Closing Bell - Closing Bell: The “Wall of Money” 6/5/24

Episode Date: June 5, 2024

What could fuel the next leg of this record setting run for stocks? Greg Branch from Branch Global Capital Advisors, Rich Weiss from American Century and Stephanie Link of Hightower debate where they stand. Plus, Dean of Valuation Aswath Damodaran tells us how he sees the AI trade shifting and what it might mean for your portfolio. And, Nvidia hit $3 trillion – briefly surpassing Apple’s market cap. We break down that move and what it means for the rest of the chips. 

All right, guys, thank you. Welcome to Closing Bell. I'm Scott Wabner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with a new high for the Nasdaq, new intraday highs for the Nasdaq and S&P, by the way, and the so-called wall of money that Goldman Sachs says can keep this rally running. We'll explain coming up. Ask our experts whether they agree with that. In the meantime, take a look at the scorecard with 60 minutes to go in regulation. We're higher across the board today. I said we're new intraday records for the S&P, new intraday for the Nasdaq. We're going to have closing highs, it looks like, for both of those two. And we'll track it over the final stretch. It's led today by tech and video moving higher yet again. How about Apple approaching $200 a share? It's been on a tear lately. And that ahead of that Worldwide Developers Conference next week.

We'll be there live. Economic data a bit weaker again today. Once again, sending yields lower. The 10-year cracking 430 a little earlier. And there it is under that level today. But unlike past days, yields down, stocks are up. Remember, it wasn't exactly the case over the last couple of days. It is helping to rustle today.

And that's been up nicely. It does take us to our talk of the tape, the road ahead for stocks and what could fuel this next leg of this record-setting run. Let's welcome in Greg Branch. He is Branch Global Capital Advisors founder with me here at Post 9. It's been a minute. It's good to see you again. Welcome back. Good to be back. Thank you, Scott. Are you surprised by where the market is versus what your view has largely been for at least the last year? I am surprised. I am surprised because fundamentally some of the things that we were expecting have played out. And so, you know, last you and I sat, we were sitting with a consensus expecting six or seven rate cuts. And now we've gotten down to, in some cases, an expectation of one rate cut in some parts of the world.

And so I think if you and I had discussed, and to some degree we did, back in February, that the world would come to a consensus around not six or seven, but one or two, and yet we'd still be at these market levels, I think that many would have been surprised back then, and I'm surprised now. Okay. Economies remain far better than people think or thought it would. That's the principal story. Don't need rate cuts. And earnings have been better than people thought, I think you included. Agreed. And that's why we continue to hit records. So what now? What now? So the things that you cite are actually a part of the problem, or actually part of what keeps me up at night, is that, yes, we saw a 6% earnings growth quarter. But that leads to the question,

has the Fed been restrictive enough? And I know that folks have largely disagreed with me on this, and some even thought- Well, they've been right to disagree with you. For sure, for sure. Let's be fair. And the Fed disagrees with me. The Fed has disagreed with me for the better part of the year. So why are you fighting it? Am I? Am I? We saw in their May 1st notes that we saw two unnamed participants said that if current conditions persist, that they would be open to a rate hike.

That is the first time we've seen the Fed actually put that back on the table since their pivot on December 13th. And so the preponderance of data that we have, Scott, for 2024, albeit it's weakening more in the last few weeks, but the preponderance of data says that they haven't been restrictive enough to meet their target of 2%. They've been talking, though, many, many members think that they're restrictive. I mean, even the Fed chair has alluded to that fact,

if not explicitly stated it himself. So why are you still hanging on this idea that they may hike rates? Because it's not about what they say. It's about largely what they're doing on the pages. And so when we see wage growth move from 90 bips in the fourth quarter to 120 bips in the first quarter, when we see job growth go from the mid-hundreds to 200 and 300,000 numbers, because remember, it was as large as 303,000 as recently as March. And then we see them in the SEP move their GDP forecast up, move their forecast for inflation up, and move their forecast for unemployment down, all of those in the wrong direction. It led me to believe what we saw on May 1st, is that the opinion is changing. Maybe not with the unanimity that we saw on December 13th,

but certainly there is some changing of opinion among that body. So you don't think they're going to cut at all this year? I still don't think that we're going to cut at all. I'd like to wait and see if some of the recent data we have becomes a trend. We've fallen into this trap before, where we've extrapolated what is anomalous data as the new trend. We've seen 20 basis points of core growth a couple of times in the last 16 months before. It didn't end up being the trend. We've seen 170,000 of job growth twice before in the last 16 months. It didn't end up being the trend. And so we'll see what the job data is this week. If we can get to a trend that's in the last 16 months. It didn't end up being the trend. And so we'll see what the job data is this week. If we can get to a trend that's in the low hundreds, if we can get to a trend on

core inflation that's only 20 basis points, I'll reconsider this view because the data will say that's wrong. Yeah, but some would suggest you're still hanging on old data. Okay, now, admittedly, there were three straight reads of CPI that were hotter than expected. And the market didn't like it. Rates backed up, stocks sold off. But that's backward looking data. And more recently, including PCE, which was in line, would suggest that inflation is, in fact, moving down towards trend. The naysayers would suggest, well, it's still really sticky, this, that and the other. The Fed would say and some would suggest, well, like rent is a lagging indicator, which is falling. And the Fed's going to cut rates before inflation gets to two percent anyway. Right. So there's there's three things I'll separate. Number one, sure, we could

focus on the latest data point and say that that's the trend. I would prefer not to do that. I'd prefer for us to focus on the last five or six data points and to see what's a trend. And when you're talking about the numbers showing some deterioration, yes, that has happened recently. But if we look at all of 2024, it shows that there's no disinflation occurring right now. When we talk about other things like whether or not the Fed's going to cut or whether the Fed's not going to cut, I think they're largely going to be driven by the data. And I think that that's why we started to see a reversal in what at least some of them think. Bostick has been the most clear in saying that

he wouldn't even consider rate cuts until the fourth quarter. And so until I see the data turn on a consistent trend basis, I have to stick with what it's told me so far. That's fair. But why, you know, it feels like it's a cherry pick of data that tries to support your view rather than focusing. Why don't you focus on the trend, the fact that we're in a bull market. Focus on that, that that's what that's what's speaking louder than anything else. Right. Is the fact that stocks have been in a bull market. And from the April low, stocks have roared back. We're going to have new closing highs again today on the S&P and the NASDAQ. Well, we came from the October low and then stocks sold off in April. And then we came roaring back from that, too. Doesn't that trend count for something? The market is with a megaphone like, well, we don't really need rate cuts right now.

Look, and who knows what the market's actually saying with what it's doing? Well, the market's going up. The market's going up. And we could argue why that is. I don't know if any of us could pinpoint that this is the exact reason. Right. But undoubtedly, the market's going up and undoubtedly the market is saying that the argument is wrong. But that's happened a number of times over the course of the last two years, where the market turned out to be wrong about its appreciation and reversed course. And so I'm simply saying that, yes, it's been great. There are certain areas of leadership that I think probably deserve it, like tech, like some of the tech that's levered to AI, some of the tech that's levered to the cloud. There are certainly some pockets of supply, demand, and balance that probably warrant the appreciation we've seen. But overall, as a market, I'm not sure we can justify, particularly if we're going to need a more restrictive environment,

what the market levels are right now. But why do you continue to think we're going to need, use that word, a more restrictive environment? The Fed thinks that we're restrictive enough. Right. The Fed has thought lots of things. The Fed has told us they're going to do things that they ended up not doing. In 2021, they told us that they weren't going to raise rates and that the inflation was transitory. They ended up doing exactly the opposite. So again, I listen less to what they say and more to what indicators they give us in terms of their projections and what they're doing. They haven't given you indicators that they're done? That the next move's a cut?

They did on December 13th, and then they came back and said that two of them are considering hikes in this cycle. And so they've changed what they're indicating, if you read between the lines. But they did at a time where the inflation reads were hot. That's why the minutes were painfully backward looking. OK. And that is the way that they've always approached it. If we want to argue for a different approach, I suppose your argument is with them and not with me.

My only argument is that, you know, the market has been obviously reacting to better earnings and a more resilient economy than people expected it to be. It's been reacting to the fact that, you know what, what we thought we needed, the drug we thought we needed of cuts, we don't actually need because we feel pretty good without any of that. And we know that they're restrictive enough because they've said so. And we know that they're not hiking because Powell himself, the chair, has said so. Now, just because they were wrong at the very beginning and late to react, then you just you're just writing them off for the whole thing.

No, I'm not writing them off for the whole thing. And the problematic premise, I think, in the argument we're making or we're discussing is that, yes, 6 percent earnings growth in a vacuum is great. We all root for that. 6% earnings growth and GDP growth accelerating, if it continues to do that. We've seen evidence that it might not. But a continuing acceleration in GDP growth and 6% earnings growth adds to the problem. There is no way to get down to 2% inflation with wage growth at 120 bps, with 6% earnings growth quarters,

and with GDP accelerating, with unemployment remaining at 3.8%. You're assuming that excess demand, because of all the things you just said, will continue to keep inflation higher than the Fed wants, when the Fed chair has suggested that this is not your traditional inflation, that it's not caused so much by excess demand. There are other forces at play. Not to mention the fact of what's going on with AI. That's deflationary. Productivity is going to be elevated. In the long term, that is completely deflationary. But the long term might be 2025 and 2026. When we're talking about 2024 and first half of 2025, if the Fed sees this moving in a different direction, no matter what they posit

the inflation is from, they have limited triggers with which to contain it. And that limited trigger is either reducing the balance sheet or raising the interest rates. So you think that stocks at 53.50, we'll call it there now, are going to be lower at the end of the year? I think so. Or how do you see it? I think so. By how much? Look, I would say a 10% to 15% pullback from here is warranted.

And the only reason that I'm revising it up a little bit is that tech has become such a major component of these indices at this point. And I do believe that in many, as I've said, in many cases, tech probably deserves some of the tailwind it has. Breath will narrow. Multiples aren't going to matter when we're looking at a few select sectors and a few select companies that can put up 20 percent earnings growth while the rest of the market puts up low single digits. All right. Let's bring in Rich Weiss of American Century and Stephanie Link of Hightower Advisors. Steph's a CNBC contributor. It's good to have you both with us. Rich, I haven't seen you in a minute,

so it's good to have you back. It sounds to me from your notes like you're on team branch. Market is at best fairly valued, not a buyer of equities. Why? Yeah, in part, I'd say I agree with some of Greg's comments. We're not looking for rate hikes right now. But, Scott, to your point earlier, stock market's doing well because of an amazingly resilient economy. We've seen better than expected growth largely predicated on the strength of the consumer and the labor markets. But I don't think there's any question now we're starting to see cracks in that. Real personal spending, negative.

Latest consumer spending and income now disappointing. And the labor market, in fact, finally is starting to show some weakness. So that economic growth is decelerating. And that's what we're worried about. We're not so much worried about Fed rate hikes. We expect possibly a rate cut or two later this year in keeping with Fed funds futures. But as the economy decelerates going into an election year with the debt levels where they are, it's just hard to see any fiscal policy supporting it. So we're worried about corporate earnings going forward

with a decelerating economic environment. Okay, let's talk about the market specifically. And let's have a debate about what Goldman Sachs' trading desk is talking about today. Stephanie Link, I'm quoting from their latest note, which is getting a lot of play on the street this afternoon. The bar for being short equities right now is very high given these upcoming flow and random market dynamics, they say.

Quote, the best days of the year are coming up. What happens in the first half of July that has historically been significant for equities? New quarter, new half year. This is when a, quote, wall of money comes into the equity market quickly. They talk about retail. Now, they do say that more tactically in the near term, you have a massive drop in risk appetite and that you could have a big flow of money out of the market before the end of the quarter. So before the end of June. However, what they suggest about the best days of the year are coming up, pointing to the very heart, the belly of the summer. What do you say? Well, there's about $6 trillion in money market funds right now. And so there's definitely money

on the sidelines that could come in. Why would it come in is Is because even though the economic data has been mixed as of late, it's still very supportive of a soft landing of above-trend growth, say 2%, 2.5% kind of thing. And you were talking about earnings. That is going to lead to continued earnings being strong, stronger than expected, better guidance, especially in technology and especially even in growth. And you know I'm like both sides, right?

I'm a core manager, so I have growth and value, but I have more value. But growth is really delivering in terms of earnings. Earnings, excluding Bristol-Myers, were up 10 percent in the first quarter. I think you're poised to grow 8 to 10 this year. And the reason is the economy is going to stay strong if you look at services. We got some really good data, Scott, on services. If you look at the ADP services rose 149,000 in the month of May. ISM services increased 310 basis points month over month. And the new orders also accelerated. Business activity increased 11,000, excuse me, 1,100, rather, basis points month over month. So the economy is still strong, even though there are

some pockets that I'm watching. But that is really the driving force of this economy. It's 70 percent of consumption and the consumer is 75 percent of our economy. So adding it all up, I think earnings will stay strong. I don't have a crystal ball and know if the market's going to go down before it goes up or whatnot. I'm just looking at the long-term themes, and they're very powerful. And I think that we are going to continue to see better earnings, and that's going to drive the markets higher. There's a remarkable story we're showing on the side of Stephanie Schott. Can we put that back up, please? Nvidia hitting $3 trillion in market cap, and it's about larger than Apple. That reflects the remarkable run that this stock has been on. It is up another 5% today, up another 55 plus bucks. Let's just

keep that up. I want to keep an eye on that what do you think about this goldman note which is again you're running up against this right the best days of the year are coming up they're looking for a wall of money coming into the equity market quickly and that's the kind of thing that fuels the next leg of this bull market right right and that could very well be true um keep in mind i can't tell you that this is the catalyst and it's going to happen on this day. I can't say that, right? Because ultimately, I believe what the catalyst will be, and we agreed on this on February 20th, and I think we'll agree on this today, is that if we do have a Fed full pivot, if we do have a time where the data is conclusive that they haven't been restrictive

enough, that's going to be a meaningful and significant negative catalyst. Well, I mean, I think that's obvious. Right. But there's no reason to believe we're going to have that moment. There's no reason to believe that there's a zero probability that we'll have that moment. There's not a zero probability of anything in life. Right.

However, you play on probabilities. Right. Right. And I think it's more likely that we'll have that moment than we won't. And that'll be a big downdraft for the market. So, guys, let's talk about, Rich, when you see NVIDIA, this unabated, for the most part, rise in this stock and these other mega caps following suit. You think what well hey we're all enjoying uh the poll at those mag seven or is it the fab five or the terrific three i'm losing count on that but we're all enjoying that ride but you really have to

bifurcate the market at this point the s p's up what somewhere around 12% year-to-date. But the S&P equal weighted bearer measure of the broader market temperature is up less than half of that. So enjoying the pull from these stocks, but that highly concentrated pull in terms of returns and valuations worries me. It's a handful of stocks that are doing it. The broader market is not faring as well. Granted, we're up five, six percent equal weighted. But EFA is doing better than we are, even with the strength of the dollar. They're outperforming us this year. But that's because they're probably anticipating rate cuts that are coming sooner than we're going to cut. Right. Right. Right. Yeah, exactly. And again, but our economy is is slowing down. It's

decelerating. We'll we'll likely get some rate cuts. That's not good news for stocks. OK, that that's bad news for earnings at the end of the day. The consumer is going to be showing less resiliency going forward. The labor markets are slowing down. And again, we have some some debt burden problems coming around the corner. But so it's not a good outlook. Are you saying a soft landing isn't good for stocks? Because I mean, that's kind of the picture you're painting, right? A soft landing is not a continuing to roar economy, nor is it a continuing to roar labor market. They're slowdowns, but not cliff jumps, right? I mean, isn't that the definition of a soft landing in the first place?

Yeah, but that's not the ideal environment for stocks, right? I would rather see a growth environment, not a deceleration. I mean, yeah, a soft landing is better than a recession, but I don't think either is a particularly great environment for equities. Why is there a wall of money sitting on the sideline? Because it's a smart place to be. If you can pick up five, five and a half percent in the safest fixed income securities in the world short term, why wouldn't you do it? That's why the money's there. Why jump into an equity market where the outlook is at best cloudy and the best outcome is a soft landing? Again, it may be soft, but I get that. I get that. That's your point of view.

But that's not necessarily the best outcome. Why would you why would you have done that five months ago? I don't know. The S&P is up 12 percent. Is 12 percent better than 5 percent return? Is the possibility of, you know, greater gains moving forward with rate cuts now to think about better than sitting in cash? I mean, you guys manage the money. I don't. But that seems to be a better draw to some. It's always uncomfortable, you know fighting the tape being the contrarian but uh you know i think history shows us that the biggest payoffs to those positions happen in these uncomfortable times so scott we're gonna have to wait and see right it it may be a the fed may be able to orchestrate a beautiful soft landing and stocks will continue to rise. But again,

to your point, we don't see it that way. At best, a flat equity market through the rest of the year, which again argues for fixed income over equities. In our view, less bumpy ride, less volatility, higher safety. Steph, give us your final thought here as we see Apple and Nvidia tied 3.006 trillion dollars. Apple's I think your largest position now or one of them for certain and you've been adding to it recently. Yeah it is my large it's about seven and a half percent of position in my portfolio and you know I don't know if Monday is going to meet expectations it might be kind of hard just given the rally that it's had. But I still think that a lot of bad news is in the stock.

It's still down 5% from its highs. It's not egregiously expensive. The services piece is growing as a percentage of total revenues, and it will continue to do so. Add on a new iPhone cycle and AI whenever that comes. And I think that's a good recipe to have this as my biggest position. Technology, though, is on fire today, Scott. And that is mainly because you had Hewlett Packard Enterprises crushed it and CrowdStrike crushed it and ASML using TSMC and sending their equipment there.

I mean, there's some really powerful themes that are going on. It deserves to be up, given all that we're seeing. The semis and hardware companies are monetizing AI right in our face. Software companies, not so much yet. But that's where you want to be. And those are very powerful themes. AI and cybersecurity, you want to be absolutely involved. You got 300 points for the NASDAQ. And we just moments ago put a new intraday high in as well, 17,160 and change as we look for another closing high for the S&P and the Nasdaq. Guys, it's been fun. Rich, I appreciate your time along with Steph. It's good to have you back. Good to be back, Scott. You haven't lost your debating skills. I appreciate the conversation. Greg Branch

joining us once again here at Post 9. Let's send it to Christina Partsenevelos now for a look at the biggest names moving in. Thank you, Lizzie. Christina. Let's start with Amex shares slightly lower after eBay said it was ditching the Amex payment option come mid-August. eBay said that the, quote, unacceptably high fees are the reason customers

will no longer be able to use their Amex card. Amex argues eBay's move will, quote, limit customers' payment options, that eBay still accepts Google Pay, PayPal, and other credit cards. A record high for Hewlett Packard Enterprise, HPE, after AI servers helped drive higher earnings. Sales of AI-oriented systems doubled sequentially since last quarter because of increased demand and better availability of NVIDIA GPUs. The NVIDIA Midas Touch continues. Shares up 11 touch continues shares up 11 percent almost just just just just unbelievable three trillion market cap and counting we'll see in a little bit we're just getting started up next class back in session now the dean of valuation

aswat demodaran is back to tell us how he thinks the ai trade could shift and what it might mean for your portfolio in the long run. We are live at the New York Stock Exchange, and we're going to debate that next on The Bell. We're back. Another day, another record for NVIDIA. Those shares powering the Nasdaq to new highs again today, pushing techs forward PE toward its highest level in more than 20 years. Joining us now, the dean of valuation himself, Aswath Damodaran, professor of finance at NYU Stern School of Business. Welcome back.

Glad to be back. Let's talk about NVIDIA again. I mean, you own it, so you should have that big smile on your face. Is it defying logic to you or just does this make perfect sense? No, I don't want to sound like a broken record, but an intrinsic value base, it's really tough to get to three trillion. That said, though, if you're designing the perfect momentum company from scratch, Nvidia would be it. You've got a great story, a CEO who sticks to the story, no distractions, is able to meet expectations in the short

term because they've set the game up. And you've got a market that contributes to the mix. I mean, I think that you're seeing one of the great momentum plays of all time playing out in front of you. Wow. Are you re-evaluating, I guess is maybe the best word I can think of at least now, of how you would view this stock in terms of its value. If you thought it was overvalued before, what do you think now? And are you looking at it,

is it forcing you to look at it differently? Well, with every earnings report, you're always required to go back and look at your basic story. And I think my basic story is bigger than it was a year ago, partly because of what NVID Nvidia has delivered and partly because of what AI is showing it can do in the overall economy and market you just I was listening in on the story about HP Enterprises reporting higher earnings because of AI you saw that with the big tech companies I think you're seeing AI percolate go beyond the architecture part of the business into into services, into products, into the rest, the software. And I think you're going to start to see the ripple effect show up in other companies.

So if I raise my hand in your class and I say simply, Professor, is NVIDIA overvalued? What do you say today? I would say based on my story, I mean, 3 trillion is too high a number, but I think this is a story where you could find plausible paths to get to 3 trillion if you add on additional markets. So if somebody says, I'm buying NVIDIA because I think it's cheap, it's not my job to argue with them and tell them that it's not cheap. I think the story is in a sense, and that's one of the things about momentum companies, is there is a plausible path to get to these really high numbers. And when the momentum is in your favor, you'll find those paths.

That's why it's so hard, I guess, to be negative. If you say there's such a plausible path, your words, that people sort of can see that. That's why it's hard to be short names like this. Let me ask you this. When you were last with me, you said, quote, May will be a month that determines how returns for the year will look. So, you know, April was ugly. May, we came roaring back. Does that make you optimistic now for the rest of the year? It makes me feel much more upbeat leading into the political season because I have a feeling that the next few months we are going to see the political play come into markets as well. I'm surprised it hasn't shown up more strongly yet because I think we are going to see the political play come into markets as well. I'm surprised it hasn't shown up more strongly yet, because I think we are heading into an election. There are going to

be uncertainties that come with that. But I feel much better going into the summer now than I did a month ago. When you see tech coming back the way it has, you know, in the month of May, and here we are yet again with these, you know these unbelievable numbers from NVIDIA. And we look at the market cap comparisons between that and Apple. The fact that the market is once again narrowed in some respects back to these stocks, does that give you pause at all? Or is that just that's just where the action is and that's where the plausible stories are? In fact, I went and looked. I decided that the only way to assess how much this market is carried by the big tech stocks was I went and looked at what stocks

have done. All U.S. equities in January 1st of this year and the end of May. And I think this is a less top heavy market than the market in the first six months of last year. First six months of last year, if you took out the big tech companies, there was no market rise. This year, if you look at the bottom 50% in terms of market cap of companies, they've actually delivered more in percentage terms than the top 50%. I think the stories about companies like Nvidia lead us again to think that this is an incredibly top-heavy market. But it's much less top-heavy than it used to be and the nature of big tech is you're going to have moments like these where it carries the market but I think the rest of the market has done much better this year than it did last year overall would you say that the S&P 500 is fairly valued

where it is now just given the fact that the economy is stronger than people thought, rates now are moving down again. How would you assess that? I mean, those are the conditions I would add. If the economy stays strong and earnings continue to beat expectations, which they have so far, I think the market reflects that. I think the question is whether there are surprises lurking, and there are always surprises lurking. And I think that's, you know, you could say that about markets at any point in time. So am I OK with markets where they are? I can live with markets where they are. This is in 1999 or 2007 heading into a crisis where you

see those storm clouds. I think that it is a richly priced market, but it's reflecting the good news that the market sees around it. Well, if it's good enough for the dean evaluation, it's going to be good enough for a lot of other people, too. Professor, we'll talk again soon. I know that. Be well. Thank you. All right. Aswath Damodaran, NYU. Up next, Lululemon reporting top of the hour. That stock's had an ugly year, down 40 percent.

So is a turnaround in the cards. We discuss right after the break. Lululemon reporting earnings after the bell. That stock heading into the report vastly underperforming the markets, down 40 percent this year, putting it on pace for its worst annual performance since 2008. TD Cowen's John Kernan is with us now ahead of that. Prince, good to see you. Welcome here. Thanks for having me, Scott. So what do you have on the stock? Buy, $437 price target. What's going wrong with this story? We've got to buy on the stock for a

long time. Yeah. This valuation multiples are at the lowest point since 2017. That was when the business was subscale. Margins were much lower. Right now, competition from some upstarts has certainly changed sentiment in the stock. We think guidance is actually conservative and they can actually raise it this afternoon. Why aren't those issues that you mentioned more significant for the long term, that the market share that this company has had, certainly on the premium end of what they do, is going to erode more than people think because of the increased competition. Yeah, I think it's overpriced. This is one of the better financial models in retail. 50% return on invested capital. They print cash. I think risk is actually to the upside for numbers

from here. There's a huge buyback in place. They can buy back at least $2 billion in stock this year. That could add 40 cents plus the EPS. Competition's real, but Lululemon's grown $2.5 billion in sales in the Americas the last two years, on top of that competition scaling from very little to maybe $2 billion in combined revenue. So we think it's overpriced here. Do you feel like you can accurately gauge what was the pandemic boom that a company like this got? Do you feel like you have

your arms around the pull forward, which may have been much more significant than people actually think? There was definitely some pull forward. I think they also reached out to a new subset of consumers. They're a much more diverse consumer, age, gender, income, ethnicity. And there was a lot of customer acquisition really from the pandemic, really through last year. I mean, their top line results in the fourth quarter and holiday last year were quite good. But the North American top line profile and the North American stores are now comping negative. That's the first time that's happened in seven plus years outside of the pandemic. So investors are worried. We've reached peak growth, peak margins, and that's hence you get a crazy move in valuation. Sure. Well, what if we're also worried about what the consumer is going to be doing in the months ahead?

Yeah, management certainly talked to the macro environment on the fourth quarter conference call and hinted that some of the weakness was macro driven. There were certainly some, I think, merchandising issues that hit them as well. And the competitive environment's gotten tougher. So I think the macro is pretty good. We were just at the TD Cowan Future of the Consumer Conference right down the street for the last two days. I think the macro is pretty good. We were just at the TD Cowan Future of the Consumer Conference right down the street for the last two days. I think the theme is bifurcated consumer, high-end consumer still in a pretty good spot, right? Stock markets at all-time highs,

housing market prices are all-time highs. The high-income consumer is in great shape. This company feels like, you know, ostensibly had this segment to itself. Yes. Like higher-end athleisure. Now the marketplace has undeniably changed, right? You go walk down the street, you know, Viore has its own brick-and-mortar locations, as do several other brands. Isn't that a more structural and secular change for this company? Yes, it's a big change. The barriers to entry in soft lines retail have never been lower. Social commerce has changed everything. Brands are now scaling very rapidly.

The upstarts, the other theme from the TD Count feature of the Consumer Conference, was the upstarts are gaining massive share, particularly at the high end. In athletic apparel, you've got the Fioris, the Allos. On footwear, you've got the Ons and Deckers, which both stocks are at all-time highs. They're gaining massive share from Nike. So the competitive environment is as tough as it's ever been. I don't think you have much gross margin risk with Lululemon. They're not getting undercut in terms of price or promotion.

Sure, but if your margins are holding up, but your traffic is not, and your comps are not, then it doesn't matter. Well, right now it doesn't, you're right. You know what I mean. it doesn't matter. Well, right now it doesn't, you're right. I mean, it matters, but you know what I mean. It doesn't make a difference. They need to prove that the Americas is a slowdown as a function of tough compares, which it is. Their North American business in 2022 was up over 30%.

It was up mid-teens last year. So they've got very difficult mid-multi-year stack comparisons, and that's playing a big role. That pandemic forward and that market they were in post the pandemic was quite strong. They're having trouble. And what about return to work? Lastly, if we as we move further and further away from the pandemic, do we get closer and closer to even incremental increases in return to work? And does that have an impact here, too? It does. The casualization theme certainly pulled forward some demand post the pandemic. That was

obvious. I think we've cycled that, though. There's a lot of the brand awareness for Lululemon is still very small. There's a lot of market share to be had as a multibillion dollar market that they play in. And you think it's still small? Where? Not in the U.S.? Brand awareness in the U.S. is small. Believe it or not, it's still low. And there's more customers to acquire. It's going to get a little harder because you've got two very disruptive brands in in privately that are privately held biori and aloe that are that are here they're not going anywhere they're going to open a lot more a lot more stores

but lululemon can compete in this market they have a great financial model i appreciate your time thanks for coming by that's john kernan td cowan up next we track the biggest movers into the close christina parts and nevel is standing by once again with that. Tell us what you see. Well, we have a major retailer chain, or I should say the chain is actually up for sale, and high sticker prices are hurting demand for premium liquor just ahead of the summer. I'll explain the impact on shares next. Welcome back. Bitcoin on the rise today, and the charts might be signaling it is on the verge of a bullish breakout. Head to CNBC.com slash ProPIC for a look at what to watch or to scan the QR code right there on your screen.

Coming up next, a semi-surge. Chip stocks seeing a big bounce in today's session. Tell you what's behind those moving is if there is a case to be made for more upside ahead. And we are on record watch for the S&P and NasDAQ. We'll track those moves inside the Market Zone next. We're now in the closing bell of Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day, plus Frank Holland on the rally in transports and Christina Partsinello is back as NVIDIA hits a major milestone in chip stocks surge. Michael, I'll begin with you. And I know

Christine is going to talk about it. NVIDIA has added one and three quarters trillion dollars in market cap year to date. It's about a third of what the S&P has added. It's just May. I mean, it's June. Exactly. It's barely June. So this is one of those days where it's clearly the biggest upside driver and its associated stocks are adding disproportionately to what the index is doing, which is tracking to close at a new high. But it's also just not NVIDIA alone. There have been many days recently where it was the rest of the index against that one stock. Today at least, we got the benefit in other groups

from this big pullback in treasury yields because the services ISM came in at a reassuring level. It seems like private sector payrolls from ADP was roughly in the zone of saying the economy's okay. And now you have things like banks being dragged higher and the rest of the market is able to kind of find its footing. Now, I wouldn't say it's actually an all-inclusive rally. A third of all stocks are down today.

Banks are barely positive. But that's just the way we it's just a selective market. We have the effective date for the record date for the stock split for NVIDIA tomorrow. It starts trading post-split on Monday. It feels like things are gathering toward a, hey, we made it moment. But, you know, until proven otherwise, it's a bull market with decent tone. All right. Frank Holland, tell us about the transports. Hey there, Scott. Old Dominion is higher on upgrade from BMO, citing long-term tailwinds like nearshoring, e-commerce, and consolidation after the yellow bankruptcy. This week, SIA, a trucker for Starbucks, Dell, and ExxonMobil issued its Q2 update, showing shipments increased 18% year-over-year, possibly indicating the freight market has bottomed and actually could be re-accelerating.

Today, SIA, XPO, and Old Dominion, along with expediters, are trading higher on rebound hopes. It's also somewhat of a surprise after ISM this week moved deeper into contraction, appearing in a signal-continued softness. Another read after the bell when Old Dominion, a trucker for Amazon, Walmart, and Tesla, provides its Q2 update. And then tomorrow on Worldwide Exchange, I'm going to talk to the CEO of SIA about the freight market in Q2 and what he's hearing from customers right now. That's the CNBC exclusive interview coming up at 5.30 a.m. Scott, talk about it. Right and early, we'll be looking for it. Looking for you, too.

Frank, thank you very much. Frank Holland. All right, Christina, you can tell us more about NVIDIA because it is up another 5% today and $3 trillion in market cap. Yeah, that's a very, very elite club, and luckily I get to report about it. But NVIDIA pushing out Apple as the second most valuable company, according to market cap. Yeah, that's a very, very elite club. And luckily, I get to report about it. But NVIDIA pushing out Apple is the second most valuable company, according to market cap. Mike mentioned it, the 10 for 1 stock split, which comes after Friday's market close, a big driver for that. Secondly, you have Bank of America that upped its NVIDIA price target to

$1,500. They say there's going to be or there's continued strong demand for its next GPU, Blackwell, as well as the CPU and networking products. Lastly, on Monday, we can't forget, NVIDIA's CEO, I should say, overnight, over the weekend, announced a new AI software and platform, Rubin, with GPUs coming out in the next few years. So that was a big positive for the stock this week. Switching to Dutch equipment maker ASML, shares are over 9% higher on a Jeffers report that TSMC would receive new ASML equipment this year. This is a big deal because this equipment is worth over $350 million, takes several 18-wheelers to just deliver. getting new ASML equipment, a lot of acronyms there, but Barclays analysts say the firm can actually hit $170 a share as more advanced chips drive growth. That's for TSMC. And now you're seeing on your screen applied materials in KLA. That's because Barclays upgraded the

equipment makers on increased spending from China and, of course, aggressive CapEx plans here in the United States as everybody builds out their fabs. All right. Thank you, Christina. Christina Partsenevos. All right, Mike, I turn back to you as we approach the close again. We're looking at closing highs for the S&P and for the Nasdaq. And how about this Goldman trading desk? No, I'd love your opinion on this. Best days of the year are coming up. They talk about that wall of money. Those are their words coming in in the start of the third quarter and the start of the second half. Everything you look at in terms of anticipated flows and how the market has already performed, whether it's through the first 100 days of the year, it basically leaves you in a position of saying, don't fight the upside too hard.

Because it seems like the natural bias, all else being equal, would be for further gains. You know, that being said, you've got three $3 trillion companies right now. It's a real easy comparison, okay? Microsoft's got twice the sales of NVIDIA. Apple's got three times the sales of NVIDIA because NVIDIA is so much more profitable, growing quicker. That's your call. How much longer is that going to last? So I do think it makes sense to lean toward giving the market the benefit of the doubt,

but it remains a little bit choppy underneath the jobs number. I'll have a lot to say about that. Right. Well, there you go. NVIDIA and Apple, $3 trillion in market cap apiece. And the S&P and the NASDAQ, its new record closure. That's it for the bell. I'll see you tomorrow. We'll see you before. We've got a repeat of Morgan and Johnson.