Closing Bell - Closing Bell: Time to Lean In? 5/21/24

Episode Date: May 21, 2024

With stocks trading around record highs – is it time to lean in to this bull market or step back? Liz Ann Sonders from Charles Schwab tells us what she thinks is the best strategy. Plus, all eyes are on Nvidia ahead of its crucial earnings report tomorrow. We preview everything investors need to be watching from that report. And, Ether surged in today’s session. We tell you why and how it is impacting the rest of the crypto space. 

All right, Kel, thanks so much. Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make-or-break hour begins with Apple and NVIDIA. On a tear lately, it's a big reason why the NASDAQ has surged to new record highs. Of course, the big event of the week, NVIDIA reporting earnings tomorrow in overtime. And yes, we are counting you down to that. So much at stake for the tech trade, perhaps the markets overall. We're going to ask our experts over this final stretch what's really riding on it, including Schwab's Lizanne Saunders, who's going to join me momentarily. In the meantime, your scorecard with 60 minutes to go in regulation looks exactly like that. We are green across the board, but there's definitely a wait and see from the majors today ahead of those key earnings tomorrow. Yields, they're lower across the curve today. We continue

to watch that, obviously. A lot of Fed speak to talk about, too. It does take us to our talk of the tape. With stocks trading around record highs, is it time to lean into this bull market or step a bit back? Let's ask Lizanne Saunders. She is Schwab's chief investment strategist, and as you can see, joins us live. It's nice to see you again. Welcome back. Well, thank you very much. Happy Tuesday, Scott. Yeah, you as well. What do you think about that question? Time to lean in or maybe take a few toes out of the market? Well, we have $9 trillion of client assets, I'd ask. You know, who's the client? What the structure of the portfolio, whether they are on some sort of periodic rebalancing schedule. I think periodic rebalancing is just a beautiful exercise, especially if you make a portfolio based as opposed to structuring it simply around the calendar, which a lot of investors do. And it, you know,

it forces us to do a version of what we know we're supposed to, which is add low and trim high. So I think that that's always an important part of the discipline of investing is that rebalancing as opposed to trying to time the market in the short term. Sure. You know where I'm getting at, though. You know, we've had a great rebound from from the April lows. Does it feel like there's more to go to this bull market? Yeah, but I think that there has been a lot more churn under the surface that I think helps maybe tell a more accurate story of all the uncertainties with which we're very familiar, whether it's Fed policy, inflation, the backdrop for the economy, some signs of weakening in economic data. You talked in the lead-in about the NASDAQ. NASDAQ is up 10 percent in the past

month, hasn't had more than a 7 or 8 percent drawdown, maximum drawdown year to date. But the average member within the Nasdaq has had a 35 percent drawdown. So there is a lot of rotation and churn going on under the surface. You just have these cap weighted indexes biased so significantly by some of the mega cap names, not just the Magnificent Seven anymore, that that's keeping the indexes afloat. But there is a lot more churn under the surface. Is it interesting that you're starting to see small caps try to, you know, claw their way back into some semblance of a short term leadership position? So I think the market has the potential to to broaden out a bit here. But we do need earnings to continue to come in well,

because last year was all about multiple expansion without any benefit from earnings. I think earnings do need to continue to catch up to where multiples are. Well, you give me a perfect segue to NVIDIA. I mean, I know you don't talk individual stocks, but I know you're thinking about because everybody is thinking about everybody. Yeah. What the implications are of this earnings report tomorrow. What do you think is really riding on it? I mean, I'm not going to talk about whether they beat or not, but clearly the whisper numbers continue to edge higher. It is important to remember that, you know, the overall tech sector has a blended earnings growth rate, meaning all the companies that have already reported their

actual results blended with the companies that have yet to report. I think it's 23 or 24 percent for the sector, but that drops down to 11 percent if you just exclude NVIDIA. So that's just a numerical way to see how much is riding on this. And, you know, they continue to beat every single quarter. But, you know, we have to, I guess, be careful about extrapolating as far into the future as, you know, we have to, I guess, be careful about extrapolating as far into the future as, you know, years from now. So could it represent a risk at some point just from an expectations bar perspective? Yeah. But whether that's tomorrow, I have no idea. I'm not an analyst. Sure. But would you think that earnings can be good enough to get a lot more out of the bull market? I mean, Rick Reeder was on with me of BlackRock the other day and suggested that they are

good enough and could still be good enough that you might be able to get 10 to 15 percent more out of equities in 2024. Now, many would sit back and say, wow, that sounds like a really massive amount of return to still produce. Does that sound outlandish? No, it doesn't. But I think the background conditions need to be supportive, too. So multiples are should never be used as any kind of market

timing tool. Market could be expensive, get more expensive, stay expensive. And it doesn't represent some in or out call on the market associated with valuations. However, where there is a very close relationship to valuations historically, whether they're very close relationship to. Valuations historically whether they're on the higher end of the. Historical range or lower end. Is the inflation backdrop maybe not coincidentally the sweet spot for inflation is.

Right around the feds target in terms of historically that has been. The inflation backdrop that has been supportive of. Higher than average valuations and it gets worse when you go into deflation zones and obviously

also gets worse when you go into hyperinflation zone so. I think both yields and inflation need to also cooperate- alongside a strong earnings growth it's also important to remember that the revenue data. Is nowhere near

as strong as the earnings data so this has been a profit margin story you've had. Better than expected beat rates and important to remember that the revenue data is nowhere near as strong as the earnings data. So this has been a profit margin story. You've had better than expected beat rates and percent by which companies have beaten on the bottom line. But you have lower than average beat rates and percent by which companies have beaten on the revenue line. And revenues are only growing at about the pace of inflation. So that's something to be mindful of, that that profit margin story needs to persist as we go into the rest of this year. You mentioned things like the Russell rallying. Russell's up 8 percent in the last month. So we're really talking about the line in the sand

being those April lows. What do you make of this so-called everything rally? Small caps, tech, gold, copper, Bitcoin, you know, bonds. I mean, the 10-year yield is down 30 bps in that period of time, too, since, you know, kind of Powell talked us off the ledge, the Fed chair. What do you think about that? I think it tells you that there is still a lot of liquidity in terms of a backdrop. It also suggests that financial conditions are relatively easy that's in contrast to some of the commentary we hear. From the fed and certainly Powell has

been getting a lot more questions about. You talk about policy being restrictive yet you don't see it in the data in traditional financial conditions indexes that. That we all track and I think that that is part of the reason why

you have this pseudo everything rally in areas aside from just the equity market. When you take a look at some of the sectors that have done pretty well, like when you see utilities, for example, up 11 percent in a month. And I know that now everybody is talking about them as the next AI derivative play. Right. I don't know if you agree with that or not. Maybe you do. I don't want you to tell me, but what do you think? I do, but I forget who said it recently,

but that AI is everywhere except in the numbers. And you're not really definitively seeing it, but everybody is trying to figure out what are the longer-term plays aside from the, you know, the direct infrastructure plays associated with AI. And then you add to it the necessity of boosting the power grid globally, not just for AI reasons, but the lack of investment, but also move toward green tech and EV. So I think there's there there in terms of the long term fundamental support. But you have to worry at some point about valuations in a segment of the market

that is ostensibly value. This is one of those potential issues where utilities don't generally find themselves living in the growth indexes. So therefore, they're in the value indexes. But that doesn't necessarily mean that there's true value there from a multiple standpoint. So I think there could be some sentiment risk at some point. We have the utilities rated market performance, so another word for neutral. So we don't have it as an outperform or an underperform. Sure. I mean, it's been kind of a broad-based recovery from those lows. I'm looking at, you know, staples we don't necessarily talk about in an offensive way either. They're up almost 5 percent discretionary. We have serious questions about the health of the consumer up almost 5 percent.

Health care not doing all that much up almost 5 percent. You know, on a year to date basis, you know, most sectors are, I think 10 out of 11 sectors are in positive territory, with the exception of REITs. But you do still see these leadership shifts that occur over shorter-term periods of time. But there is generally that cyclical bias. Even in the case of utilities, which we think of as classically defensive, there's that perceived or actual growth play that's part of, I think, why utilities have done well. I don't think they're doing well, nor consumer staples for that typical sort of defensive play. In addition, momentum as a factor, which is more of a concept than a fundamental factor, continues to do really well,

which simply means that stocks that have been doing well continue to do well. So you do get some performance chasing that happens in an environment where momentum as a factor is doing well. Lizanne, I appreciate it as always. It's nice to see you. Do this again soon. Lizanne Saunders, Schwab, joining us. Well, you know, all eyes on NVIDIA ahead of tomorrow's critical earnings report. Christina Partsenevalos is here with more. It's good to see you. You look at the results, the expectations.

I mean, revenues are poised to more than triple from a year ago. Earnings are expected to be five times greater than a year ago. But the thing that popped out to me the most today, which is why I wanted to talk to you, is that headline in the FT about Amazon pausing its orders while they wait for these, you know, upgraded or next generation GPUs. And then I'm like, well, how big of a deal is this? The first I've heard of it. What can you tell us? Yeah, this has been a big debate on Wall Street. It's whether NVIDIA will suffer a demand lull or what the article even called an air pocket, which is caused by customers, like you said, waiting for the next generation GPU chips, which are actually slated for later this year, as opposed to buying chips already on the market.

And these next generation Blackwell chips is what they're going to be called. They're going to have the B in front of it, should be four times faster than the previous generation. So it's enough of an incentive for customers to wanna wait, right? Wait for something that's better than what's on the market right now. The FT, like you said, reporting that AWS is doing just that, taking its planned orders for already available Nvidia chips and pivoting them to the new Blackwell chip,

a move that really just runs counter to the recent analyst theories that there are no air pockets or demand lulls, and that's why you saw the stock initially fall 1% on the news pockets or demand lulls. And that's why you saw the stock initially fall 1% on the news today. It's regained some of that. But another, I guess, positive way, and you'd already seen it from Joe Moore and a few other analysts, say that AWS is still buying chips. So that revenue stream is still coming in for NVIDIA. It doesn't mean they're canceling. And there's still so much demand from sovereign wealth funds, corporations beyond

hyperscalers that would maintain that demand level and, you know, remove any type of air pocket. And so it's no wonder that you have 88 percent of fact set covered analysts that think this company is a buy with an average price target of one thousand and thirty nine dollars heading into this earnings report. But I would definitely say that's a point that a lot of people are debating about, Scott. Now, I wonder what we'll hear about it tomorrow and certainly on the call about an alleged air pocket. Christina, thanks for setting that up for us. Christina Partsinovalos, we'll see you in a little bit here on Closing Bell. Let's bring in Lauren Goodwood of New York Life Investments and Eric Wallerstein of Yardeni Research.

Good to have you both. Lauren, let me just turn your attention for a moment to NVIDIA as well. What do you feel is really at stake tomorrow, not only for the overall tech trade, but the market at large, given the magnitude of the rally we've had back led by tech? Everything's at stake is the answer. I mean, not just on the upside in the sense that this earnings environment has been really constructive, an important part of the rally so far, but also on the potential downside. I mean, if we look back to the 2000s, it didn't take a big downward turn in earnings to pop the bubble. It took Cisco reporting closer to 50% growth instead of 60% growth to do it. So these numbers matter a lot. If we

can pretend that, you know, we don't have to care about Nvidia, which isn't the case, the environment for the rally to continue is quite strong. We've had a good earnings season. We have a Fed that's hell-bent on being dovish. And we have an employment environment that's still very strong. Until any of those factors reverse, which I don't see a reason for that to be the case in the next couple of months, this is a tactical all-systems- go for the bull market. Wow. All systems go. So, Eric, the everything rally, as we're calling it, continues? Yeah, listen, forward earnings definitely are supporting stocks. And as Lizanne mentioned,

rising profit margins for the S&P 500. The broadening out with the Equal Weight Index and even, you know, SMID caps is just kind of starting you know small caps are still under pressure from higher rates but we see no reason with a tight labor market rising real incomes and just more spending that uh corporate profits have to fall anytime soon interesting so it's going to be an earnings driven story because you guys are looking you know you tend to look out further than most and put out some reasonably lofty targets, I think is fair to say, including one that you put out. You guys put out something big earlier in the week. Remind me what that was. I think it was like Dow 60,000 or something like that.

Yeah. So listen, for the next few years, we have 5,400, which we're nearly at for the S&P 500 this year. And then we're at 6,000 for next year and then finishing up 2026 at 6,500. And again, that's earnings driven. You know, this whole roaring 2020 scenario right now is our highest probability outcome. We attribute like a 60% likelihood of that.

There are some other risks. You know, we have a 20% scenario of a melt-up in the stock market. And if the Fed kind of preliminarily cuts, we could see that. Melt-ups are fine. You just have to know when to get out. And then there's that 20% scenario where there's another revival in inflation. But for now, we see productivity growth really being a strong driver of real incomes and

for the next several years driving the market higher. You don't think what we're currently experiencing is a quote-unquote melt-up? It's supported by earnings and real income, so I wouldn't say that. You know, valuations could be a little frothy at $20,000, but there's no reason that that's too expensive for the large caps, especially with, you know, what the mega cap 8 have done, including NVIDIA. I mean, it may not be, you not be expensive for the mega caps, but 20 and a half as a multiple to some seems a little expensive. Yeah, look, I mean, Lizanne was right. Valuations

aren't a great market timing tool. But one of the things we've noticed recently, the past couple of weeks, the equity risk premium has moved negative, which doesn't tell you anything for the next couple of months. As I mentioned, we do think that the case for equity is strong at the moment. But what it does tell you really consistently over a longer-term basis, think even 10 years out, that the trade-off between equity and bonds doesn't quite make sense anymore. And so that supports one of our highest conviction views, which you and I have talked about a lot, which is taking some of the gains we've seen in equity, activating it in high yield, where you still get the benefit of the bull market we're seeing, but some higher income stream in the meantime.

What about taking some of the gains you've gotten in cash and, use your word, activating it into equities? I mean, that's what some are banking on to get you to that next leg. We're actually moving cash into short-duration fixed income for a couple of reasons. One is that you still have, we think, an interesting risk reward profile similar to the benefit that you would see just putting money to work in equity or other asset classes. But the real reason is that regardless of the path or the exact timeline that the Fed is trying to take, it's very clear that their next move is going to be a cut. And so investors that have benefited from higher rates in cash in the last couple of years aren't going to benefit from those same rates moving forward.

And so if you look at the maturity wall in fixed income that's coming in the next couple of years, a two- to three-year short-duration fixed income play is a really nice way to lock in that higher income stream for the next couple of years. Eric, do you think we get cuts this year? And from talking with Ed, you know, over there on a regular basis, it doesn't even feel like you guys care if we get them or not. You're still positive on the market nonetheless. Yeah, we think the economy can handle higher rates. It's definitely demonstrated that. We don't think the Fed should cut. If they do cut one or two times this year, it'd be to maintain

that kind of real restrictive rate where inflation falls. And thus, we've got to cut on a nominal basis to keep real rates where they are. We think that would definitely up the chances of a melt up in the stock market. So we don't think there's any reason to cut. But if they do, we'll be revising our expectations for the next few years. How are you guys thinking about whether the consumer needs to be worried about Lauren or not? We've got Matthew Boss of J.P. Morgan coming up later in the show. He's the top retail analyst. Target earnings are tomorrow.

There are a lot of things going on within that space. The sector, what, year to date is up 2%. Does it get better? Look, I think the reality for the consumer is that the story is incredibly bifurcated. This is something we're seeing for companies as well. Lower income consumers are starting to struggle, middle and upper income consumers aren't. And that's a challenge for the Fed

because it means that inflationary pressures are still part of the problem. Even some of the very anecdotal evidence we have of price cuts from certain companies really aren't hitting the mark when it comes to being able to cut rates. And that's one of the things that we've heard a lot from the endless slew of FedSpeak this week is that we've got a couple of months of better data before they can even think about moving. Yeah, that's what Waller was, sorry,

what Waller was telling Steve Leisman today, too. He's like, I need, you know, several months before we're willing to entertain the cut. It's been good talking to you. Thank you for being here. That's Lauren Goodwin. Eric, I'll talk to you soon as well. Thank you. Thanks, Scott. All right. We're just getting started up next. Microsoft's Build Conference underway. We take you there live, plus instant analysis from Deepwater's Gene Munster. Find out how he's playing the AI trade and what he'll be watching for from NVIDIA's results tomorrow. We're live at the New York Stock Exchange. Dow's good for about 54, trying to get back to 40K. We'll be back in two minutes.

Welcome back. Shares of Microsoft hitting an all-time high and heading towards a record close today. The company kicking off its build conference. CEO Satya Nadella just wrapping up his keynote speech as well. Steve Kovach is there and joins us live with what happened today and what Mr. Nadella has said. Yeah, Scott. It's our artificial intelligence, of course, and just a slew of announcements coming out. Most of them are kind of wonky and focus on the developers here are here, over about 4,000 of them, I'm told.

But high level here, just some consumer-facing stuff. Copilot, which is, of course, the most important AI software product that they're actually selling, that is getting an update. They're calling it kind of a project manager version. It's called Team Copilot, meaning whereas before Copilot, meaning whereas before Copilot worked on an individual basis, now it can manage groups or manage even your entire organization. But a lot of today focused on OpenAI and that latest GPT-4.0 version that OpenAI just showed last week. That's the one where you can have this sort of natural language conversation. It's multimodal, meaning it can interpret images, text, and voice.

But, of course, there was that controversy, the Scarlett Johansson thing, where they had to take down the voice that sounded like her. Scarlett Johansson saying, they didn't use my permission for this. They tried to use me. You know the controversy there. But Sam Altman, CEO of OpenAI, did make a surprise appearance at the very tail end of that keynote, talking to Microsoft CTO Kevin Scott a little bit about how those two companies are going to work together,

sort of hinting at the future of what's coming next. Altman not really giving too much away, but saying only that ChatGPT is going to get a lot smarter very soon here, Scott. Steve, stay with us. Joining us now to discuss all of this, how he's playing the AI trades, Gene Munster of Deepwater Asset Management. Welcome. It's nice to see you. Good to see you. I look at the notes here. I mean, you don't own Microsoft. And I get the feeling that you're not as all in on this name as some other investors that we speak with why not there's two reasons first is as part of our flagship Titan product we just want to have concentration and we don't want to just hug a benchmark so we don't own

all the mag 7 for example so we have to make some decisions there Microsoft's in a good place relative to the opportunity in AI. So that's one piece to it. The second piece is, if you just take a big step back and look at what's happening today, is today was underwhelming for Microsoft. I like Steve's word wonky, that sums it up. Had that feel to it because really what we saw a week ago from open ai laid the groundwork for what we saw today and it reminds me that microsoft's future is in the hands of open ai they have 51 ownership it's or more than 51 ownership 51 of the profits they have more than 51 ownership but the bottom line is that this relationship is incredibly strong today there's no reason to think that it will

get fractured but that is a dynamic. The companies that we do own, Google and Meta, related to the AI opportunity, are the only ones that are in total control of their AI destiny. So that's why our portfolio is positioned that way. You portray it as if Microsoft, while great now, is in more of a position of so-called weakness rather than strength because of that dynamic and the relationship with OpenAI? Yeah, I don't know how else to think about it. The reality is they're two different companies. And the reality is that really what OpenAI, what Microsoft brought originally to OpenAI was a lot of money and separately distribution.

And I think that as OpenAI continues to explore their options, you know, they're on the table for doing something with Apple coming up here, getting access to those 2.2 billion active devices. Google pays $15 billion a year for that in search. And so I think that that is just an important piece is that AI is the brains of the future of all these companies. And it is a little bit concerning to us that Microsoft really isn't in control of that destiny at the end of the day. Steve Kovac, how would you assess what Gene Munster has just said? I mean, you use the word underwhelming to describe what you've seen today, but also these risks that maybe investors haven't considered quite to the degree that he has. Yeah, I totally, I don't know about the underwhelming part,

if I agree, but I definitely agree on how linked these two companies are. We can't underscore enough how much what OpenAI does impacts the roadmap for Microsoft and its artificial intelligence future. You might remember last fall with that ouster of CEO Sam Altman, CEO of Microsoft, Satya Nadella, spent the entire weekend trying to repair that situation in order to calm investors' nerves because at the end of the day, they're super reliant on this technology. And then just over the past week or so, we've just had a number of dramatic events happening at OpenAI. Lots of stuff, you know, questions over whether or not Altman was open and basically truthful about that whole Scarlett Johansson thing and how they were training models. Also, the CTO, Mira Marotti,

she's made comments in the past about how their new video products swore of kind of say, not really admitting whether or not they used YouTube videos to train it. Since then, we've heard from the Google side saying if OpenAI did use YouTube to train it, that is not good and a violation of the term. So not a lot of transparency on OpenAI. And, you know, Microsoft kind of put itself in the position where, yes, they're wowed by the technology and everything that's going on there. But at the same time, Microsoft is kind of forced to own a lot of the drama and everything that's going on at this hugely important company for them

going forward, Scott. They do, Gene, though, have the first mover advantage, so to speak, right? And there are going to be growing pains. There's going to be drama in a new relationship. But look at where they've gotten to thus far in what is still a very infancy of this relationship. But look at where they've gotten to thus far in the, you know, what is still a very infancy of this relationship. As Brent Thill of Jefferies put it earlier today, and I know you know him, research analyst, Microsoft is so far ahead is the point he made. And the amount of earnings power they can drive from that is so substantial that that's why they are in the leadership seat. They're in the leadership seat because of what's going on with OpenAI. OpenAI, by my estimation, is probably six months to a year or so ahead of where Google is at.

They're doing live multimodal demos last week. Google's recorded demos. There's a light year gap between those two. Brent's spot on. There's earnings power with Microsoft. Our concern just comes down to that control. I mean, the soul of Microsoft is OpenAI, and they don't have control of that. And so I don't want to take anything away from their earnings. I want to be very

clear. The substance of AI is going to outpace the hype. This is as big as it gets. I'm 53 years old. I'm thrilled to be alive today just to see this breathtaking transition we're going to see over the next decade microsoft's going to have a benefit for it we think there are better places better companies to own i feel like people who watch this network associate you so well with apple too gene and i'm wondering how you think about that stock here you know they've obviously had their issues fundamentally with revenue growth or lack thereof. And when the next refresh cycle of the iPhone is going to come, you know, Steve Kovach, both of you together, you know, know more about that company than most. So, Gene, how are you thinking about their own ambitions?

And do you own that stock? I do own Apple personally. As I mentioned, our fund, because it's concentrated, we've selected Meta and Google as kind of our large cap investments. We have TSM. They get kind of exposure to chips. But I do own Apple personally. I only own a handful of stocks, less than five stocks personally.

Apple is one of them. And the reason is I think that they're going to have uh participate in this ai piece they are going to be licensing the core model from openai or gemini to initially get that party started probably for the next few years eventually they'll probably get things going there but i am optimistic about apple i think this company can be a much higher re-rate and specifically we're getting back to growth. After two years of no growth, we're going to get 2%, 4%, 6% growth over the next three quarters, and then inject some AI mojo into that. And I think that customers will respond and investors alike. Been a great rebound for those shares on a tear, as we said, at the very top of the program. Gene,

thanks. Steve Kovach, thanks so much. Appreciate it very much. We're getting some news from McDonald's. Kate Rogers has that story. Kate. Hey there, Scott. Some McDonald's franchisees say that a 30 percent discount for a five dollar value meal needs a company investment to be sustainable for the long run. CNBC obtained a copy of a memo to members of the National Owners Association. That's an independent advocate for McDonald's franchisees weighing in on the new four for five dollars value meal. In it, the NOA board writes that the fact remains in order to provide the consumer with more affordable options, they must be affordable for owner operators. McDonald's vast resources and financial investment are essential to any sustainable affordability strategy. The group also suggests

bringing back chicken snack wraps, using breasts already in stores, and drumming up interest for customers with bringing popular drinks from Cosmix to franchise stores. It also says, quote, there simply is not enough profit to discount 30 percent for this model to be sustainable. McDonald's declined to comment on the memo, but in the past has said that U.S. cash flows are up nearly 50 percent on average since 2018. And last year was one of the highest franchisee cash flow years in McDonald's history, even when taking inflation into account. A reminder here for viewers, the month long promotion of this value meal beginning in the end of June does have some marketing support from Coca-Cola.

So this is getting at how to keep it on the menu past that time frame running again for roughly a month. Scott, back over to you. All right, Kate, appreciate it. Kate Rogers up next. Your retail rundown. Shares of Macy's are popping after reporting results. We hear from the number one retail analyst on the street, Matthew Boss, the Hall of Famer, gives us his first take on the quarter. Now he's navigating the rest of earnings season.

That's just after the break. Welcome back. welcome back a beat and raise quarter from macy's kicking off a very busy stretch for retail names like target tjx nordstrom and more set to report earnings over the next two weeks joining us now the hall of fame retail analyst matthew boss of jp morgan welcome back nice to see you good to be back sc Do we feel better about the consumer environment after what Macy's did? Look, we've been more constructive on the consumer. When we put March and April spending together using some of the Chase credit card data, March and April was about similar from a spending perspective as the fourth quarter and holiday, which outperformed expectations pretty much across the board. So Macy's this morning, I think it shows

you the resilient consumer, but also the selective consumer. You have a consumer at the high end that's being more choiceful. The low end, I do think, is a melting ice cube. I've been on the show before and we've talked through this. What I'm calling it now is a selective recession. And again, that's $40 trillion of net worth that's been created since 2019 at the high end. But it's a low-income consumer that, by our survey work, 70 percent of low-income consumers right now are saying they're struggling to make ends meet and really cover with savings their cost of living. You still like Ross, TJX, and Burlington. I think that's your sweet spot. So what that tells you on that selective recession or that choiceful consumer, in my opinion, the consumer wants value, but they also are striving to own the brand.

So if you sell brands for value, that's off price. That's TJX, Ross stores, and Burlington. In my opinion, that's your sweet spot for this value and convenient and as good, if not better, than where you were pre-pandemic because you've expanded the demographic reach as to who's shopping your box. But you think overall some of the concerns about the consumer fading are overblown? No, you know, I think it depends where you're looking. So if you're focused on that low to middle income consumer, they're under pressure. And the pressure is really that the inflation is just continues to last. And so each month that we move forward, it doesn't matter that the inflation is not worsening.

It's just an incremental toll on that savings that they built. That's why I said I think the low end right now is that melting ice cube. But low income consumer, very different than low income retail. That consumer gravitates to the lower income retail. But what happens is you get the trade down effect. And that's where I think you're seeing with the discounters with Walmart. I think that's where you're seeing the off pricers. I think the dollar stores and so lowincome retail can benefit when low-income consumer is under pressure. It's the middle that ends up getting squeezed. And I think that's where if you're not the best at what you do and you do not have differentiated innovation, you're falling

somewhere in the middle. And I think that's where you're going to come up short. And those are the companies that you're going to hear complaining about the macro backdrop. Let's talk about some more names. You think we're set up for a good beat and raise from Birkenstock. Tell us. I do. So I think Birkenstock fits into best-in-class brands. So where I was saying before, if you have differentiated innovation, technology, and scarcity of brand, that's really what Birkenstock has. Capacity unlock that's just happening now so that this brand can serve as Asia.

So there's a material shelf space unlock on Birkenstock, we think, for the next two years. I think that brand is white hot and it's a brand right now where demand exceeds supply by 30%. So we like Birkenstock into the print and for the multi-year story. And I like PVH, Calvin Klein, Tommy Hilfiger. They did not raise price during this entire period, where a lot of other brands did. So those brands stand for value, and there's a tremendous amount of self-help

still on the margin side with the supply chain. Are you too optimistic about Lulu? You have Overweight and you have a 500, I think you have a $500 price target on it. I mean, that stock has not done well at all. You use the word differentiated when you talk about why you like Birkenstock so much. And there might be some who would suggest that that's the problem with Lulu at this point, that it's not that differentiated anymore.

And with brands, you know, Voree and all these other companies that are now selling stuff that kind of look the same, but cost half as much, that this is a real problem. How do you see it? Yeah, I'm glad you brought it up, Scott. You know, look, I think what Lulu finds themselves in right now, it's a moderating growth story or perceived as a moderating growth story. The truth is, on a multi-year basis, I think that Lulu can drive the double-digit top-line growth, which would equate to a mid-to-high-teens bottom-line grower. You have international that's still in early innings, less than 20% exposure to the international markets. You have men's that can still double from here. Accessories is still an opportunity. And the TAM,

the total addressable market for casual, I mean, there's just no question that it's larger on the other side of the pandemic. So yes, there is Viore, which is a very strong brand, more on the men's side. I think on the fashion side, Aloe is showing really nice strides within that space as well. But I don't think anybody mapped this space out as potential use case seven days a week, you know, not just the weekend and the active and casual, but the work environment as well. So I think with a larger total addressable market, it's on Lulu to continue to show the innovation in that differentiation. And right now you're kind of caught between the catalyst of holiday, where I do think that Lulu

potentially over-earned with that younger customer that came out strong. And now you have the out of stocks on the size zero, two, and four within the box. And I think from an execution perspective, they probably could have done better in this first quarter, but it's a lull. We'll see as the in-stocks come back. And I think the color comes back. And I don't think that competitively that this is a moat that Lulu can't come out on the other side, just as strong as they were. But you're comfortable with the multiple and the premium multiple that you're paying

for what you even describe yourself as quote unquote, moderating growth. Look, I think it deserves a premium. What I'm saying is you're caught right now in a moderating growth runway, whereas 20% plus operating margin with a double-digit top-line profile, there's no question that if that is the other side of this maybe one to two-quarter moderation in growth, then I think you see Lulu back on the other side of that premium.

Interesting. I appreciate the conversation, Matt. Thanks so much. Great to be back. Yep. Good to have you, JPM. All right, up next, we're tracking the biggest movers into the close. Christina's back with that. What do we see? Well, we are seeing two wins for a major pharmaceutical stock pushing into all-time highs and a surprise buyback for a semiconductor company. Details next.

We are less than 15 from the bell. Let's get back to Christina for the stocks that she is watching. Tell us. Let's start with semi-cap equipment stocks that she is watching. Tell us. Let's start with semi-cap equipment maker Lam announcing a surprise 10 for one stock split. Its first split in 24 years and also a $10 billion share buyback. This is part of Lam's commitment to return annual free cash flow back to investors, a promise they made. The stock split wouldn't do anything for market cap in terms of math involved, but it would invite more investors to participate. Shares up 2%. A big day for pharma giant Eli Lilly.

Positive test results for a phase three Crohn's disease trial. Separately, Eli Lilly's diabetes drug also received approval from Chinese regulators. Both of those reason why we're seeing Eli Lilly up almost 3%, trading at all-time highs. Scott. All right, Christina, thank you. Still ahead, Ether is surging in today's session. We'll tell you what's behind that big bounce, what it might mean for the rest of the crypto space as well. Coming up next, we are less than an hour away from Toll Brothers results. Going to run you through all the key metrics to look out for in overtime. Not much

more. We take you inside the Market Zone next. We're now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Kate Rooney on what is behind the surge in Ether prices. And Diana Olick looking ahead to Toll Brothers as they report earnings in overtime. Today, Mike, we got the great wait ahead of NVIDIA tomorrow. But what stands out to you today? Well, market is not really wasting any energy on the preliminaries.

You have this kind of comfortable zone of where the economy and credit and bond yields are. It was actually kind of interesting. The Treasury market tried to react to some of the Governor Waller headlines this morning. Two-year yield twitched pretty significantly higher. And then it just unwound the whole thing because it's pretty much the same story. And Fed people now essentially treating the some softening in the consumer side of the economy as a net positive, the way the market has been thinking about it. For now, it helps the soft landing cause. In general, if forced to kind of make a claim, it seems like the market is waiting for

NVIDIA's permission to try another upside thrust, but we'll see. Yeah, 24 hours from now, it's going to be interesting. Kay Rooney, Ether's running. I guess not a surprise because Bitcoin is too, and maybe this is for some of the same reasons that got Bitcoin off the canvas, so to speak, initially. Yeah, Scott, there's definitely a correlation. We talk a lot less about Ether. This is the second largest cryptocurrency, but this entire asset really getting asset class, rather getting a boost from some new optimism that U.S. regulators are going to green light an ETF for Ether. So as I said, second largest cryptocurrency comes after a wave of Bitcoin ETFs were approved earlier this year, back in January. That helped usher in

more institutional interest and led prices to an all-time high. So a lot of excitement around that. You can see it reflected in the price. The rally really started yesterday amid reports that the SEC is asking for some updates around those potential ETF sponsors. Final decisions on applications from VanEck and ARK are due at the end of this week. Some investors are also cheering the resignation of the FDIC chair amid allegations of misconduct. Martin Gruenberg was seen as hostile towards the asset class based on folks I'm talking to pushed back on letting banks accept crypto, for example.

And then Bitcoin's rally. This really started last week after that April CPI number. It hit 70,000 for the first time in about a month, Scott. All right. OK, Rooney, thank you so much to Diana Olic now as we await Toll Brothers. What should we look out for? Well, Scott, Toll is the luxury builder, so buyers aren't quite as dependent on mortgage rate. But there was a distinct shift in rates in the last quarter. So that's what we're going to be watching. It's effects on Toll's Q2. It's Q1 beat expectations

with big jumps in all metrics. But take a look at where rates were in that quarter from November through January. They fell sharply from the mid 7 percent range to the mid 6. Interestingly, in the Q2 conference call, CEO Doug Yearley said while mortgage rate buy downs are heavily marketed and offered nationwide, very few of our buyers use incentive dollars to buy down their rates. They prefer to use any incentive offered on design studio upgrades or to reduce their closing costs in fact he said 25 percent of his buyers were all cash in q2 rates did the opposite climbing from the mid-sixes to the mid-seven so scott we will be watching all right diane olick thank you so much we will look

for you in overtime micah headed back to you. We're headed for another closing high for the NASDAQ today. Thank you, Apple. Thank you, Nvidia, Microsoft, and some others. They tend to persist. You know, there's more stocks down than up today. That's the market's way of, I think, just cooling off after a 7% run. The bull case is no secret at this point. It doesn't always have to be, you know, kind of big contrary call to say why things are positive. It is worth

asking how much dry powder there is. I think in the very short term, obviously, NVIDIA is going to see if it lights any of it. But at this point, I feel like it's about people expect a generally positive summer tone in an election year. And you have this patient fed fitting well with an idea of an economy that's still chugging along, but maybe slowing in certain ways. So kind of it is Goldilocks until further notice, I guess, is the way to put it. I wonder, too, how much powder is out there from, I don't know, shorter term CDs, shorter term money markets that are maturing that, you know, money might not necessarily roll into cash still,

but needs to come somewhere else. In theory, it's there. I think in general, the supply-demand equation is favorable. As many have pointed out, you have more money in corporate buybacks than you have in equity issuance. So it just is this general, this inherent bid in the market is there. I don't think you have to say retail is going to sweep all their cash into the market by just saying, you know, essentially, if volatility is low, all the risk models say the big institutions can own more. All right. That's Mike Santoli. We will see you

tomorrow. That bell marking yet another closing high for the Nasdaq. All eyes on NVIDIA tomorrow. Can't wait to take you up to that. Into OC now with Morgan and John.