just a

matter of when, not necessarily if. What are you hearing? Yeah, of course, those fees are very critical for the universal banks that derive a lot of fees from managing these IPOs. And the conditions do appear to be ripe for more IPO activity, but that doesn't mean the floodgates are about to open. The broader markets are higher on the year. Recent IPOs are as well. And volatility has been tame, so that all bodes well for companies seeking to maximize valuations in capital raised and price discovery.

And Kava continues to churn out returns for investors who got in at that $22 IPO price. By doubling their money on one IPO, many will be looking for more opportunities, although shares slightly lower today. Now, certain industries will see activities. Kava's quick service restaurant, Pier Panera, drumming up plans to go public. And last week, Reuters reported that Flix, which owns the Greyhound brand, has invited banks to pitch to manage its IPO. But banker sources tell me that management teams aren't frantically calling to rush out deals in the wake of Kava's deal. Instacart, Reddit, Stripe and Databricks have been four VC-backed names

that IPO watchers have been tracking for quite some time, but each one of them grappling with a different set of issues that makes for poor timing for a debut, Scott. What about valuations, Leslie? What are you hearing in that regard? Well, that's a key determinant about whether a company goes public or not, because if you're a VC, you're looking for a return on your money. The company executives who most likely own some stock in the company want a decent return there as well. So if companies don't think they can get decent valuations in their IPO and maybe the valuations are down from where they were, say, in 2021, they're not going to go public now. They're going to wait for things to improve. They're going to wait for the Fed. If it does

intend to do two more rate hikes, they're going to wait until they're through with that and they can really see what this economy looks like before going public, especially if they have the cash on hand to wait. At this point, there are still significant uncertainties out there. They may choose to do so. Yeah, it's one thing to go. It's another thing to go with the valuation you want. Leslie, thank you very much.

That's Leslie Picker following the money, as always. Up next, we're tracking the biggest movers as we head into the close. Christina Partsinevola is standing by with that. Christina. I've got two names, two major oil companies lowering concerns about Chinese growth. I'll have that and obviously much more after this short break. Got just about 15 before the closing bell. Let's get back to Christina Partsenevelos now for a look at the key stocks.

She's watching. Christina. I've got a Chinese focus right now. Shares of Alibaba down about 5% on a leadership shuffle at the telecom company. Daniel Zhang will be stepping down as chairman and CEO and replaced by Joe Stai. As chairman, Stai is seen as the more international-facing executive. And Eddie Wu will take over as CEO. He's seen more as the technologist, and he can help drive Alipay.

Both, though, are considered insiders and close to leader Jack Ma. Zhang isn't going far. He's staying on as leader of the company's cloud intelligence group. Recall, the company did announce just last month it would be spun off. Exxon and Chevron, let's talk about those two names, both about 2% lower or more right now on slower oil demand growth coming from China. We care about that because China's the world's second biggest oil consumer. Oil traders are saying right now that they're seeing oil weakness emerge from disappointing Chinese stimulus efforts. And that's why these two big names are down over 2%.

Scott. All right. Thank you for that, Christina Partinovalos. Last chance to weigh in on our Twitter question. We asked, will the S&P 500 get above 4,500 sometime this summer? You can head to at CNBC Closing Bell on Twitter. The results are right after this break. The results of our Twitter question, will the S&P 500 get above 4,500 this summer? The majority of you saying yes, it will. Here's 65%. Up Up next FedEx's earnings just a few moments away. What

to watch for when that company reports in overtime just ahead. That and much more when we take you inside the market zone. We're now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Christina Partsenevelos on the rally in PayPal shares. Frank Holland on what to watch for as FedEx reports earnings in overtime today. Mike, I begin with you. NASDAQ going positive here. Yeah, I was going to say, I mean, pretty much everything would have pointed to let's take a break after we got that multiple weeks upside and just the Nasdaq looking super overbought.

But it's not really cooperating with that. I still think this is a rally that's no longer going to sneak up on anybody. It's right in front of us all. You no longer have quite the same juice in the under positioning of everybody and and sentiment is very depressed. But what you have now is this idea that we got some relief on all sides. Obviously, the Fed paused, which may or may not be lasting. And really, the economic surprises have come in better than expected. So right now, I think the tape action is encouraging enough people that why am I going to rush to sell?

I still think we probably have to give some back here before very long. But you have a ways down, like a 5% pullback, before you even jeopardize this last little breakout. A lot of nonbelievers still. Yeah. Whether it's, you know, you heard Greg Branch at the very top of our program today, unmoved by anything that this market has done. Yeah, I would say there's a fair number, a core of folks who still are clinging to,

you know, what are very defensible positions about how cycles have behaved in the past. And maybe we just have a longer lead time and maybe last year's decline went some distance toward pricing in the earnings hiccup that we got. I also do think that the fact that you can take shelter in five percent yielding safe paper is making people slower to psychologically buy in to the stock market at this level. And also, look, when markets go up and when valuations get high again, forward returns are probably going to not be as great. It doesn't mean they're going to be bad, but I think that's why the math that people still continue to crunch doesn't kind of force them in. Yeah, still see the S&P down about 16 points. Christina Partsenevelos, PayPal. I'm looking at shares up more than 8% in a week, up more than 13% in a month. What's happening here? Well, this is a big transaction deal. Private equity firm KKR plans to buy over $43 billion worth of PayPal's buy now, pay later loans

originating in Europe, as well as acquire any future eligible buy now, pay later loans. So that's adding to the uptick that we're seeing today, over 3% higher, because this is an influx of cash that will allow PayPal to expand deeper into this business without tying up capital or assuming ever-growing amounts of credit risk, a big concern. PayPal says the transaction is already reflected in its full year's earnings guidance, but when it closes, they can also allocate an additional $1 billion to share buybacks this year, again, part of the reason that you're seeing the stock higher. However, this deal is definitely positive, but there's two major overhangs that exist for the name.

Increased competition, specifically in the merchant space coming from Apple and Clover. And then a lack of new management as the company still needs to find a new CEO and CFO or at least tell us who the new CEO and CFO is. And that's part of the reason why the PayPal stock has not climbed as much as buy now, pay later. Competitors Affirm and SoFi. You can see this is a year to date chart. You can see Affirm 66%, SoFi 86%, PayPal down this is a year to date chart. You can see a firm 66 percent. SoFi, 86 percent. PayPal down 3 percent. Yeah, I was going to say, who needs a CEO given what the stock has done lately? But I get your point. I'm just kidding, obviously.

I know you saw the reaction. My face was like, what? I had many comments, but I know you're joking. All right. Yeah, well, it's had a nice little run. All right, Christina, thank you. Thank you. Frank Holland, FedEx in overtime. Against a backdrop that's a little shaky, against a bar that I think feels pretty low. Ground volume, five straight quarters of year-on-year declines. Missed revenue estimates, four straight quarters as well. What are you anticipating here? Well, first off, we've got to start with the stock performance.

FedEx shares are actually outperforming rival UPS, but they're underperforming the market since April 5th when the logistics giant announced a plan to consolidate its air shipping express business, this e- to lower freight volumes and weaker volumes from China and weaker volumes in Europe and the United States. Also the latest on Network 2.0, that plan I was just talking about to transform the company away from that original structure put in place by founder Fred Smith about 50 years ago. That plan also forecasts to save the company billions in coming years by management. That progress will have a big impact on the guidance for the next fiscal year, with the consensus sees 23% earnings growth. But a lot of questions about that. You got to remember, even the guidance we're seeing for this quarter was put in place a couple months ago when it seemed like China's recovery was going a bit faster than it is. You can see FedEx shares are down ahead of the print, Scott.

Yep, Frank, thank you. We'll see what that print is. Do you still look at transports the way you used to as a group? I don't know that you really can't look at the Dow transports as much. There's a little bit of noise in some of the way the index is constructed. But yeah, I think so. I think you look at things like rails and air freight in particular, less so the commercial airlines, I think just because they're kind of subject to a little more of a whipsaw. We have the services spent. What is interesting to me is the relative trade against UPS for FedEx.

On a five-year basis, UPS is still really crushing FedEx. So there is ground to make up. They are still in this kind of restructuring, rebuilding credibility phase on the strategy. And, you know, the earnings for this fiscal year are still going to be, you know, down from prior peaks, which is, you know, kind of a point from which you can start to rebuild. So I think that's going to be really the takeaway as opposed to the macro implications of what they report today. Getting harder, as we said earlier in the program too, with Liz Ann and Greg Branch to tell a this market is so narrow story. Yes. I mean, it's turned around month to date. I read the numbers before industrials up seven and a half

percent materials like six and a half. Things are coming along. Yeah, it was like the markets rejoinder as the the narrowness became such a loud crescendo of complaint. Now, yeah, I think you could look at things like equal way to consumer cyclicals and industrials up 10, 13 percent year to date. So you still get that situation where without those big Nasdaq stocks, you wouldn't be up nearly as much. That doesn't mean everything else is suffering. There's still a long way to go, I think, before you properly broaden things out. In fact, right now, what we're dealing with, I think, is internally looking a little bit overbought in the short term. So, again, everything seems to need to settle down just a little bit.

But credit is in line. I don't think that's necessarily something that you should be concerned about at this point, the way credit is trading, I mean. And so all of it sort of points in that direction of we have this luxury of being able to assess the macro from a position of relative calm. Volatility is down and the Fed at least seems like it's out of the way for a while, depending on what Powell says tomorrow. We're going to give a little back today as all three of the majors are now in the red. But again, Mike brings up a good point. The Fed's share on the Hill tomorrow. We'll be paying close attention to that. We'll talk about it tomorrow when I see you then.