Closing Bell - Closing Bell: The Immaculate Rotation 11/29/23

Episode Date: November 29, 2023

With economic growth revised higher for last quarter alongside prices easy and treasury yields breaking down toward a 3 month low – are we back to pricing in a soft economic landing as the base case? Greg Branch from Veritas and Kristina Hooper of Invesco debate their forecasts. Plus, Corient’s Amy Kong breaks out her playbook for the tech trade heading into 2024. And, top analyst Brent Thill reveals what he will be watching from Salesforce’s results after the bell. 

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..... broadening action that so many investors have been waiting and hoping for modest moves higher in the big cap index the nasdaq one hundred basically flat but it's masking a bit more strength underneath the equated S. and P. up about a half a percent today we begin. With our talk of the tape with economic growth revised higher for last quarter this morning alongside prices easing and treasury yields breaking down toward a three month low. Are we back to pricing in a soft economic landing as the base case? Let's ask Greg Branch, Veritas Financial Group managing partner and a CNBC contributor, and Christina Hooper, Invesco's chief global market strategist. It's great to have you both here. Thanks for coming by, Greg.

I know you're going to have a little bit to argue with here in terms of how the market is seeing things, right? I mean, this last leg higher in stocks started with the CPI report, really, November 14th. It kicked us higher. That got 10-year treasury yields below 4.6. Now we're under 4.3. It seems as if the Fed kind of done and yet the economy holding up. What's wrong with that? Well, I think for one thing, the Fed is screaming from the rafters that they're not done to us. And so I'm going to quibble with that. And I'd even point to the start of this even earlier, but similar to the CPI, where the market started to extrapolate a data point as a consistent linear series.

And we don't have that. And so I think it started with the job report. And while 150 or 180, however you want to call it, is not August 297 or September's 227, it's jumping around like that. So to the CPI. And so I think you've seen a coordinated effort from the Fed to say we're not thinking the way you market is thinking. And I think they have some other unforeseen headaches that they haven't announced to us yet. But well, let's get to that a little bit, because yesterday, of course, the market really took heart in Christopher Waller, Fed governor, essentially saying policy is in a good place. Maybe if the conditions line up, we'll be cutting rates.

But we did want to hear what what Barkin had to say today. Thomas Barkin, who's not a voter, but did speak today, maybe a little more in tune with you, Greg. There's no particular need to do anything with interest rates if inflation is coming down. But if inflation is going to flare back up, I think you want to have the option of doing more on rates. So there's your you want to have the option. Maybe we'll have to if inflation doesn't cooperate. But, I mean, it seems as if the market's able to look at the inputs of inflation, or at least right now is getting more comfortable with the idea that it's in the trend we want to see.

Right. And the market is. I just don't know if the Fed is. And I think that that's setting up for a negative surprise. Look, we know that they want to see further rekindling of the labor market. We know that they want to see continued disinflation. The things that they're not telling us that they've wanted to see is they wanted to see yields in and of themselves continue to rise organically and do some of the tightening for them. They wanted to see expectations remain anchored. and they're slowly becoming unanchored. We're reaching levels we haven't seen in a decade on the long run, up at 3.2 percent now,

and on the short run at 4.5 percent, which is much different than the Fed's projected 2 percent. And lastly, when that base effect starts to become more unfavorable, as it will continue to do, we won't get as much psychological comfort from that headline number. The markets won't be able to take as much psychological comfort from that headline number. Christina, where do you come down on that, on this idea that maybe the bond market is either overshooting with yields coming down this much, or does it make sense given the data we have? Oh, it absolutely makes sense given the data we've seen and, quite quite frankly what I think the Fed plans to do.

As Waller said yesterday, we don't need any kind of significant increase in unemployment. The trigger can simply be disinflation continuing. Now I agree, Greg, that that last mile is going to be harder, but we are getting there and I think there's pretty significant confidence among Fed members. What we heard from Tom Barkin in that quote was we don't want markets to get ahead of themselves. We don't want financial conditions to ease. So I'm going to throw in that spoiler to keep you all guessing. But the reality is the Fed is done. And I think that we're going to start to see cuts beginning in the spring of 24.

If that's what he wanted, he didn't really get it today, right? I mean, in terms of what the bond market has done in response to that. Yes, but certainly the Fed, there's a number of different FOMC members that can be rolled out over the course of days that can try to talk down markets. But I think that's simply what is being done is being talked down. You know, I'm going to use something that I was wrong about to disagree with the latter of what you said. I thought, and as you know, Mike, I was in the camp that the consumer was going to fall off a cliff very quickly, very expediently.

And that didn't happen. It didn't happen for, in hindsight, identifiable reasons. But I still don't see it happening. I still see it as kind of a death by a thousand cuts over the next, call it, six to eight quarters. Now, without the consumer collapsing, I don't know how we get to a scenario where we need rate cuts. I don't know. Well, let me point you to the Federal Reserve Beige Book that came out a couple of hours ago. And what we saw in there was that economic activity is slowing. Consumers are being more careful. Certainly, their spending has slowed.

They're becoming more selective. It's certainly also the messaging we got from a lot of companies during earnings season. And so what we could see is an environment in which they're not fueling any kind of significant inflation, that actually that soft pullback is enough on the part of consumers to help continue that disinflationary process. I don't disagree with that, but that was the expected outcome, not a surprise. And I think we truly need a surprise to get to the point where we need rate cuts in the first quarter. Yeah, well, granted, in the first quarter, who knows what the timing might be in terms of rate cuts. But it seems that the market usually gets comfort in, you know, that period between when the Fed is just on hold tends to be OK.

And I guess, Christina, I would ask, regardless of what we think is going to happen unfolding with inflation, with Fed policy, what is the market set up for here? Because, you know, we had a situation back in July, arguably, when we again thought soft landing is in the bag. Positioning got pretty overaggressive. Maybe valuations got stretched. We weren't ready for a seasonally weak period with yields flying. And so therefore, we got that correction. We've recovered from that. Where do you think we are right now with regard to market pricing? We're at a point where I think we're going to see global risk appetite increase from here, as it should, because I think markets have become more certain in that view that the rate hike cycle has ended. Some stocks certainly are overvalued in this environment, but there are a lot of areas of this market that I would argue are undervalued.

And, of course, we're only talking about the U.S. right now. If we go outside the U.S., there's some screaming buys. And I think that's what we're likely to see, this broadening of the market, which started a little bit today and is likely to continue. Greg, in terms of investment tactics, given your view, where does it leave you? I mean, look, you seem to be saying that the economy is going to be a little more resilient than currently expected, and therefore the Fed

might have to be higher than the market anticipates. But what does that mean for companies? Right. And so I call this position kind of the anti-Goldilocks. Things are not going to fall off a cliff so expediently that they need to step in and cut rates. But things, as Christina pointed out, will continue to slow. And so in that environment, I actually think that breadth will re-narrow, Christina. And I think that we will concentrate on the places where we can get some relative earnings growth. I have no confidence that we can grow earnings 12% next year. I do have confidence that certain sectors can grow earnings 12%.

And so financials are starting to look interesting. Obviously, a lot of the performance has happened in the last month. I hesitate to be ahead of a provisioning cycle, and I think we will see one. But the flattening of the curve and the obviously improved net interest margin environment makes it interesting, particularly with some of the bellwethers recently trading at less than price to book. We can look at things powered by secular tailwinds, like cybersecurity, like AI, like cloud. And some health care services look interesting as well, not just the ones with the blockbuster drugs that everyone seems to want,

but also names like Humana and Cardinal that can pass on any macro headwinds that they may experience through the consumer. Christina, you mentioned non-U.S. equities possibly as being an opportunity. I mean, if we do get into a rate-cutting cycle, that typically is one place to look. But otherwise, I mean, developed markets outside the U.S. look like they're going to be more challenged on the growth side as ever. Well, I think we have to separate out the economy from markets. And because, let's face it, we're all going to be facing a slowdown in the first half of 2024, in my opinion. But I think markets are going to look past that to a recovery.

And European stocks look very attractive. They're also more cyclical in nature. So if you do believe that we're going to see a recovery trade, then I think European stocks should benefit from that as markets start to discount an economic recovery in the back half of 24. It is tricky, though, because you articulate it right there. I mean, pretty much everybody expects there's slowing in motion, right? I mean, this quarter is not going to be as strong as last quarter in the U.S. or anywhere else by design and because of rates, you know, just got to their highs in recent months. But yet you're expecting markets to kind of pivot quickly toward looking through that into the next few months? Yeah, typically what we see is markets are looking

out six to 12 months. And I think very much because there's an understanding that the rate hike cycle has ended, that they can look through this downturn and anticipate a recovery that will be at least somewhat goosed by the start of rate cuts. But rate cuts are not necessary, I think, to see a recovery in the back half. Greg, in terms of fixed income, I mean, you now finally have a bid in bonds. In fact, it's one of the strongest months we're on track for in bond returns for a while, obviously coming off of two terrible years. But where does that leave

you? Because a lot of folks, I think, were maybe getting used to the idea that 5 percent was going to be available on the long end for a while. Right. I think it'll reveal itself to be available again. I think the Fed is right to wait here. I disagree with my colleague, Christina, although I have much admiration for. I do think that they won't do anything in December because they should wait. I would wait. Hopefully, the auctions that we have coming up, and we at least know about $1.6 trillion. There's probably more than that. Hopefully, organically, that will give some boost to the yield curve in and of itself.

And so I think that we'll see higher yields. That keeps me focused on the short end for now, where I can remain somewhat liquid and I'm not tied into a yield that does not warrant the risk that we're taking. Just in case we lacked for further things to worry about, though, we do have some comments from Jamie Dimon from this morning, and he's speaking in this direction as well. My view about the economy is I think there's a higher chance than other people that rates have to go up. There are a lot of things out there that which are both dangerous and inflationary. So I just say be prepared. Nobody would argue against the idea of be prepared, I guess. And of course, you know, Jamie Dimon likes to stake out that position of

being watchful for for risk, Christina. But where do you think you would tilt in terms of if you had to worry about one big thing? Is it the economy weakening more than expected or is it a flare up of inflation that that gets the Fed back in the game? I think it's the economy weakening more than expected because of those long and variable lags of monetary policy. We don't know how much damage has been done by rate hikes thus far that haven't yet shown up in the economic data. So that's what I worry about. And that's why I think it is too Pollyanna-ish to assume a soft landing. I'm in the camp of a bumpy landing. That means we avoid a recession, but there is significant damage. Yeah. Bumpy landing,

muddle through. We've been there not that long ago. We'll see if it comes back. Christina, Greg, great to talk to you. Thanks so much. Thank you. All right. Let's now get a check on some top stocks to watch as we head into the close. Steve Kovac is here with those. Hi, Steve. Hey, Mike. Yeah. Okta is lower after disclosing that hackers stole information on all users of its customer support system during the company's October cyber attack. Shares have fallen more than 17 percent since the cybersecurity giant first disclosed the hack last month, and that comes alongside lackluster full-year revenue guidance, both of which are overshadowing strong Q3 earnings and Q4 guidance. And turning to Okta's larger rival CrowdStrike, that stock

hitting its highest level since April of 2022. The company topped analyst expectations in the prior quarter and issued fourth quarter guidance that also beat estimates. Those shares have more than doubled in 2023, up more than 120 percent and are tracking for their best day in over a year. Mike. Steve, thanks so much. Appreciate it. We are just getting started here. Up next, the Magnificent Seven slipping a bit in today's session, but the group has still seen gains of more than 14% over the last month. So what could be in store for the mega caps as we head into 2024? Corrients Amy Kong will reveal how she's playing the space just ahead.

We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. The Magnificent Seven stocks are underperforming today, despite the S&P tech sector hitting a record high earlier in the session. And with the group already gaining nearly 100 percent this year, is the mega cap trade set to turn in 2024? Joining us now at Post 9 is a shareholder in a number of these big tech names, Corriant's Amy Kahn. Great to see you.

Thanks for coming by. So obviously, this is a small decline after a big gain in these names. And of course, on a two-year basis, a lot of them have really just round-tripped. So we don't know where it goes from here. But I'm curious if you think that the market's reasons for piling into these stocks, right, where they seemed insulated from a lot of the slowdown fears and the yield moves, and also from technological disruption, if any of that is changing at this point? Not from what we're seeing.

You know, the markets have transitioned into two scenarios this year. One is the fact that we are in a hire for longer scenario. And to that point, companies, larger cap companies, rather, are outperforming smaller cap. into two scenarios this year. One is the fact that we are in a higher for longer scenario. And to that point, companies, larger cap companies rather, are outperforming smaller cap. And then second, the second scenario is essentially the Fed is closer and closer to done. And with that point, growth is coming back. And that really kind of makes up the rationale of why investors are looking into these types of names. They fit the category in both ways. It's interesting when, you know, so it's higher for longer was the premise for a while. And now yields are rushing lower because maybe it's not as high for as long as we thought, right?

That's probably right. You definitely have a risk off momentum right now. And that's obviously driving a little bit of the yields moving back down. And I think that could be the way to be starting off into 2024 as well. We are seeing that the market continues to be as resilient as it has been. Labor market conditions continue to be healthy. And it's really hard to call a recession, quite frankly, unless you have labor markets turning the corner. Sure. And, you know, as much as we talk about these stocks, the big seven, or maybe you want to

exclude Tesla and it's six or however you define it they are moving on their own fundamentals to a degree I mean as you can see the outperformance of Nvidia and Microsoft relative to some of the others shows you that there's something long-term happening here is there anything going on with Nvidia in particular that gives you pause that either it's pulled forward too much demand or it's become too popular as a stock certainly there's a lot of positive momentum there, and we are cautious going into the stock with brand new money at this point. But we do see the longer-term megatrend there,

and the fact that they have guided revenues really a double from two quarters ago, and they just reported last week, and they actually surpassed expectations once again. Again, two great quarters in a row. It does cause for, again, this megat trend of AI and such becoming a longer-term thing to stay and we're watching that very carefully. As you do have you know fresh client money to deploy, where are you more looking at this point? Valuation continues to be a key discipline for us. We just don't want to be chasing performance even if there is a longer-term trend in play

We are obviously very keen on some of these longer-term trends So we want to be in places like the Nvidia's of the world when the timing is right Microsoft to your point earlier is another area that we have been long-term holders of and we would still be buying today They continue to impress from the standpoint of pricing power free cash flow generation again All the things that are checking off in this kind of environment. And they will benefit, in our opinion, from AI in general as well. It is fascinating. Everyone is very much seizing on the visibility of Microsoft's capacity to monetize in AI.

I was noticing earlier, though, that it was almost a one-for-one that people were kind of paring back Microsoft. It was down one or two percent and all other software stocks were up. So some of the growthier stuff that got left behind, smaller cap, you know, maybe lower profit levels currently seems like it's catching a little bit of a bid. Is that something that's interesting or do you think that's just a little phase that we're going through? We are looking at derivatives of this AI trend. Obviously, the big seven, as you've noted, are the first places people are looking towards. But we're thinking about the second derivatives, if you would, companies that are supporting Microsoft, companies that are supporting Nvidia. We are very still very mindful of valuation. And in general, you make a very interesting point,

the Magnificent Seven makes up about 90% of this year's rally in malperformance. We are paying attention to the other 493, but we're still being very selective because valuation and the idea of monetizing off of AI and some of these larger trends, it's still, you know, a thing, something we're waiting to see. It's not necessarily consistent across the board. You know, we've gotten, obviously, plenty of news along that front the past couple of weeks. So the OpenAI drama, Microsoft seeming like they've kind of retained whatever exposure they have to what OpenAI is doing. But then Amazon coming out with its own co-pilot, so to speak, everybody wanting to convey that they're participating here. Does it muddle the outlook at all, or do you think that at this point

we can have multiple potential winners? You can absolutely have multiple potential winners, and there are so many different ways of playing this AI trend. I think Microsoft, as I've mentioned, continues to play it on both spectrums. They're one of the three, as we know, at cloud computing vendors,

but they're also one of the few that have user-friendly features and services that use AI. Amazon, Google, I think they're all trying to get in, but certainly not as broadcasted, if you would, or not as widely anticipated as what we've seen with Microsoft. But you are starting to see the players come in. And it's just a matter of waiting out whether or not they're true to their word. I think it's easy to say AI in a press conference, but really, can you commercialize off of that

is what we're watching for in the coming years. And I guess, where is the revenue going to come from? I mean, not so much are they going to be able to grow revenue, but where are they taking it from? So I wonder if there are net losers that you have identified, you know, just in general in this area that are not going to be as well positioned. You know, the way we're seeing it is more so that they can be more productive, if you would, with using AI, not necessarily taking it away from other players. And that's probably what's been driving for us, at least innovation is really what's driving

the game for us. And that's a discipline for us is to really look for the innovators in this space. And using AI to innovate is one of the key, you know, more critical disciplines for us is to really look for the innovators in this space and using AI to innovate is one of the key or, you know, more critical disciplines for us. Yeah. Jensen Wang today talking about how AI, if it didn't exist, they couldn't even do any of the designs of their current product line. So it's it's working for them. Clearly, Amy, thanks very much. Thank you. Good to see you. All right. Sticking with tech, a quick programming note. Don't miss Altimeter's Brad Gerstner on the Halftime Report, 12 p.m. noon Eastern tomorrow with Scott Wapner. Up next, Iger on the record, the Disney CEO taking the stage at the Dealbook Summit.

We'll bring you all the biggest headlines after this break. Closing bell. We'll be right back. Welcome back. Disney CEO Bob Iger taking the stage at the Dealbook Summit earlier this afternoon. Julia Boorstin here with the highlights. Hi, Julia. Well, Iger talking with our Andrew Ross Sorkin about how he's trying to transform Disney, including improving mood movies so they can meet the higher bar that there is now for getting people out of the house and into theaters.

He also talked about taking ESPN direct to consumer. All we are doing right now, as we prepare to bring it in a much more direct to consumer direction, which is to launch it as its own app, is basically looking for partners, just talking with partners that could actually enhance the prospects. We're very confident about the prospects of ESPN as a streaming business, but with a potential partner from the sports side, meaning more content, or from the distribution and technology side, we believe our prospects will even be better as it transitions. Iger also responded to a question about Nelson Peltz's activist push and how his demand for a board seat could be received.

There's a qualification level that is required to sit on the Disney board, and the board will make, not me, the board makes decisions about who's qualified and who isn't qualified to be on the board. And if Nelson officially requests a board seat, I'm sure the board will go through a process to determine whether he is, whether he should have a role on the board or not. But it's not like we've got a number of empty seats. Come on in. Join the Disney board. Have fun. Have at it. Help us make sequels. One other controversial issue came up. Elon Musk, Iger, defended his decision to have Disney's brands stop advertising on X, saying the association

with Musk is not necessarily a positive one. Guys? Yeah, interesting, Julia. I mean, of course, in the distant past, Disney having once considered buying Twitter before Musk owned it. But I wonder also about that. There was a bit of an exchange with Andrew about the current succession process, round two, with Bob Iger back in that role. Yeah, look, there was a little bit of a joke about how much Iger needs to do. Iger spoke just in his town hall yesterday about how he's been in a fixing mode. Now he gets his shift into a building mode. And there was a little bit of a joking exchange about all of the things on Iger's to-do list. But he said repeatedly that when his term is up, and of course, he had extended his term since he returned, that he was going to be retiring. And Andrew pushed him a little bit,

said, you have all these things to do. What if you don't finish them? Will you stay? And Iger was pretty definitive that this is his last round as CEO. But certainly a lot to do before then. He said that the board is taking the succession process very seriously. Right. I'm quite sure that if, and I'm sure it did before, too. But we'll see how it plays out this time. Julia, thanks so much. Up next, we are counting you down to Salesforce's results. The software

giant seeing serious gains this year, up nearly 75 percent. So what's at stake when it reports in overtime? We'll discuss that with an analyst after this break. You have the S&P 500 just dipping below the flat line as those big cap tech stocks undergo profit taking. We'll be right back. Welcome back. Shares of Salesforce up nearly 3% as the company prepares to deliver earnings after the close. Let's bring in Brent Thill of Jefferies with more on what to expect. Brent, good to see you. I mean, this consensus has been rising for months for this quarter, for the current fiscal year, for Salesforce. So clearly trends are moving in the right direction. Where are expectations at?

What are you most going to be focused on in the numbers? Yeah, there are two focus items. Number one, CRPO or backlog growth at 11%. They should be able to clear it given it's the easiest bar of the year. And we believe activities picking back up in tech spend. And then number two is operating margins, 30%. This company has way higher aspirations on margin. Their peers are high 30s into the 40s. You look at Adobe mid 40s, you look at Oracle low to mid 40s, you look at all the established peers, they're way ahead of Salesforce. So this is why the activists have been involved, because they've been running way below cruise altitude on margin.

And so we think the continued focus there will give the shares continued lift as long as they continue to show progress on both CRPO at 11 percent and 30 plus percent operating margins. There's some expectation, I suppose, that they may roll out some some more distant guidance, right? Are they going to be framing out how the next fiscal year is going to look? I guess that would incorporate whatever they think they can achieve on margins. Yeah. And again, I think this is still, in our opinion, a double digit top line story with 35, 40 percent long-term. And then the whole AI craze has not hit. So if you look at Microsoft and Adobe, their AI monetization is way ahead of Salesforce. We think that wave will come to them. It still hasn't yet hit in a big way, but will hit. And you look at a number of other businesses like Slack underperforming.

We believe Slack can begin its outperformance with their new leadership. We look at other segments of consolidation of their clouds. There's a tremendous opportunity in front of Salesforce. And again, this is really the big stock run has been driven on margin. And now we have to see, again, that they can sustain that double digit top line and, again, continue to commit to the margin upside. And in terms of, you know, AI and overlaying that into their various products and services, we're seeing some commentary about how their customers are feeling about that and what can be delivered by way of Salesforce. How specifically is that

going to play out, do you think, for them? I think it has a big role in 24, not this year, and it will have a meaningful impact to their business. If you think about you're using their product, say you're a service representative, the AI agent can effectively help understand what is Mike looking for? What can I provide to you when you call into a call center?

Do I even need to talk to a rep? When you have a sales engagement, What is Mike looking for? What can I provide to you when you call into a call center? Do I even need to talk to a rep? When you have a sales engagement, you may be a VIP, which you are, and you effectively should get special service versus myself. I'm not a VIP. So if you think about what happens in terms of AI for Salesforce overall, there's an incredible opportunity. There's so much data trapped in Salesforce. And many users of Salesforce effectively say that they spend more time feeding Salesforce the data versus Salesforce giving them the data back.

We are users at Jefferies. And I think a lot of users feel that the system can unlock a lot of that information. So AI can make this available to the end users in a way easier way that they don't have to dig around for it. That is not necessarily the case today. That will be the case into 24, and we're very bullish that they can unlock this.

But again, if you're very transparent, we believe Microsoft and Adobe are way ahead of their AI capabilities. They're monetizing in a big way. We think Salesforce was lagging a bit, but has an opportunity to catch up. And that will be a 24 catch up in our opinion. I was just looking, I mean, just valuation wise, like on a free cash flow yield basis. I mean, Salesforce is now a good deal cheaper than Microsoft. That didn't used to be the case.

Is that something that should converge? I'm sure you're probably think Microsoft is well positioned too, but it is much more richly valued. Yeah, that's right. I mean, Microsoft has the best product cycle of anyone in software right now. The opportunity to double prices is incredible for Microsoft.

So yeah, we believe it'll converge. And to your point, Salesforce does trade at a discount on many of the valuation metrics. And we think that's why we believe the stock can continue to climb to 275 to 300 based on better execution, unlocking AI into next year, potential hopeful reacceleration of revenue growth. If AI really kicks, they should be able to price and charge more. And theoretically, could they drive even faster than low teen backlog growth? And then from a margin

perspective they've been the most inefficient large cap software coming uh across the board so you know in terms of getting better efficiency that just keeps unlocking shareholder value the activists aren't going anywhere anytime soon uh so we think it's still a reasonable setup for for salesforce yeah uh if it gets back to 300 that's essentially a round trip to the old highs, right? So two years ago. Brent Thill, thanks very much. Appreciate the time. Thank you. And be sure to tune into Overtime at the top of the hour. They will have Salesforce's results then.

Up next, we're tracking the biggest movers as we head into the close. Steve Kovach standing by with more. Hey, Steve. Yeah. So one of the original meme stocks is soaring today ahead of its earnings report next week. And you can't defeat this one retailer that smashed expectations in its earnings report this morning. We'll reveal those names when Closing Bell returns after this. About 16 minutes till the closing bell, the S&P 500 sitting on some modest losses. It's all about some rotation out of the mega caps as there are two stocks up for any everyone that is down on the day. Let's get back to Steve Kovac for a look at some key stocks to watch.

Steve. Yeah. GameStop is soaring today as the meme stock enjoys a resurgence this week. The stock has seen a huge uptick in trading volume and increased intention on sites like where else? Reddit. The move comes ahead of the company's third quarter earnings report a week from today on December 6th. So far this week, GameStop up roughly 30 percent, which would be its best week since March. And Foot Locker is having its best day since August of 2022 after smashing earnings estimates on revenue that also came above

expectations. Company raised its full year same-store sales outlook and issued earnings guidance above analyst estimates. CEO Mary Dillon said on the earnings call that customers remain discerning about discretionary spending but are willing to pay full price for new and trendy products. Shares up over 15 percent today, Mike. Yeah, shows you how beaten down expectations probably had gotten with Foot Locker, Steve. Thanks very much. Up next, banks outperforming on the day. We've got a top analyst standing by to break down all the action in the financials and what it might mean for the sector as we head toward 2024. That and much more when we take you inside the Market Zone. Now in the closing bell Market Zone, Peter Cecchini of Axonic is here to break down these crucial moments of the trading day. Plus, General Motors shares soaring after announcing buyback plans.

Phil LeBeau has those details. And Gerard Cassidy of RBC Capital digs into the rally today in bank stocks. Welcome to you all. Peter, market in the last few weeks is getting pretty comfortable with this idea that we've seen peak yields. The Fed might be getting out of the way. The economy so far hasn't buckled. Earnings back on the upturn and, I don't know, risk back on. How do you see the setup? You know, I see the setup as very bearish positioning at the end of October. That was amongst professional investors, CTAs. You know, we ended the month of October with fewer than 20 percent of S&P stocks above their 50-day moving average and lots of other indicators suggesting that, you know, people were just a bit too bearish.

And that usually coils the spring for a rally. We've gotten that fueled by sort of the reemergence of a Goldilocks narrative. And, you know, what happens oftentimes is when stocks rally, that feeds on justifications for that rally, or people create narratives, they craft narratives to fit the rally. And I really think that that's what's happened here. I don't think much has changed. I think the long and variable lags of monetary policy are going to kick in, certainly taking longer than I thought they would. But I don I think the long and variable lags of monetary policy are going to kick in, certainly take long, taking longer than I thought they would. But I don't think the narrative for next year has changed at all in our view. I mean, there's certainly narratives always do hold sway

and they do change as they follow price and all the rest of it. But that what you say suggests two things. One is that that excess of bearish positioning going into the October low may have been an overshoot on its own, and therefore the S&P never belonged near 4,100 this time around. But also, beyond narrative, the 10-year yield going from 5% to below 4.3 seems to take some of the pressure off the market and the economy as well, no? No, I agree with that. There's definitely a feedback mechanism, a reflexivity between 10-year yields and equity markets. I agree with you that's part of the relief. That said, where I think the narrative has gone a little bit awry is the reason why yields have come in. Fed funds futures are

also now implying about 1.2 percent cuts for next year. And it's our view that those cuts are coming from expectations for a slowdown, not a soft landing. And so, you know, you've got this circularity here to the reasoning that's beginning to embed itself. But, you know, the Fed history tells us that the Fed has rarely, if ever, orchestrated a soft landing. And I'm just not certain what's changed this time. Yes, yields are leading equities. Clearly, that's helped to support equity risk here. But we just don't think that's sustainable given the trajectory of fundamentals that we're seeing, especially a lot of the high frequency data. Yeah, I mean, there's no doubt. I mean, even a slowdown is compatible with the idea that

ultimately, you know, you get a softish landing. I suppose it's a matter of whether it really gets worse from there. But, you know, the credit markets seem not landing, I suppose. It's a matter of whether it really gets worse from there. But, you know, the credit markets seem not to be sniffing any of this out. Does that give you any comfort? Well, you know, when you look at high yield spreads, I agree with you. They've done nothing but sort of tighten. But there are markets that are sniffing it out. You know, when we look in certain structured credit markets in particular,

where we happen to traffic, you know, we think that, you know, a slowdown is being priced in and see pretty good risk adjusted returns there. And, you know, when Mike, when we look at relative value from bonds to equities, for example, you know, we just we just don't see it when we see an S&P dividend yield of about one and a half percent versus, you know, real 10 year yields well above two. It just doesn't square. And forward equity returns have been very, very low every single time you've had that sort of dislocation. Yeah. Fair enough. The intermarket stuff is not necessarily a pure green light. Peter, good to talk to you. Thanks so much. Thanks, Mike. Phil, GM responding to this

accelerated buyback announcement up 9%. What are the details? Well, when you get a buyback where you're going to take 17% of the shares and immediately take them off the market, you're going to get the stock bouncing higher. We'll talk about that in just a little bit. The other piece of news with General Motors today is the company's outlook. They issued new guidance for 2023. Remember, they pulled that back during the UAW strike. The guidance isn't dramatically different from what we saw back before the end of the UAW strike, but a little bit of a trim here and there. And then the other thing that we heard from them is that they will be investing less when it comes to their autonomous vehicle subsidiary, Cruise. And we've talked at some length about the problems with Cruise that they've had

with their vehicles out in San Francisco. For the time being, those are suspended. And finally, Mary Barr this morning on Squawk on the Street said, look, we have got to improve our execution. Here's Mary talking with us. There was a lot of challenges this year with labor negotiations, et cetera. Those are behind us now. And that's what gives us confidence in the business, confidence to do the ASR at a $10 billion level. And we're going to move forward and execute and again, move past these, I'll say bumps in the road on in the areas of autonomous and electrification.

That ASR she's talking about, that stands for Accelerated Stock Repurchase Program. $10 billion of that $6.7 billion will go into immediately retiring GM shares, about $6.7 billion worth of shares. And again, that takes 17% of the float off the street almost immediately. Also take a look at shares of Ford. The reason we're showing this to you, tomorrow there is a Barclays Analyst Conference.

We will hear from Ford at that conference. Don't be surprised if we hear the company, like General Motors, giving us an update on their outlook, whether it's for 23 or for 24. But certainly, there's going to be some questions about the outlook, and we'll hear from Ford at that analyst conference. Mike? You know, Phil, one way to interpret the decision to do this accelerated share buyback is, look, they're telling the market, look, you're pricing us at four times earnings as it is. You know, you're valuing GM as if there's not much of a growth future, if any at all. So we'll just give you the capital back.

Whoever wants to take the money and go can go. And we've got to prove it to the rest of those investors that there actually is a next act in terms of growth. And that's the big question. What is a next act in terms of growth. And that's the big question. What is the next act? Look, if you strictly, if you were General Motors and you did not put all of this money, the billions of dollars that you've allocated into autonomous or into EVs,

you could make the argument, Mike, they're killing it when it comes to internal combustion engine vehicles and that they would have even more cash that they're spitting out. You and I both know the future of autos is in electrification and they're going to have to make that transition. The question is, can they get past the challenges that they've encountered so far

and really kick it into gear in 24 and 25? Yeah. And actually have a transparency towards some returns in that business. Phil, thanks very much. Appreciate it. Gerard Cassidy, banks up 2% today, up like 14% on a month-to-date basis. Is it all about just the bond market rallying and taking some of the balance sheet pressure off? Mike, I think it's some of that, no doubt about it. Certainly at the beginning of the year, of course, many of the investors were very concerned about the unrealized bond losses. And to your point, they reached levels that were very high at the end of the third quarter. And now the 10 years come in quite dramatically since the start of the fourth quarter. But more importantly, Mike, it's all about credit.

Credit trumps interest rates, in our opinion. And if we have some sort of slowdown, which it seems likely next year, but it's not a hard landing, it's not a recession of the 1990 level or 08, 09, the banks are going to do very well. The banks are well positioned today for the Fed to stop raising rates. finished. We're looking at a period where the stocks are greatly under-owned by the long-owning community, and you're going to see some really meaningful performance, in our view, in that environment. Yeah, I have to see even Goldman Sachs hedge fund positioning data also showing hedge funds have rock-bottom exposure to financials. But on the credit point, you've seen everybody kind of getting a little bit alarmed about the upturn in consumer delinquencies, no matter whether you're talking about straight consumer loans or credit cards. And right now, it just looks like normalization, right? You're just going back to the delinquency

rates of pre-pandemic normal times, but it's hard to know if it's going to stop there. You put your thumb on it, Mike. I mean, the normalization trends are underway. We've been talking about them all year. And it really comes down to does normalization lead to deterioration? And then that is equated to, of course, the employment picture. And if the unemployment rate, you know, if somebody is of the viewpoint that next year's unemployment rate could reach 6% or 7%, then you're going to see far worse credit losses in the consumer. However, if the unemployment rate tops out at four and a half percent, we still have all

these labor shortages that we're experiencing today, then it may not be that bad. The other thing, too, is that remember the banks have already reserved for many of these losses under this new accounting that came into effect in January of 2020 called CECL, Current Expected Credit Losses. So they are prepared for this. And I think if the economy is a soft landing or a mild recession, and if it's a mild recession, think about this for a minute, Mike, the Fed's going to start aggressively cutting their short end of the curve to ensure in a year, a presidential election year, that we don't have a real bad recession.

Yeah, most likely that would probably happen. Now, just in terms of within the group quickly, you know, what stocks look like they're ripe to benefit from that type of environment most of all? Yeah, it's the risk on name. So this year, J.P. Morgan's been the champ. It's been the best stock. It's the risk off stock. The long monies are underweight the banks, but they do own J.P. Morgan. So we want to go risk on Bank of America certainly is a name to people should consider. On the regional front, you're looking at Fifth Third Key Corp as names to own. U.S. Bank or PNC are other names that people can own. So we would steer people to more risk on names in the scenario where the Fed has finished

raising rates and the slowdown in the economy is not a hard landing, then those stocks are going to do very well. Gerard, great to catch up with you. Thanks so much. You're welcome. Thank you. All right. About 30 seconds till the close. The S&P 500 is now sitting on a slight decline of about one eighth of one percent. However, two stocks up on the New York Stock Exchange for everyone that is lower. Ten-year Treasury yield down under 4.3%. The equal weight of S&P up about one-third of 1%. It is just a power for taking in some of those mega-cap tech names. Microsoft, Meta, Alphabet.

The big winners of the year that is weighing down the S&P. That's going to do it for Closing Bell. We'll send it to overtime with Morgan Brennan and John Ford.