Closing Bell - Closing Bell: The Everything Rally 5/20/24

Episode Date: May 20, 2024

Could there be more gains on the way? PIMCO’s Erin Browne, Payne Capital’s Courtney Garcia and CNBC’s Senior Markets Commentator Mike Santoli break down where they’re expecting stocks to go from here. Plus, top bank analyst Mike Mayo is flagging one stock that he thinks is the “Nvidia of banking.” He reveals that name. And, star analyst Dan Ives breaks down Microsoft’s big announcements today and what he is watching from Palo Alto earnings in Overtime. 

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with this record run for your money and whether the so-called everything rally can keep going. We'll ask our experts over this final stretch, including Pimko Zerum-Brown. She'll join us at Post 9 in just a second. In the meantime, take a look at the scorecard with 60 minutes to go in regulation today.

NASDAQ is leading today. NVIDIA getting back to $950 a share a couple of days ahead of its earnings. Apple not far away from a new high either as its comeback continues. Elsewhere today, well, financials are in focus. A new high earlier today for shares of JP Morgan. They have turned lower by about 4%.

Company holding its investor day-to-day. CEO Jamie Dimon said, maybe no buybacks at these levels and maybe the stock didn't like that. He also said he was, quote, cautiously pessimistic about the state of the world right now. We'll discuss coming up. It takes us to our talk of the tape. All that continues to rally. And if it's a sign that even more gains are on the way. Let's welcome in Pim Coser and Brown.

She's here at Post 9 as we said. It's nice to see you on the East Coast. Nice to see you as well. It's been a while. It's good to have you here. This everything rally has been pretty amazing. Does it continue? I think it does.

As we heard from the first quarter earnings season, it was a strong earnings across the board. I think what's really important to keep in mind is you're now seeing an inflection and broadening out not just technology leading in terms of earnings recovery, but it's broadening out to more sectors as well. Yes, we're trading at highs on the Dow or close to highs on the Dow, same across most indices. But I think what you'll see as we move through the rest of this year is that this broadening out will drive more flows into the equity market and start to see real participation from more of the cyclical sectors of the economy. What I think is really encouraging over the last couple of weeks has been to see the metals, the mining, the industrial companies now starting to really lead.

And we're starting to see that, I think, be more of a driver into the second half of the year. I mean, over the last six months, to your point about the metals, right? Copper's up 32 percent, silver 36, gold 22. Which parts of the cyclical trade do you really want to lean into? Because all parts of that are not necessarily created equal. Exactly. And so the precious metals certainly have done well. Copper has been very much an AI story. Gold has been, I think, driven by some flows out of other safe haven currencies into gold. But what I think now we're starting to see is more of the industrial metals start to inflect more positively. Some of that's on the back of a thought that China is now bottoming out. They're starting to lean more heavily into infrastructure investment because property sector is continuing to lag. And so you're

starting now, I think, to see more of a real play for the industrial metals and commodities. And I also think that that lends itself to the industrial companies as well. So I think that's where the next leg of this trade is going to be. Not to say that the precious metals and the copper will lag, but I think you're going to see more participation from the industrial metals as well. Not surprisingly, we do have year-end targets going up seemingly by the day, when you're at $5,300 and change on the S&P, you start to get targets ratcheted up maybe $5,500, $5,657. How much more do you really think is possible this year for the S&P, you start to get targets ratcheted up maybe 5,500, 5,657. How much more do you really think is possible this year for the S&P?

So I think mid-single digits is likely possible this year. But certain sectors, I think, can really do quite well. I believe going into the end of this year, even if you get 5% up on the S&P 500, which I think is a reasonable amount to further go, just given sort of the progression of earnings, you're still going to see the quality, the large caps, I think, outperform. I think the small caps are still really hindered. And so while, yes, you're going to see 5 percent on average, there's going to continue to be that bifurcation in the market. You know, it was pretty eye-opening when Rick Reeder was here, BlackRock, of course, last week and suggested you could do 10 to 15 percent more

this year because earnings are underappreciated and some of the benefits from higher rates on a certain cohort of investors and spenders. When you hear calls like that from somebody at a shop like that, do you think that could be possible? Certainly possible. I think that the challenge is that we've come a long way in a very short period of time. I do think that there's going to be some consolidation before we get sort of a strong back half rally. And I also think that we're at a point now where the consumer is weakening. Parts of it. Parts of the consumer are weakening. The luxury, the large cap, the sort of upper tiered consumer companies are doing quite well. And I think they're going to continue to maintain that leadership position. But you're starting to see weakening on the middle and even

especially on the lower end consumer. And so that's, I think, in a somewhat halt at 15 percent, you know, upside from here. But that doesn't mean that certain companies couldn't, you know, gain 15, 20 percent from here. I think that that's very possible. You really have to be more careful about picking your spot. I think, you know, with the point that he would make is that, you know, maybe you're just at the beginning of picking up on what could be a really nice earnings growth story beyond the large cap tech stocks, which have really carried the load so far. Earnings obviously were better than expected, but the bar had come down so much coming into earnings season. But what if we're at a real inflection point where you can get a meaningful pickup in other areas of the economy,

the likes of which you're talking about? So the market's pricing that in. The market expectations are for 3% growth in the first quarter, 10% for the second and third quarter, and 16% for the fourth quarter. So the market certainly is pricing in that earnings inflection. What it would take from here is to see further growth, you know, more than double digit earnings growth in the second half of this year. Is that when you talk about the multiple that, you know, people try and make the argument that at these levels, stocks are expensive, right? Valuations aren't cheap. But if you do have the kind of earnings growth that some suggest you

do and you have rates continue to come down on the expectation of rate cuts at some point this year, that you need those two to play into that story. Right. And so that's where I think the market may be disappointed, which is on the rate side. I think earnings are going to be robust. But if the market right now is pricing in two earnings cut this year, I think that's a high bar. And I think that we'll likely get at best one rate cut. And there's even a potential that we don't get any rate cuts this year. And so as the market starts to come around to that view, I think it does limit a little bit the upside. Still a good environment for equities, but it probably caps the upside somewhat this year. Wow, so you really think there's a chance of zero cuts this year?

Yeah, I think that's about a 30% chance. What would the market look like if that happened? Well, I think then that continues to weigh on the small caps. It continues to weigh on anything that is yield sensitive. Look at the trading today. You saw China underperforming. You saw EVs underperforming, staples underperforming. Anything with a yield component, biotech notwithstanding, anything with a yield component underperformed today. I think that the

market is going to continue to differentiate between those companies that are sitting on a lot of cash that can reinvest that in high yields versus those companies that need to refinance that are highly levered and are having constraints because they don't have growth equity to help them, you know, get from point A to point B. All right. Let's bring in Courtney Garcia now of Payne Capital Management with us at Post 9, also a CNBC contributor. And our senior markets commentator, Mike Santoli, is at the desk as well. Court, you've heard the whole conversation this far. Agree? You still feel like it's the right move to stay bullish and think that a lot of different things can continue to rally? Absolutely. And I think that the most important thing is we did come off of a really good earnings season. But forward looking, those earnings expectations going forward are only looking more positive. When you look at the consensus estimates for earnings and revenue, it's showing that profit

margins are probably going to be upwards of 12% this year, 13% next year, 14% two years from now. And all of that just leads into why you want to be in the equity markets, because a lot of investors are drawn to that 5% yield you're getting on money markets and cash. But don't forget, A, you're paying taxes on that. And B, you're probably still not going to get the kind of returns you are in the market if we have a bull market. And I think we're likely in that. I mean, part of Aaron's point, though, as you heard, is like, well, maybe we're going to be disappointed on the earnings front. And that's going to further question the multiple. And that's going to cap the kind of activity that where Deutsche Bank says 5,500, that you could continue to ramp to numbers like that. And I think certain parts of the market are expensive.

Like, I think a lot of people have talked about the fact that your mega cap seven, I mean, are arguably getting more and more expensive. Is that justified by some of the revenue you're gonna have from AI? When that comes to fruition, I think is the question. We have plenty of areas that are actually undervalued compared to the markets. Like we're still looking at things like energy. Even international is significantly undervalued

compared to the US. I know the argument is what's gonna happen to small caps this year, but if interest rates do come down, those will benefit from that. And they are historically undervalued compared to your larger cap companies. So I think there's plenty of areas to add to. I absolutely still want to own those big seven companies in the SPF 100.

But as I'm deploying new cash, I think there's plenty of other areas of opportunity. Mike, I guess we're either going to be reminded of why we continue to put money into NVIDIA back at $950 today, or we're going to perhaps start to see a story that doesn't look nearly as good as has gotten us here? Yeah, I mean, part of the fixation on NVIDIA, it makes me uncomfortable, even though it's justified. In other words, what happened last quarter, I was sort of downplaying it, going into it, and all of a sudden, it actually was the thing that mattered

that got you another leg of the uptrend in February. But we haven't had we had two days all month when Nvidia has moved less than one percent. So this is the third biggest stock in the world and nobody has a good enough fix on it to really feel like where it should be. So this jockey is going to happen over on this AI wing of the market. Meanwhile, there's all these other themes that seem to matter right now. We're talking about the reflation type trade seems globally driven. That's one other arm of things. And then, you know, Goldman Sachs is making new highs until today. You have this idea in the capital markets of financial conditions are still pretty loose. You have volatility and credit spreads at multi-year lows. So to me, it's pretty strong underpinnings. It's just the market finding its way to stay supported, even if every time we've gotten into trouble in this market the last couple of years

is because everybody kind of all of a sudden maximally believed the soft landing thesis and nothing could go wrong. I'm not sure we're back at that yet, but I still question if a 5% little wobble in April was enough. Well, Jamie Dimon wonders still whether people are too optimistic on the soft landing trade. Not to mention that, you know, that stock, JP Morgan, hits a new high today. Then it pulls back. You know, they're having their investor day. He suggests, well, I'm not going to, I wouldn't buy back a lot of stock at these levels. Like, almost like he's calling a top on his own stock for the near term because he's like, I can't

believe how much these stocks have continued to run. What do you make of his commentary today? I mean, I think he's being prudent. And I think in the past he's been cautious and he's JP Morgan, you know, continually outperforms relative to expectations. I do think, though, that if you're betting on financials doing well because the Fed's going to be an aggressive rate cutting path, you're probably going to be disappointed. And, you know, typically we see historical rate cutting cycles of 200 to 250 basis points. At best, I think we're in a mid-cycle adjustment and we'll likely see once the Fed does start cutting rates, probably only 100, 125 basis points. And so financials, you know, if you're expecting that, you know, you're going to see a significant move,

that's likely not going to pan out the way that people are expecting. Plus, they talked about higher capital charges. There's a lot of things just legislatively in the next administration that could hurt financials. Yeah, we'll have more coming up with Mike Mayo, star analyst who covers that sector in just a bit. We'll get a little bit deeper there. You guys want to have a debate about small caps, whether now is a good time to do it or not. You make the case for, make the case against. Yeah, well, small caps, and I think a lot of people don't even realize they have actually been outperforming the S&P 500 since the lows in mid-April. And when you're looking at the expectations of where those earnings are going to be over the next year,

your small companies actually have higher expectations than your large cap companies do. So I think you're looking at something that is undervalued compared to its alternates, and the expectations of where the revenue and earnings are going is going to be higher. I think that's just a recipe for something you want in your portfolio. And it's not to say I'm getting out of large caps and getting into small,

but I absolutely want to use it as an opportunity. Erin? Yeah, I mean, I think I would take the other side of that. And I think that small caps right now are still very reliant on access to easy capital and easy financial conditions. And I think financial conditions are likely going to stay tighter for longer. You mean, i.e. rates coming down? Right, rates coming down. And I think they're going to say and and, you know, there's also a big bifurcation in terms of what you're seeing in credit spreads that for-quality, large-cap companies versus smaller-cap companies that are more highly levered. And I think that that bifurcation is just going to continue to widen.

Like you're seeing a bifurcation on the consumer side between the haves and the have-nots, I also think you're going to increasingly see rates start to bite the lower um the smaller cap companies increasingly as the fed stays higher for longer even if the fed does cut rates they're still not cutting back down to neutral they're going to be running persistently above neutral they'd have to cut 200 250 basis points to get back to neutral they're not going to be doing that this cycle so that means that rates are still going to be quite restrictive, particularly for those smaller cap companies. Plus, they don't run with the same cash flow. And so they're not sitting on the same cash balances that they're able to reinvest. So that's another, I think, negative against them relative to large caps.

So I want to stick with quality and stick with large caps. And yet, Mike, I mean, the Russell, for example, is up 8% over the last month. Yeah, obviously, you know, it got hit harder on the way down, and that's usually the way it does go. I do think that there's, you know, it is going to trade to a large degree on Fed rate cut expectations. And it's not just because, oh, they're a little dicier. They are, but they also, their credit costs are much more bank loan-oriented. In other words, that's where the rates are set, is by the Fed, effectively. They're prime rate buyers, borrowers.

They're spread over SOFR. So in other words, it's not just sort of like, oh, the atmospherics are better because we're cutting rates. It literally goes to their bottom line if they cut rates. Now, that being said, I don't know that the long-term mean reversion call on small caps is the one I would maybe pay more attention to. You know, we're talking about 10 years. You've seen just historic underperformance Long-term mean reversion call on small caps is the one I would maybe pay more attention to.

You know, we're talking about 10 years. You've seen just historic underperformance over that period of time by small caps over large. You're also going to have the Russell rebalance. It's coming next month. It's kind of mind-numbing exactly what the whole permutations of that are. One thing it's going to do is it's going to clean up the index a little bit, and it's going to graduate out the big volatile stocks that are still in there, like Supermicro, and it's going to get maybe a cleaner look at what this index is and see how it trades. It still scares people, Court, because the volume of regional banks that exist within the Russell 2000 and the small cap universe,

which, to Erin's point, as long as rates remain as elevated as they are, and rate cut projections continue to come down or at least stay static where they are now, doesn't that put a bit of a cap on the performance of those names? I think it does in the short term, but I think this is something that I'm looking at the longer term. Because I think with rate cuts, the idea is it's still going to be the next move is likely down. At one point, we started to get nervous about, and I don't mean me, I mean the markets in general, we're getting nervous about a rate hike. I think that was just overly pessimistic. And at some point in time, rates are going to come down here. So I think that's something that you do with a portion of your portfolio. If you're going to be in it, you want to be in it before that move

happens, not after. It's going to be very hard to time that. I think at some point here, that's going to turn. The other thing, Erin, to discuss is this idea that it's really time to look elsewhere, perhaps Europe or these other markets where you are likely going to get central bank activity before our Fed moves and cuts. You're likely to get rate cuts elsewhere before you get here. And you think that could be a big opportunity. I do. So firstly, I think that the BOE, the ECB, and likely the Bank of Canada will start cutting rates this summer. So June or July, they'll start cutting rates. Not only are you going to get a faster path for rate cutting, but you're also going to get a deeper path for rate cutting once they start cutting. And so because you're seeing more disinflationary trends in those economies that are more firmly

entrenched, you didn't have the same fiscal stimulus that kept inflation elevated. They're not seeing the same immigration challenges to the same extent, or at least as deeply. All of those factors, I think, will lead to a faster rate-cutting cycle. That means it's now time to start looking a little bit outside the U.S., broadening out the scope, and expecting that global growth will start to inflect more positively. The U.S., we still think, will be exceptional, but we do expect to see a little bit of convergence, at least this year, with respect to U.S. growth and the rest of the world as those central banks start to cut, which means that those equity markets also look more attractive. I have not been invested. I've been very much invested

in the U.S. as an outperformance trade versus the rest of the world. Now I'm starting to get more excited about markets outside of the U.S. So Europe is starting to look more interesting, particularly European cyclicals. To some extent, the U.K. as well. But I also think that those markets, you know, you could start to see the more large open economies start to really rebound and play a little bit of catch up with the U.S. You do have to sort of think about, too, as these other central banks perhaps move before the Fed, the pressure it puts on the Fed to make moves of its own. The Delta doesn't like to be too large between central

bank activity, especially when you're talking about developed nations. Typically not. I mean, usually the Fed is kind of calling more its own shots based on the domestic economy. I think the thing that would maybe unsettle things is if the dollar were to rip, you know, go to new highs or something like that. Well, that's one of the potential fallouts. It is. Right now, it's pretty tame. It's not necessarily out of bounds in terms of where things are. There's a bit of a push- here, I think, on things affecting the dollar because global growth getting better seems to be maybe, you know, doing doing the benefit to other currencies. But, yeah, I do think it creates a little bit of flux in the in the policy path, but not necessarily in a in a negative way. I mean,

I think that the longer you have to wait for a first Fed rate cut, you know, the longer you're on pause. I keep saying this is a very long pause. Ten months. Fed has kept rates steady at cycle highs. That suggests to me with the economy growing above trend and inflation having gone down over that period, that's not such a bad policy setting. So if they see the way clear to keeping it there for a while, obviously, you don't want to see inflation go up from here. Sure. But it's not terrible to have to wait if that's what you have. No, assuming that they are able to continue to have the luxury of doing what they're doing. Guys, that was fun. Mike, we'll see you back for the last word for sure.

Aaron Brown, it's good to see you, as I said. Courtney, we'll see you soon. All right, let's send it to Christina Partsenevelos now for a look at the biggest names moving into the close. Christina. Thank you, Scott. Well, shares of Norwegian Cruise Line Holdings are soaring today after the company lifted its full-year guidance and reported better-than-expected earnings. The operator said it has continued to see strong demand and record bookings this year. And that rosy outlook is also lifting shares of Carnival.

And you can see Royal Caribbean also up 4% right now, Norwegian up 7%. Good news for target shoppers, maybe not investors. The retailer announced it would cut prices on about 5,000 frequently shopped items like peanut butter to coffee, causing shares right now to drop over 2%. The company said it hopes to help consumers, quote, feeling pressured by high pressures and expects to unveil more price cuts in the summer. Scott. All right, Christina, we'll be back to you in just a little bit. We're just getting started here at Post 9. Up next, top analyst.

I said he's back. Mike Mayo is going to tell us what stock he's now calling the nvidia of banking and later get you set up for earnings in ot with a big name it's palo alto and that reports in over time we're going to tell you what to watch for give you a rundown of everything we're live at the new york stock exchange you're watching closing bell on cnbc You're watching Closing Bell on CNBC. Shares of JP Morgan falling after hitting an all-time high earlier in today's session. CEO Jamie Dimon telling investors the bank does not plan to buy back a lot of stock at current levels. Take a listen.

Make it really clear, OK? We're not going to buy back a lot of stock at these prices. So I don't know. We do not consider stock buyback returning cash to shareholders. That's giving cash to exiting shareholders. We want to help the existing shareholders. I look at this as cash in store. So the number is $35 billion, $40 billion, whatever you call the number. It's going to sit there until we can deploy it at very good returns. Buying back stock as a financial

company, you know, greatly in excess of two times tangible book is a mistake. All right. Joining me now post nine to discuss is Mike Mayo of Wells Fargo. So we don't need to get into the reasoning to buy back stock or not. Let's get the price, what he said about that. I'm not going to buy a lot of stock back at these prices. What do you make of that comment specifically? Because it does speak to the fact that it did hit a new high today. Well, I think Jamie Dimon is borrowing the phrase from Warren Buffett, be fearful when others are greedy.

I asked that question and I said, are you smarter than the $7 trillion investment grade bond market? And he said, spreads are too tight. People are too happy. You need to be more cautious. So I like the fact that Jamie Dimon has this healthy paranoia because anything can hit you when you run a big bank. On the other hand, I think investors are frustrated seeing that if they're not buying back the stock at this price and Jamie Dimon's selling stock for the first time in his career, why should anyone else buy the stock? So I see this as a short-term overhang for the stock for what's otherwise a very solid long-term company. But I mean, it does speak to the fact, does it not, that look, it's like Goldman Sachs hitting a new high yet again today. These stocks have been on a tear. Is it time to sit back and say that maybe it's been too good in this space? No, I think the stocks are just getting going. I

mean, JP Morgan's investor day, which just ended a couple hours ago, Scott, was very positive on capital markets. They guided higher today. They were very positive on credit quality. Credit card losses are coming in below where they expected. It was also very positive on excess capital for buybacks, not for J.P. Morgan. So J.P. Morgan's investor day was very bullish for Citigroup. Other than Jamie Dimon himself? Exactly. It was bullish on Citigroup because Citigroup is big in cards. They're big in capital markets. They have excess capital.

And you know what? When you trade at one-third the price of J.P. Morgan, you can buy back stock. That was very bullish for Citigroup. So thank you, J.P. Morgan. Jane Frazier should send a thank you note to Jamie Dimon saying, thank you, because your themes support our stock. So when Jamie Dimon says, I'm cautiously pessimistic, that's just Jamie being Jamie in your mind.

There's really not that much to be pessimistic about when it comes to his business, it sounds like you're saying. Yeah, I think Jamie Dimon's more concerned about the geopolitical risks and the debt levels at governments and things that just happen to go wrong, the tail risks overall. But what you're seeing in J.P. Morgan's numbers right now, we're fine, We're good. He's worried about, you know, the kind of six sigma event or maybe three sigma event. So the NVIDIA of banking, you always have a way with words and you like to do that sort of thing.

And you're talking about JP Morgan. The one number. That's the one? The one number that stood out from JP Morgan's investor day today. GPU sales? No. $17 billion of tech spend. That's a record.

No bank has ever spent $17 billion on tech in one year. That's equal to the total expenses, all expenses for the eighth largest bank. That's what JP Morgan spends on tech alone. They're spending it on AI. They're spending on digital banking. They're modernizing the back office. They're trying to be the preeminent digital bank 2.0, which is the next version of banking where you create new products, services, relationships, and engagements that were previously unavailable in analog form. So J.P. Morgan is at the forefront for being that digital leader. It's just that Jamie Dimon hasn't internalized that to become a tech company.

He still considers himself a bank. And that's why I'm wearing my tie again. I'm back to being a bank analyst. I guess I'm not a tech analyst. Your favorite name right now in the space is still Citi? My top three names are Citi Group, Citi Group, and Citi Group. Really? Absolutely.

Why isn't Goldman Sachs in that mix? Well, Citigroup has a component of the capital markets, which are going better than expected. You don't think Goldman Sachs has capital markets? Look, I recommend Goldman Sachs. It's done really well. But Citigroup is still trading at a 30% discount to tangible book value. Scott, this is my fourth decade doing this. It used to be you'd go to tangible book value at the depths of a recession. They're at a 30 percent discount and we're not even in a recession. Well, because they had to do a whole restructuring for the most part as Jane Frazier came in and made that her thing.

And they just finished a watershed seven month org simplification during which many said Citi would blow up, they'd lose revenues, they'd lose people. And guess what? They exceeded expectations in the first quarter as much as any bank. And they're on track to have the best 2024 guide for revenues or expenses of any bank. In over three years, we expect earnings to double. Only one other bank can get even above 50%. That would be Goldman Sachs. So Citi Group is far and out our number one pick. Moynihan, Brian Moynihan, sitting somewhere.

He's like, Mayo, what about us? What about me? Number two. Well, you just said one, two, three was city, city, and city. And then you wax poetic about JPM. Well, number four then, okay? So Citigroup is in a league by itself in terms of fundamentals and the incremental improvement.

But if you force me to give me a second name, it'd be Bank of America. Just look with the CEO. He's chomping at the bit to buy back his stock. So talk about a difference or a dichotomy between JP Morgan and Bank of America. One wants to buy back their stock, Bank of America. The other says, I don't want to buy it back here. One more quick one, just because let's end where we started with Diamond talking about why he doesn't like the buybacks for the reasons why some others do. Do you have a thought on that as it relates to banks buying back their shares? Like if he said, I'm going to buy back stock and they made that a focal point, would you say I'd rather you use the cash for other purposes?

He seems to want to use it for other purposes. I think the banking industry using buybacks is far better than lending to Latin American countries in the 70s, the 80s, or commercial real estate in the early 90s, or the tech bubble around 2000, or to mortgage companies and others during the global financial crisis. So it gives you a nice extra bucket to deploy your capital to. So it helps to moderate the excesses. So I like buybacks generally, but not all the time. So if he wants to pick his spot some, but to have an absolute statement, say, I'm not going to buy back stock. I thought Jamie was being too much Jamie on that comment. All right, we'll leave it there. It's good to see you, Mike. Thanks.

Thank you. That's Mike Mayo here, Post 9. Up next, turbocharged market. HSBC's Max Kettner maps out where he sees this rally heading next. The S&P Nasdaq are trying for another record close. He's going to join us after the break. Close the bell. It's coming right back. Welcome back. The S&P 500 and Nasdaq both trying to start the week with all-time closing highs.

But does this record-setting rally have much more room to go? Let's ask Max Kettner. He's the chief multi-asset strategist at HSBC Global Research. Welcome, Max. Good to see you. Thanks for having me. Thank you. Good to be a multi-asset strategist when multi-assets are rallying. Does that continue? Yeah, I think so. I think what we obviously had last week was this sort of confirmation of Goldilocks and really a rally across pretty much everything. But when we dig a bit deeper, actually what we can see is that when we look at treasury yields, both 2-year and 10-year, for example, they're back to the levels where we were pre-CPI. So it's really the strength in spread products and credit spreads and high yield and IG and emerging market debt in things like equities, whether it's US equities, whether it's European, Japan, whether it's emerging markets. It's really the strength and risk assets that stands out.

And I think the reason is very clear. The reason is that the market in April got really worried about this tail risk of will the Fed need to hike again? And that hike word is now gone. It's firmly gone really from what we've heard from Powell during the last FOMC meeting. And I think that got confirmed last week with the data that the next move is going to be a cut. And for equities and for high yield or for EMD, so if you're long risk assets, it doesn't really matter whether the first cut is going to be in June and July and September, December, as long as the Fed keeps telling us, look, we might not have the confidence just yet, but give it two, three months and we'll have it. That's good enough for risk assets to rally further.

For how long? Yeah, I think we're going to have a couple of months at least still. So I think it's going to be really until sort of the Q3 reporting season, perhaps, where gonna have a couple of months at least still so I think it's gonna be really until sort of the Q3 reporting season perhaps where I see a couple of troubles brewing because when we look at the q3 reporting season in the US In particular that is where expectations are basically shifting away from take from the Magnificent seven in particular Towards the broader market and then you know if growth is on a firm footing, if growth is fine, but it's actually not as good as we expected

and the earnings growth in those other sectors, in those other 493 stocks cannot exceed expectations as perhaps those seven or, you know, seven stocks of tech sector has done in the last couple of reporting seasons. That could be a bit of trouble, but that's four or five months away. Noticeably absent from your view on where to invest around the world. I know we just showed you like Japan, you like the U.S., obviously.

Europe's not on your list because there is a suggestion. We had one earlier today from Aaron Brown of PIMCO, for example, that go where the rate cuts are going first. Yeah, but I think, look, in terms of Europe, when we look at euro dollar, for example, most of it has been priced. When we look at rate expectations or rate differentials, bear in mind, you know, both ECB and Fed rate cut expectations, they start at the around 170 basis points. Now we've seen that divergence really creeping in in the last two and a half months So that's kind of prized as well We've also seen that on the long end of the of the Treasury and the bond curve that there's more bit more of a difference

Being priced now so both in rates and in effects. It's being priced I think in equities when we look at the larger caps They don't have an awful lot to do with GDP, right? When we look at things like, you know, luxury goods or things like obesity drug makers or even, you know, things like AI-related stocks in Europe, they don't have an awful lot to do with European GDP. But I think it really, really is worth a shot is in Eurozone small caps. Because when we start to see now really China stabilizing, we're really starting to see also that growth expectations, particularly top-down growth expectations in the Eurozone are starting to be revised upwards.

And the only real cyclical part of the equity market that hasn't really baked that in to me is really Eurozone small caps. So it's the Eurozone small cap segment that is really, really worth looking at here, not really the broader European large cap equity market. Got it. Max, we'll see you soon. I appreciate your time. Thank you, Max Kettner, joining us. Up next, we are tracking the biggest movers into the close. Christina Partsenevelos is back with that. Christina. Well, we have another public tech company urged to go private and a call for the bottom in toys. And that's moving one company higher. Can you guess the name? I'll tell you after this short break.

Got a bit more than 15 to the closing bell. Back to Christina now for the stocks the sheet is watching. What do we see? We see that the toy bottom might actually be upon us. And this isn't according to your children trying to get you to buy more things. But according to Morgan Stanley analysts who move Hasbro to a top pick in leisure. And that's because of improvement in the share price and improvement in profitability. They believe toys are actually more resilient, even in a downturn. You can see shares up over 3%. Sprout Social, on the other hand, soaring right now, over 6% on a Reuters report

that the founders are in talks to take the social media tools provider private and have even formed a special committee to consider doing so. This news just comes, what, a week after website building platform Squarespace announced it would go private in a $7 billion deal because of continued struggles and stock underperformance. Scott. Christina, thank you very much. Christina Partsenevelos coming up, betting big on weight loss. One telehealth company is seeing some serious gains today following a crucial GLP-1 announcement. We'll give you the details and we'll do it next. We're back with shares of hims and hers. Health surging in today's session.

Brandon Gomez here with what's behind that very big move. Brandon. Hey, Scott. Yeah, the digital pharmacy announced access to compounded GLP-1 weight loss injections. Now, starting at $199 a month, the company projects $100 million in revenue for its weight loss products by the end of 2025. But two important details here. One, HIMS is only offering those compounded drugs. Now, these are not FDA tested or recommended, but they are allowed because of the current supply shortages that exist. Now, the second point, Scott, is that HIMS is playing catch up here with competitors like RoHealth, who entered the weight loss space back in December as pricing competitions against Big Pharma's FDA approved drugs does continue. HIMS CEO told me, though, they do plan to offer access to those drugs, the Ozempics, the Wagovis in the near future.

Scott. All right, Brandon, I appreciate it. Thank you, Brandon Gomez. Up next, Palo Alto reporting at the top of the hour. Star analyst Dan Ives breaking down what he is expecting from that report when we take you inside the Market Zone next. All right, we're now in the closing bell Market Zone. CNBC senior markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Steve Kovach with Microsoft's latest hardware announcements ahead of its Build Developer Conference. And Wed Bush's Dan Ives, he shares what he's expecting from Palo Alto Networks ahead of earnings in OT today. Mike, I'll turn to you first. So, Dow's pulling back a couple hundred, but any positive close for the S&P and the NAS are going to be new closing highs.

Yeah, holding the gains, flattish day, even on breadth. But I mean, there's something like 220 new highs in the New York Stock Exchange and only 25 new 52-week lows. So to me, the breadth of this recovery the last four weeks and the general technical condition of the market is probably one of its best attributes in terms of representing this sort of flow of funds that seems like it is very supportive. I think it is time to say, you know, have we kind of skirted the supposed negative late May seasonality, people sort of front running what's typically a strong summer for election years, and then really just taking a lot of, I think, comfort in the fact that yields have done what they've done and coming off the highs. But we have actually given back about a quarter of that decline in the 10-year

yield over the last few days. So you'll have to watch it all. But overall, you'd have to say market continues to pretty much win the benefit of the doubt. Financials are worse today. If nothing else, maybe CEO of J.P. Morgan, Jamie Dimon, just causes you to sort of reassess the performance of stocks like his. For sure. And in fact, you're seeing that, you know, in other parts of the market, too. Stuff that's just had a nice run and nothing really fresh is out there supporting it. But I wouldn't say it's it's raising any alarms. It's much more about, all right, let's wait for this market to get overbought and overloved again. And then we'll decide if we need to pull back. All right. Steve Kovac is

watching Microsoft for us today in this big announcement they had. What can you tell us? Yeah, Scott, this one is all about the hardware part of the AI story that Microsoft's going to be telling all week. They're calling these co-pilot plus PCs. So that basically means they're running special chips. This one is a Qualcomm chip that's debuting today, but we're expecting down the road, AMD and Intel to play along as well. And basically can do a lot of these artificial intelligence tasks on device,

meaning we're so used to using chat bots and other AI tools running in the cloud. This happens on the device. It's going to be running updates to Windows 11 that can add a lot of these capabilities on the co-pilot side that you can't do on your current PC. And most importantly, Microsoft says they believe this is going to help drive a new upgrade cycle of artificial intelligence PCs.

The fact that they gave or the estimate they gave today was 50 million they expect to ship this year alone. And that is really what's interesting here also is the Apple part of it. They spent a long time or a lot of time talking about Apple, how these devices outperformed the current MacBook Air that came out just a couple of months ago, and just showing that not only does it perform better, the MacBook Air doesn't really have too many AI software features that it can take advantage of all that power that Apple's putting in there. And so, you know, as we look ahead to WWDC here in a few weeks, Scott, a lot more pressure on Apple just from Microsoft today,

basically calling them out and said, hey, Apple, where's your AI? You're behind. Wow. Steve, thank you. Appreciate that. Steve Kovach, lucky to have Dan Ives sitting on the desk. What do you make of that? Little Apple versus Microsoft redux from like, I don't know, what, like 40 years ago? Here we are again. Yeah, this is going to be a battle. And we'll see from Apple, WWDC. But from Microsoft, from Nadella, I mean, it's clear they are in the lead when it comes to AI. I mean, you saw it from an open AI perspective last week. But this is showing what's going into the broader ecosystem.

And I believe this is really just the start from monetization. What could ultimately be an incremental $20, $25 billion annually that gets put into Redmond? So that's the Microsoft perspective. What is the Apple perspective as far as you see it? Well, I think this is really going to be a renaissance of growth for Cook and Cupertino. I think it's the OpenAI partnership, which we believe is going to be announced. That's the start of it. But it's going to really be an AI app store that Apple introduces,

along with now AI coming to iPhone 16. This will be, I think, the most important event for Apple in the last decade. But you call it a shot across the bow to Apple, but then you're glowing about what Apple's going to do in its own right. Reconcile those two. Yeah, because I think Microsoft recognizes that the biggest fear is that Apple, which has been behind on AI, now starts to go after the consumer. Microsoft wants to own that. Now, I personally believe Microsoft owns enterprise, and we've seen that from a co-pilot perspective, but they know that they're behind. And that's why this is an important event for Nadella to court not just developers, but consumers. Important event tonight. That's

Palo Alto, a stock you've sat on this desk and called it a table pounder multiple times. Now, it's had a great move. It had an upset and then a comeback. What now? I think last quarter was a growth transition. I believe this quarter is going to be a step in the right direction. When it comes to cybersecurity, it's a golden age for cybersecurity being led by the likes of Palo Alto, Zscal, CrowdStrike. And I think this is setting up for what could be just an unreal 2025 from a growth perspective for Palo Alto. That's what this is right here. Yeah. What do you, you look at these stocks, you know, Dan's right. You know, CrowdStrike is the best performer here today. Palo Alto has done quite

well. If, you know, Fortinet's kind of the only disappointment. Right. And it's, it's obviously, you know, the market loves when it has just sort of a predictable kind of bigger slice of the pie going to one area of software. It's happy to capitalize that. What I've also been struck by is the way the market has basically rewarded the companies that have had these massive CapEx intentions for AI built. So right now, the market loves people spending heavily on hardware for the next thing. I think it's one of the reasons the market has held up perhaps better than the perceptions of what the Fed's going to do and what the domestic consumer economy can do. It's because you have the AI boom, the factory building boom for infrastructure. And, you know, semis are, you know, 3 percent from their highs and are managing to hang in there.

I do get a kick out of Microsoft. They just want to stuff all value back into the operating system. They know this game. It's Windows 95 over again in terms of, hey, you're going to have to own a new PC if you want to go on the Internet. So they're hoping they can score that or something like that. Yeah, one of our PCs, not one of their Macs. And you're convinced, Dan, that the transition, I think as you called it, for Palo Alto was really a one-quarter thing? Look, I'm not expecting fireworks this quarter,

but what I believe, this will be a quarter in the right direction. And ultimately, to see a $450, $500 stock next few years, they needed to go for the platformization. And if there's one CEO I'm betting on, it's the cash when it comes out. OK, interesting. Dan Ives, thank you very much. Mike, we got about a minute left. As I said, anything positive NAS, anything positive S&P is going to be a new closing high. We're talking about this in part because of NVIDIA back at nine hundred and fifty. Well, now it's a little bit below, but it did get back to nine fifty. And that's a couple of days away now from the year. I think that, you know, there is sort of a cohort out there that says we're not going to you know sort of underplay this earnings

report again. Obviously it's grown into the valuation. We'll see where it goes from here but I was noting how bespoke remark that the NASDAQ has gone from oversold to overbought in 17 trading days. That's happened once before. What happened the last time recently? It just kind of went sideways at the end of last year. It didn't really have to pull back much. We'll see if NVIDIA allows for that again. Just kind of a rest as opposed to a recent stretch. You've had like a four or five-day stretch where I feel like you've had these, you know,

AI days out west. So that's been helping keep these stocks stabilized and climbing in some respects. There's the bell speaking of climbing. New closing high. S&P new closing high for NAS. Overtime picks it up. It's working its own.