Closing Bell - Closing Bell: The Great Giveback of 2024? 01/04/24

Episode Date: January 4, 2024

Has the enormous end of year rally become the great giveback of 2024? Trivariate’s Adam Parker and Virtus’ Joe Terranova map out their theories. Plus, Corient’s Amy Kong explains what she’s forecasting for the magnificent 7 this year. And, top technician Jeff DeGraaf is mapping out the market… and reveals the two sectors he is betting on right now. 

Kelly, thanks. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make or break hour begins with this still unsettled market and new questions about where stocks are going from here. We'll ask our experts over this final stretch. In the meantime, your scorecard with 60 minutes to go and regulation looks like that. It's really been tough to get much going for the major averages today. Seen a bit of buying in financials and industrials and health care, but not much elsewhere. There's the majors right now, one in the green, two in the red, another downgrade for Apple today. Seen a bit of buying in financials and industrials and health care, but not much elsewhere. There's the majors right now, one in the green, two in the red, another downgrade for Apple today. It's weighing on those shares and thus it's weighing on the sector at large. There's been a modest bounce in NVIDIA and Tesla today. So we're watching that just a little bit of buying in some of the stocks that have gotten pushed down in this early part of the year. As for

interest rates, probably not helping equities that the 10-year note yield has moved back to 4%. There it is, right about at that level now. And that's ahead of tomorrow's critical employment report. We're going to be watching that closely tomorrow, too. It takes us to our talk of the tape. Whether the enormous end-of-year rally has become the great give-back of 2024

and how much longer it might last, let's ask Adam Parker. He's the founder and CEO of Trivariant Research and a CNBC contributor back here post-9. Happy New Year. It's good to have you back. You surprised by anything that's going on to start this year? Not really. I'm not surprised that, you know, the great give back, I mean, it's three trading days, almost the third one's over and we still got 249 to go. But I'd say not really. I think people knew we were in a chasing Q4 rally, that things were kind of over their skis and you're going to have a bit of rotation here in the first quarter. So I'm not surprised. And I think it makes sense to

look for businesses where the estimates could be achievable that have lagged. Maybe it's health care, maybe it's financials. Some of the areas you say are getting a little bit of a relative bid. So I haven't seen that as really surprising. How much more do you think mega caps need to correct, if we want to use that word, just because the narrative has now become that, well, they got way ahead of themselves. The multiples have grown too rich, so they need to come down somewhat. Is that what you agree with? Not really. I think those businesses deserve huge premiums in a market that I think the median stock trades at 17 and change times forward earnings. Do these things deserve low to mid 20s? For sure they do. So that might be a little bit ahead of themselves.

But frankly, I was looking at the 2025 estimates for the biggest 20 companies in the market. Even if they miss the net income estimates by 10% that's currently in the 2025 numbers, they're still going to have twice the net income they had in 2020. Like these businesses are just really growing their profits way faster than the rest of the market. Yeah, you said low to mid-20s, but like Apple, Microsoft. I know, but Apple and Microsoft are not trading in the low to mid-20s. Right. And I think, well, I think Apple's a little bit different than each one of them is a little bit different. But I'd say in aggregate, probably mid-20s is a fair premium.

So do I think they have to go lower? Not really. I just think you could see, my view is the median company in the market, the average company's gross margins have now troughed and can expand. And if that's the case, the market will be higher in 6, 12, and 18 months. So you're bullish for this year? I think the distribution of outcomes is skewed to the positive that we end the market a year from now higher than we are now. And the reasons are, one, the specter of Fed accommodation, which will be there. I don't think they'll cut as much as what's currently in the price. But ultimately, if the ECB and the Fed are accommodative, I don't

want to fight that. And two, I think the average company can have margin expansion. Combining those two things, that's usually pretty good for equities. Today, right now, three weeks, two, I don't know. But I think if you look out six, 12 months, we're going to be higher. But would you be a buyer of the dip right now in some of these mega cap names? Or does that feel like it needs to shake out a little bit more before you'd be comfortable and confident enough to do that? Very tactfully, probably not. Not everybody is totally overweight to the same degree. People people got bulled up, you know, as the year progressed because that was a place to make money. Most institutional investors are way underweight than MAG7. And the reason is they have, if it's a mutual fund, they have 525 rules where they can't even own the biggest five names.

Can't be more than 25% of their fund. So they're underweight that. Or if they sell one down below five, they can't buy it back up. So most of the people who run long- only institutional money have been underweight this group structurally and it's hurt them when they rally. So they wanted to own more. They couldn't because they had, I'll call it dated risk management, you know, governors, right? Some of them said you can't own more than 3% of one name. Well, if Apple becomes 789, you're 500 pips underweight. I've been looking for a lot of contrarian ideas to start this year. What are some of them said you can't own more than three percent of one name well if apple becomes seven eight nine you're 500 pips underweight i've been looking for a lot of contrarian ideas to start this year what are some of yours places that we really need to look that just aren't

getting enough love and talk payments maybe uh you know some of the fintech stuff that kind of got like paypal got downgraded today yeah you know people think those businesses are today let's put up paypal if we can guys please uh we we talked about that at halftime today. Okay. I missed that. Sorry. No, but a lot of these stocks ran up a whole heck of a lot. There you go. There's PayPal. Yeah, I think some of these businesses, you look down the line, maybe it could be... We saw a big rally in banks, but they're still pretty cheap, and they're definitely not loved when you go talk to institutional investors. Healthcare, I think most people think, hey, I liked it. I was wrong. But now it's an election

year, so it won't work. But these names look like they have above average estimate achievability. You've been talking a lot about energy. Like, I like it. I like it. I like it for many months and hasn't really done anything. Is this going to turn? You know, I'm still overweight energy. I think that we cannot produce what the world will demand. And so we're going to end up having demand exceed supply. I don't know anybody who's consistently right on oil on a three- to six-month view. At least in the last 25 years, I haven't met anyone. But for the balance of this year, you think it's a good place to be?

I do. I do. I think these stocks, ultimately, when you look back one, three, five years, massively outperforming the market the way they did in 21 and 22. But it's very hard tactically to know. What I could say, taking a step back, is I think a recession is more in the energy equities than it is in other parts of the market. I'm looking at stocks and these notes that you gave to our producers, I presume that this is stuff that you did. You added Amazon? No? That's not you?

No. What are you talking about? Fund managers there? Or money managers? Yeah, I think what we were looking at in our note was which fund managers made which stocks they made high conviction in, which is 3% or more of their long AUM, that they did not have those in the previous quarter. Oh, I got you. I missed that. That's my bad. So, the incremental add. So, it wasn't really my recommendation.

Do you agree with those? I think a lot of people, when they need to get, the hedge funds in particular have been underweight, the MAG-7, and they're trying to find the ones that have either accelerating revenue or, you know, potential for margin expansion at 24. That was the playbook. If you look at Meta from a year ago, potential for margin expansion at 24. That was the playbook. If you look at meta from a year ago, right, margin expansion. So I think people were looking out at those names thinking maybe that's good risk of war for better margins. Okay. Nobody better to have than you on what's been happening in the chips, right? Just to remind people, I always do, but just again, you used to be a chip semiconductor analyst. Yes. Right. In your former life. Yes. On the street. Yeah. We do a lot of work on the

sector now too. I know you do. So the SMH just had its best year in 20. Right. Right. Last year. Right. These stocks have been kind of upset to start the year. What's the story here? What do you like? What don't you like? I think that's the perfect example of like stuff that got a little ahead of itself. I'm going to sell that and try to find something else, a better risk reward. I'm not at all surprised. I mean, I look a lot at like Soxel, you know, triple long, the semiconductor ETF, where NVIDIA is a big position. And, you know, clearly that was a monster, you know, move last year. So I'm not surprised we get a little short-term selling. I think it's kind of a bit of a tale of two cities, right? Meaning the businesses that don't benefit from AI probably

went up more than they should have, have high inventory, may not give you great guidance in January. And then the ones that, you know, like Nvidia, AMD, that do have some AI exposure, probably are gonna have better performance in 24. And you've been looking at any of the auto-related ones? Like Mobileye today is a disaster, right? And that's taking a lot of those stocks down. On Semi, NXPI, Texas Instruments.

Right, ADI, Texas. Yeah, I think the ones that have industrial and auto exposure are the ones that have less AI, and that's what I mean, a little bit worse risk-reward into January earnings and guidance. I think NVIDIA and AMD are a little bit separate because they still have, you know, either new products and or demand that exceeds supply in the short term. Okay, let's bring in CNBC contributor Joe Terranova of Virtus Investment Partners. You heard what Adam had to say. It's good to have you back. Do you agree? I always enjoy listening to that.

Any of this surprise you in the first few days? The market is going through a technical correction. It's very clear that the market was technically overbought. In particular, when you look at semiconductors, we identified the extreme distance between price and the critical moving averages well beyond the historical sweet spot by, in some instances, 10 to 15 percent. I do think we run a little bit of a risk here. And I think the risk that we run is that a technical correction evolves into something a little bit larger. What troubles me is that the economic data right now is coming in better than expected. You've got two reasons to believe the Federal Reserve cuts in March.

First reason is they bring inflation down. I don't think they're going to be able to rely on bringing inflation down quick enough by the March meeting to cut 25 points. The market still suggests a 65% probability of that March cut. So now you're relying on the economic data weakening significantly. I don't see that either. So I'm a little concerned that a technical correction

evolves into now we have to price out that rate cut in March. Oh, because we got- And I think this lasts a little bit longer. We got a little too excited about the idea of rate cuts? Well, it's not, yeah, you got a little bit too excited, but the evidence isn't there, either for the Federal Reserve in the

form of inflation receding fast enough, or maybe the economic data deteriorating enough where the Fed has to come to the rescue. The evidence isn't there. I think what's hard is when you go back and look at the data when the Fed cut, at least in our investment lifetimes for us here, you really only had big accommodation when things were really bad. TMT bubble unwind, global financial crisis, COVID. This feels a little bit more like a tweaking of a slowing economy than a true crisis. So I'm not sure how much I can rely on, and I agree with Joe, I'm not sure how much I can rely on history as the guide for the pace at which they do it, the magnitude at which they do it. So I think the bull case would be more, you dream that they're going to be accommodative. They stopped hiking for sure. And then if earnings can hold an okay in the average stocks margin span, then I think that's

a cocktail for a good equity market. I don't think January earnings are going to be great with great guidance. So I could see tactically being a little bit more worried. But if I look out six, 12 months and I dream they're accommodative and margins are going up, then, yeah, equity is going to be higher. That's my splitting up. How good do earnings have to be? Because we're about a week or so away where we're going to be talking about earnings every day. Well, I'm going to answer that specifically identifying the MAG-7 because I think it really comes down to what do the Mag7 earnings look like? How strong in the semiconductor industry are the earnings for Broadcom? How strong are the earnings for NVIDIA, for these companies that are benefiting from the innovation surrounding

and the spending surrounding generative AI? So I'm looking directly at those companies, which are going to report in the third week of January, and it's going to be critical to hear that they're exceeding these earnings expectations. See, I would come back at you and say, isn't it about everything else? Like, those are the more bankable earnings at this point. See, I think the bar is low. All the other stocks need to deliver. Look at finance. I mean, the bar is very low for financials. Bar is low for financials. Healthcare, you're coming off the comps related to COVID. The bar is low there. So I don't know. I think when you look at the

broadening out rally, I think the expectations for earnings are somewhat muted. There's a couple of things, you know, Nike, FedEx or some kind of misses from what I would call historically microcosm stocks that didn't really freak people out too much when they happened because you still had the sentiment positive. There was too much euphoria built into the market at that moment. I think if you get, oh, that's no big deal. No canary in the coal mine here. I think if you get one of those next week or the week after or a pre-neg from a real company, then I think the market reaction could be different. So that's, when I look at the macro landscape, I see a couple positives and a couple negatives. The positives are the economic activity, as Joe said, is improving

a little bit. Leading economic indicators, some of the major, you know, kind of surprise indices look like they're improving. And financial conditions are still pretty easy. I know we've gotten a little bit of a move back in the tenure, but generally they've eased some from where people were three months ago. See, I would also come back. So that's a positive. I would say, well, you know, you say the bar is really low for the financials. What happened between, you know, the end of October and the end of 2023, I thought raised the bar for everybody because now you've got stocks. Let's just say Morgan Stanley, for example. It's up near 14 percent in one month.

A month ago, maybe the bar was low. Doesn't that 14 percent or the 13, almost 14 percent for Citi or the Bank of America up more than 10 percent. Hasn't that raised the bar now for all those names? Well, real quick, in the case of Citi, they've already told us that the trading revenue is not going to look good in this coming quarter. So they got ahead of that a little bit. And I think others are going to be struggling with having trading revenue that doesn't look good as well. You know, in case of in the wealth management industry, it's interesting because conversations I had two weeks ago was that you had a lot of investors who are still sitting in money markets. Right. And what did they look at? They looked at

the market. They said it was richly valued. They didn't want to go in and pay the price. Now the market's correcting. And those same investors who are sitting in the money markets are scared that it's evolving into something bigger and they're just going to sit back in the money market. So this, you know, so-called trillions of dollars sitting on the sidelines, I don't know what motivates it to get involved in risk. Well, you got 4% on the 10 year again. Is that a principal risk at this point that rates, well, you know, we, we've sort of decided, well, okay, rates have peaked. Now I'm not suggesting they're going back to 5%, but the idea was that, well, they're going to continue to just trickle lower. And that's going to be great for equities, especially growth stocks and these long, longer dated growth stocks.

And here we are. We're back at 4 percent on the 10 year. We get a little nervous. I mean, I think when I when I think about the banks, I mean, I don't really think of Morgan Stanley and Citi and Bank of America quite as much as maybe the regionals would have ripped. There, it makes sense to me that the ones with hold to maturity balance sheet problems should be up because their sort of intellectually honest sort of available tangible book was way less October 1 than it is now, right? Bond yields came down. So their kind of hold to maturity balance sheet issues are going to look better than they did three months ago, in my view. So Morgan Stanley, Goldman, J.B. Morgan, they're different. They're kind of superior assets, great private wealth, kind of a call option on maybe activity picking up at some point.

So I don't, I kind of parse them a little bit. I think the regional banks and some of the ones that are more, you know, kind of very balance sheet focused probably are worth more now than they were three months ago. You're betting that the banks are just getting going. You bought Goldman Sachs this morning. I did. But again, I'm buying Goldman Sachs. It's up 10 percent in a month. You know, but I'm not. But look, everyone's looking at the the ability for the yield curve to steepen for us to finally see the disinversion. I know Josh spoke about it yesterday and everyone's

kind of looking at that to two to ten spread. We haven't seen that since July of 2022 be disinverted. So everyone's looking at that. But that's not why I'm buying Goldman Sachs. I'm buying Goldman Sachs because they've done a phenomenal job in taking the business over the last 18 months and shedding a lot of the investments that have been underperforming related to getting involved in consumer-oriented businesses and getting back to the true knitting of what Goldman Sachs is. And I think looking ahead into 2024, if Adam is correct, and I agree with Adam, I think at the end of the year, we're sitting here in the markets higher. OK, you're going to see M&A activity going to increase. Investment banking is going to be really strong. And I think during the ride towards the end of the year, there's going to be tremendous amounts

of opportunity in the capital markets in trading. And I think Goldman Sachs is returned to being one of the preeminent players when you think about trading. Yeah, I mean, short term, I like the regional banks a little bit better just because I think they're still cheap and the estimates are achievable. But I could see the case for I want to buy activity picking up and I'll buy, you know, I'm biased because I'm an ex-Morgan Stanley guy. But you wouldn't buy Morgan Stanley. I'm always going to like Morgan Stanley more than Goldman just from the, you know, I'm biased because I'm an ex-Morgan Stanley guy. But you would buy Morgan Stanley. I'm always going to like Morgan Stanley more than Goldman. You can't take the jersey off. No.

You can't take the jersey off. No. They're just, I know all the people and I love them. And I think the management team is great and they're in great business. But to me, I get it. Evolving management team? Yeah. I know them all. I like them all.

But I think if it's a call option on sort of improving activity, which I think could be the case in the second half of the year, there's going to be a lot of spin codes. There's a lot, you know, I think that you want some exposure. I think short term, I like these cheap regional banks with low expectations, where I do agree with Joe, the bar is not that high for their earnings. But would you expand that and say you like small caps, you know, more than just the regional banks, which are the biggest part of the Russell? Um, yeah, I, I get if their margins are going, I want to own companies where the gross margins are going up and I think there's a bunch and, uh, and that's why I probably a little bit more skewed to the positive than the consensus. You had outlook notes that I saw, you know, from the street last month. What's the area of the market you hate? Uh, physical retailers like target Target, stuff like that. Target's up, I think, I don't know, it's like 30%.

I think it's an amazing short idea. They comped, I think, minus six online, minus 4.9 in the store. Can't pay the dividend with the current cash flow. You know, have all this CapEx. Don't add new stores. I mean, it's got everything wrong with it. 32%. Is that on the real estate or is that on the consumer weakening?

It's not even a macro call. I think if you get the consumer weakening, that'd be frosting on the cake. I think the cake is their subscale in grocery and beauty to Walmart. And they're comping minus five in the physical stores, aren't adding new stores and comp minus six online. Find me one real business that's comping minus six online. So I think it's more of that. And in order to deal with the stealing, they've got a problem. I think I read in one of the reports, their CEO saying the way they're going to deal with the shrink or stealing is they're going to work with the Minnesota legislator. If you've got a better short idea than target CEO working with the Minnesota legislator, I'd love to hear it. So you don't buy, you don't, you don't buy the reasons why that stock's up more than 30% in a few months?

No, they put up better margins when they reported, but the growth algorithm for all physical retailers is you either need to comp at your existing store base and or add new stores. You can't have negative on both and be a sustained business. How would you answer that question? It's a microcosm for me. I don't mean to pick on that one. There are others like it, but I'm most negative on physical retail spaces in America. What about you? Unfortunately for me, I still maintain the concern surrounding energy. And the reason that I have the concern surrounding energy is that there's a tremendous amount of supply.

You've seen globally countries have responded to the pressure that their consumers are feeling through energy prices being higher in the early part of 2023. There's an abundance of supply and the speculative positioning is still overweight. That's not good. You got like a lot of stocks in that space. I'm well aware of that. And that'll be reminding our viewers. That'll be addressed at the end of the month. Okay. We may or may not move in a particular direction. Let's let me stop you for a second just to remind people to you. We've been talking about energy for a long time. Yes. You had said this last quarter, last quarter of 23 was make it or break it for these stocks. Yes. Turned out to be maybe break it, which is what you're talking about, because they certainly didn't make it. Well, potentially it did because it really didn't go anywhere.

So, you know, and you're hearing Adam talk about fundamentally energy seems to be, I think you would agree, right, in a good position. He loves energy stocks. It's in a good position over the next 12 months. But you have to you have to acknowledge that price is not responding in the near term to what everyone suspects is going to unfold as we move forward in the future as it relates to supply, demand, and balance. Right now, the supply, demand, and balance is clearly where we are oversupplied. So is he going to make a mistake by rebalancing out of energy? It all depends on investment horizon. I'm saying we have something like 19% of new vehicle sales are EV or hybrid. I think 8% or 9% of the installed bases,

cars are born, then they die. They last 11 to 14 years, depending on where you live. If you look at that installed base plus other consumption, it looks like peak oil demand's six, seven, eight years from now. At that point, you need 107 million barrels, and we can't currently produce that with the CapEx that's out there.

So we're going to be four or five million barrels short, and oil prices are going to go way higher. Now, I don't know if that's two years, one year, three years, but that's the game I'm playing with cheap stocks with low expectations. But tactically, sure. But you know what's going to happen. He's going to rebalance out, and Murphy's Law is going to show up. He's suggesting that I'm going to get out of energy. I didn't say I was going to get out of energy. Did you hear that, Adam?

You didn't hear that. I heard some political stuff. I know where this is going. But I think it's a rising thing. I know where this is going. If you have viewers who want to know. He's losing his patience with energy. You're suggesting that you should be leaning in. I'm saying if you want to, if you're asking me, do I think energy outperforms one, three, five and 10 years? Yes. And by a lot. Do I have any idea in the next three to six months? No, I don't. All right. We're going to leave it there. Thank you very much.

Joe, you keep us on our toes. Richer and skinnier for 2024. Those are what I'm looking for this year. For yourself? Yeah, skinnier and richer. There's a mirror right there. Look at that. Starting here.

Let's look a year from now. Right behind the laptop. That's what we have in there. Let's look a year from now. The mirror keeps us all honest. Happy New Year. Adam Parker, thanks. Joe Chernova, you as well.

Let's send it to Christina Partsenevelis now, who has more on the big moves today in the chip space we mentioned earlier. Christina. I thought you were going to say richer and skinnier, but no. Autonomous driving systems company Mobileye is having its worst day since going public in October 2022, or since October 2022. It's down about, what, 25% right now. Mobileye expects a 50% drop in revenue for the first quarter of this year because of excessive customer inventory issues. The cut weighing on Intel, since Intel is a majority shareholder of Mobileye. You can see shares, though, barely in the red.

But the brunt of the impact is really just hitting auto semis like STM, NXPI, OnSemi, all over about 3% or more. And this is the first negative pre-announcement from a chip company in 2024 and could be isolated to Mobileye or set the tone for auto-exposed names like NXPI on Semi ahead of upcoming earnings. Shares of Microchip are about 1% lower right now and on downgrade from Piper Sandler citing weak auto and industrial markets.

Separately, the Biden administration today announcing Microchip is the second recipient of the CHIPS Act funding. It's going to receive about $162 million to help expand, modernize equipment and increase production of mature chips used in auto, industrial and defense industries. And they're going to do that on American soil. Scott.

All right, Christina, thank you. We'll see you in just a bit. Christina Parts of Neveless. We're just getting started right here at Post 9 on Closing Bell. Up next, trading the MAG7. Apple, second downgrade this week. The broader tech space is struggling to gain traction as well. Corian's Amy Kong is back with how to play that sector right now. Owns at least a couple of mega caps, as she'll tell you next. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC.

All right, welcome back. Shares of Apple, they're falling after the company's second downgrade this week, this time from Piper Sandler, citing iPhone sales and its valuation. The rest of the Magnificent Seven also slipping to start the year, as you know. That index down 3% year to date. Let's bring in Corian's Amy Kong to further discuss. Happy New Year. Welcome back.

Happy New Year. Okay, so top holdings include Alphabet, Apple, Microsoft, and Nvidia. Are you getting a little nervous? In the short run, of course, there's likely to be room for some of these stocks to slip, and we've already started to see that into the new year. But longer term, we do think that they have good fundamentals, good growth prospects, good cash flow, which I think is very key in this kind of market. And so we are long term holders. You feel like you have a good handle on I know you have to sort of judge all of these individually what their valuations should be in quotes, right? Many of them are trading well above their 10 year historical averages, whether it, you know, Apple at 28 and a half times or somewhere around that. But you

get the point of where I'm going with that. You have in your mind like, OK, I think this needs to correct to this level and then I think it's going to be fine? Yeah, it's a great question. We think about price to earnings ratio in an absolute term, historically speaking. We also look at peg ratios, which is very important, especially in names like Nvidia, where the PEs are very high, but from a peg ratio perspective, it's a little bit more moderated. And so in general, we are comfortable buying into these names, not now, but in the past, buying into these names, knowing that the growth is likely to grow into the multiple. But again, my point being the cash flow and the balance sheet being so robust, in our opinion, these are really key attributes to have in this kind of uncertain

market. Would you urge people to sort of sit back and just relax for a little bit, watch these things settle out before adding new money? Because, you know, the last couple of days, I'm looking at Meta, for example, which you don't own, but, you know, Meta's green. And a couple of times, you know, I don't know, NVIDIA's green. Yesterday, it was Microsoft and Alphabet were green. So there's a little, you know, putting toes back in the water there. But would you suggest just sort of sitting back and relaxing for a little bit? Yeah, that's spot on, Scott. We are pausing on any new dollars going into this group of stocks. In general, the market, after this great burst of optimism from last quarter, is market, after this great burst of optimism

from last quarter, is now sitting at a price-to-earnings ratio of 20 times this year's earnings. It is a little bit high from an absolute standpoint, a little bit high from a historical standpoint. And so we need to see earnings grow into this multiple. And so we're really looking for opportunities outside of the MAG7 at this point. And so healthcare, maybe financials could

be areas of interest for us for the time being do you feel like earnings are going to meet the moment and grow into the multiple i mean it obviously that banks on the economy remaining strong enough margins holding up revenues and and the like yeah it's it's another great question i think for the moment the market is expecting almost an 11% growth from 23 to 24 earnings. The next couple of weeks, even months, will be very key for us because management teams are prepared to talk about last year, which we think will be okay. But really, the focus will be what's going to happen this year. And I do think that there will be some adjustments to the 24 numbers. So from my perspective, it's going to be very important to watch what that's

going to look like. And we do think management teams will lean more conservative. What about rate cuts? What are you sort of expecting? The market's expecting one thing. Maybe the market's a little bit ahead of itself with six at least cuts starting in March. Does that sound too optimistic to you? It feels a little optimistic at the moment, considering where the valuation levels are. I think the Fed is doing the right thing by trying to take back a little bit in terms of the minutes that were shown just more recently. In our opinion, I think the key is really to make sure inflation is getting back to that 2 percent. We haven't gotten there yet. It has to get there and stay there. I think the Fed needs to be very careful not to declare victory on inflation too prematurely.

So then on that note, you obviously aren't expecting that many rate cuts. No, we're not. How many do you think are realistic? And what do you think that means for the trajectory of the market in 2024? I can't tell you at the moment because the inflation data is still coming in. And we haven't even gotten back to 2% yet, which is their long-term target. I think the Fed is not trying to say we want to get near 2 percent. They want to get to 2 percent and stay there at a sustainable level. And for us to really

think about rate cuts, we do need to see that data continue to flow through. So I think for the moment, maybe between one and three is reasonable. But six is obviously from our perspective a little bit beyond what we're comfortable with. What kind of overall year do you think we're going to have then in stocks? We think that it could be a positive year. Certainly, we don't think it'll be a repeat of 2023. Considering that earnings are likely to be positive from a growth standpoint, I don't know if 11% is where we're going to get to. But if it is positive, we do think the market should have a reasonable year. Another aspect to think about is the fact that it is an election year. And not to say historical performance is an

indication of future, but historically speaking, when there is an incumbent president, incumbent candidate rather, running for president, the S&P has landed in positive territory for the year. So that's something to keep in mind as we walk through the next couple of quarters. It will be fun to watch, and I'm sure we'll do it with you. Love to have you back soon. Thank you. Thanks, Scott. All right, Amy Kahn, again, a Corian partner. Up next, mapping out the market.

Top technician Jeff DeGraff will find out where he sees the rally heading from here. Made some pretty good calls last year, that's for sure. He'll tell us the two sectors he's betting on in 2024 just after the break. Closing bell's coming right back. It's been a volatile session for stocks. The major averages trying to hold on to their weekly win streaks. But there is more technical trouble brewing in the charts. Is there or is the rally's momentum set to get back on track? Let's ask Jeff DeGraff. He

is the founder and chairman of Renaissance Macro. Welcome back. Happy New Year. Happy New Year, Scott. What do you make of this early trading? Well, this this couple of first week or so, you know, I think you did have some tax loss selling that helped to create that vacuum that, you know, gives bulls the advantage. But I do think longer term, you hit on it a little bit, nine straight weeks of gains through last week is pretty unusual. It's happened roughly 20 times in the last 100 years. And that usually implies stronger gains ahead.

And I think it's really just a reflection of some of the breadth indications that we've talked about, 20-day highs, a percentage of issues of other 20-day moving averages. Those are indications of bull markets. So when we start the year, we just did our outlook call this morning. You know, the first thing we look at is just saying, hey, look, are we in a bull market, bear market, or, you know, really undetermined? And it's pretty clear to us that we're in a bull market. And frankly, we have been for at least 10 months and really kind of nailed that home with the breadth thrust that we saw in the fourth quarter. But what if part of this was built on, you know,

a shaky foundation, so to speak, especially towards the end of the year, seasonals, positioning, growth is slowing. The Fed's probably not cutting as much as the market thinks. All of that together, does that weaken the case that this is a new and about to rage bull market? I don't think it does. And I certainly am sympathetic to the idea that the Fed's probably not going to be as aggressive as maybe the market's pricing in right here. But I don't think you can disconnect that concern with the reaction that we've seen from equities. And that's everything. Forget the Magnificent Seven or even the S&P 500, for that matter. I mean, we've seen really good thrust indications out of the micro cap, the Russell micro cap

index, the small cap index. If you really look globally, particularly if you take out China and Hong Kong, the global markets are acting much, much better. So whatever's out there, whether it was a concern that the Fed was going to overstep their boundaries or frankly, global central banks are going to overstep their boundaries, or frankly, global central banks are going to overstep their boundaries. That's coming off the boil. And I think that's going to give us some latitude to move higher. The other thing to keep in mind, because I think people are concerned about this, is

the BBB spreads and most of the credit indications, and when I say most, I mean all, the credit indications that we look at still say that there really isn't a whiff of credit concerns or recession in these markets. And so I think the Fed has done a good job at engineering what's going to prove to be most likely a soft landing. What if rates get back on the boil, though? Look, we went from five to four on the 10-year. And I don't know, we're still a little concerned on this last mile of inflation. If the Fed doesn't cut as much as the market thinks, which you say is likely, if inflation doesn't come down now quick enough towards target, we could be in an area where we get a little sticky for a while. A little, but I think that's kind of reaching or grasping for a bearish narrative.

If we look at the data underneath the surface, it's pretty clear that it's moving in the right direction. Energy, obviously, a big part of that call. I think we're in much better shape. And frankly, we've thought that for at least a year now, that we've been in better shape on the inflation front than the consensus. And we're still in that camp. So I think there's some latitude there. The real question is real rates for us. And as long as real rates stay roughly below 200 basis points, that's plenty of ammunition for the equity markets. We start getting above 225, 250. And that does start to pinch off the equity market forward returns historically. And

we're we're not in that zone yet. So I think we're OK. Can we take the 10 year yield back to 425? Absolutely. Will that have a consolidation impact on the S&P? Absolutely. I think it will. Will it will dislodge or derail the bull market? I don't think that happens. I mean, lastly, it may put more pressure on tech, Nasdaq and some of these mega caps. How much I don't think that happens. I mean, lastly, it may put more pressure on tech, NASDAQ and some of these mega caps. How much further do you think that needs to reset, correct? Would it pick your word, but come down? Well, I think what's interesting is when we get this breadth that's starting to expand, that money has to come from somewhere and it's coming from somewhere, right? So the concentration that we had in the Magnificent Seven, I think, ends up not being necessarily a liability for those names, but I do think they

probably underperform. One interesting thing, and I won't belabor this point, but some of the work that we've done shows that the path that we're on right now in terms of the pricing from sectors, styles, commodities, et cetera, is the most similar to the 1995 path when the Fed first cut rates. What's interesting is all the other paths don't look anything like that. But in the 1995 path, the minute the Fed actually cut rates the first time, tech was doing very, very well, outperforming up into that point. And then it actually ended up peaking on a relative basis for the next six to 12 months after the Fed actually cut rates. So that might be the curveball here. You can drive a truck through the variability on some of these studies.

But I do think it's interesting that the concentration, the enthusiasm, the sentiment, if you will, that's embedded in tech may actually end up proving to be a liability when the Fed cuts rates because it really just kind of buoys a lot of other things that have been under pressure. And one of those areas that we think is really set up bullishly for 2024 is health care. So the market can withstand a bit of a period of upset for mega caps? I don't think it's going to be that big of a problem. I think it results in a consolidation. But as long as the breadth is there, I think it's fine. All right. Good stuff. We'll see you soon, Jeff. Thanks. Thank you, Jeff. The graph up next.

We're tracking the biggest movers as we head into the close back to Christina Parts and Nevelos, of course, who is standing by with that. Of course. Well, EV battery maker QuantumScape getting a vote of confidence from one car maker. And can TikTok save Peloton? Investors seem to think so. Details next. All right, we're 15 minutes from the closing bell. Back to Christina Partsenevelos for the stock she's watching. Christina. Peloton. It's a big day for fitness equipment maker Peloton. The stock is surging 14% right now after the company announced

it's partnering with TikTok to bring short-form fitness videos and other content to social media. And new battery test results is charging up QuantumScape stock. The electric vehicle battery maker is up nearly 50% today, or let's say 45% right now. A Volkswagen subsidiary announced that it had completed a test of QuantumScape's solid-state lithium battery for electric vehicles, and the results were encouraging.

Vote of confidence, and that's causing the stock to soar. Got it. All right, Christina, thank you. Up next, Netflix shares are higher. We'll find out what's behind that move, why one firm thinks there could be further upside for that name in the year ahead. Closing bells right back. Quick programming note.

Do not miss a special last call tonight. That's live from Miami Beach. We're going to hear from the CEOs of Chevron, Royal Caribbean, and many more. Start at 7 o'clock Eastern time. Up next, Walgreens in the red today. We'll tell you what's weighing on that name, how it could impact the drugstore chain in the year 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 this trading day. Plus, Walgreens slashing its dividend. Bertha Coombs has the details for us there. And Julia Borsten on why JP Morgan is bullish on Netflix this year. Mike, you first, though. Whatever's going on in the market, it's still unsettled. It's trying to figure out what it wants to do as we begin this year, Mike, you first, though. Whatever's going on in the market, it's still unsettled. It's trying to figure out what it wants to do as we begin this year. We're hesitating. I mean, the last time we had a multi-week rip through November,

and then we knew we were overbought. We knew we had to kind of take a pause. It was the most pristine and painless sideways move we had. It was not really a pullback. That was early December, thereabouts. It's maybe a little too much to ask. You get two of those in a row where basically you barely notice it on the chart in retrospect. So, you know, we're like not even 2 percent off the highs. The way I'm thinking about it is we have undone the post Fed meeting leg of the rally. Forty seven oh seven where we closed December 13th. We broke just a little bit below that right

here. We've started to take some of the sentiment and positioning stuff off the boil. You look at the weekly national investment, active investment managers tally, cutback equity exposure. You're starting to see put call ratios go up. So people are bracing for something. It's unclear if it's a specific thing or it's just a, hey, we spread the news. This off landing is probably here and nobody else needs to be convinced of it yet. You heard Jeff DeGraff. I did.

I think I'm not too concerned from a technical standpoint, certainly. Yeah. If you lean on the trend and the market behavior itself in terms of what it's told you and what that tends to indicate for the future, you're pretty comfortable that, you know, this dip will be likely bought. And I don't think I'm with him about I'm not really concerned about micro studying the Fed expectations and the Fed funds futures and if it's going to be March or not. All I know is investment grade corporate yield has gone from six point four percent to five point two in less than three months. That helps no

matter what else happens with the Fed. Yeah. So, Bertha, looking at Walgreens here, which is down a more than five percent, all on the dividend cut. Yeah, it's come well off of the low, Scott. You know, its results for the quarter actually came in well ahead of expectations driven by strength in pharmacy prescriptions and boots UK in international. But CEO Tim Wentworth, just two and a half months on the job, says he's focused on getting the company's finances on stronger footing, stressing, quote, that everything is on the table, starting with slashing that dividend from 48 cents to 25 cents a share, about 48 percent. The first cut in more than 45 years for the company, which takes the yield down from 7% to around 4%. Wentworth told me the sale of Boots UK, which was long rumored, is also on the table as he focuses on bringing down the company's debt in the wake of acquisitions to build up primary care and specialty health services, which he's still very much committed to.

Scott? Bertha Coombs, thank you very much for that. To Julia Boorstin on Netflix, where I have this call from J.P. Morgan in my hand here. Overweight $510 is the price target up from $470. Why are they doing this? Well, Netflix shares are up 1% going into the close on that J.P. Morgan note, reiterating its overweight rating with that $510 price target. Now, this is despite the fact that the stock had gained about 34 percent

since reporting strong third quarter earnings. That's four times the growth of the S&P 500 over that time period. Now, analyst Doug Anmuth is bullish that Netflix has the ability to accelerate revenue growth, expand margins and drive multi-year free cash flow growth. They point to a couple of things, including paid sharing, saying that after two straight quarters of strong subscriber growth, they expect the benefits to continue for several quarters moving forward. They also point to the potential around building scale for Netflix's new ad tier, as well as new bundles with internet service providers such as Verizon, as well as bundles onto devices.

Now, Netflix shares are up over 54 percent in the past 12 months. Scott? All right, Julia, appreciate that very much. I mean, this $700 on the stock, that's way, way in the rear view at this point. $500 is the 52-week high, so we're not that far away at all. Not that far at all. And, you know, the report was classic in a sense because they've already liked the stock before. They're just kind of marking the price target to market. And it's kind of like the stuff we liked before is still working. We're just kind of pulling it forward into the coming year. You know, free cash flow, it wasn't long ago that they just went positive. It's like a 3% free cash flow yield if you buy into their definition of it.

Similar to Amazon, meta is like four and a half, five. So that gives you a frame for how profitable the business is now showing itself to be, see if they can continue to expand that. You mentioned a little while ago, the last time we went through something like this and had this purely just easy sideways move was mid-December. We really didn't have a lot going on.

Like, okay, we had some data come out. We had a Fed speaker sort of set us in the right direction, that kind of turned things. Now we've got a lot of data. Tomorrow morning's jobs report and earnings. Earnings are coming up real quick. Earnings are definitely going to be the thing. I think that we always hesitate during earnings season, but I think once you get the mass of reports in, it's going to tell us if we were right to think that companies are going to be able to feast on a soft landing type environment. In terms of the jobs number, I still think good news is good news. I think the fact that inflation is in such a positive downward trend enables you to embrace positive economic results as opposed to fearing them.

Again, I still don't think that when and how much the Fed cuts is the absolute single swing factor for this market. So we did see, I heard Adam Parker mention, the economic surprise index barely bounced higher from a flat level. So it seems like we're still OK on that. We'll see how the bond market reacts to it, though. I still think four and a quarter on the 10 years where you might have to be concerned about hesitation in terms of equity. No accident that the S&P 500 is sitting right at 4700. Right at that level. So keep an eye there. We certainly will. Obviously we're going to do that tomorrow. But get the jobs report and we're going to run you through the market as well. Into OT. I'll see you tomorrow.