Closing Bell - Closing Bell: Time to Lean in … or Back Off? 7/11/23

Episode Date: July 11, 2023

Is it time to lean in to this market or back off and wait for a better entry point? Lauren Goodwin of New York Investment Management and Gabriela Santos of JP Morgan Asset Management give their takes. Plus, CI Barrett’s Amy Kong explains where she is seeing strength in tech and health care. And, Eric Johnston of Cantor Fitzgerald defends his bear case. 

Kelly thanks so much welcome to closing bell I'm Scott Wapner this make or break hour begins with the countdown to tomorrow's inflation report your final stretch to get ahead of that and what it really means to this rally we'll ask two market guests that very critical question in just a moment in the meantime here's your scorecard with 60 minutes to go in regulation the Dow getting a big boost today from industrial names like 3M and Ingersoll Rand and Boeing, which posted more strong delivery numbers. Dow's good for three quarters of one percent. The ETF that tracks industrials, by the way, hitting a new all time high today.

Salesforce is helping tech rates. Well, interest rates, they've been mostly lower ahead of that CPI print in the morning. There's your Nasdaq, 34 points, a quarter of one percent. Brings us to our talk of the tape. Whether it's time to lean into this market or back off and wait for a better entry point. Let's ask Lauren Goodwin, senior head of multi-asset strategy for New York Life Investment Management. Gabriela Santos is here as well, global market strategist for J.P. Morgan Asset Management, both here at Post 9. As you can see, ladies, welcome. It's good to have you. All right, Lauren, you first. What's really at stake tomorrow, CPI? Not a lot. Not a lot. Because the Fed's already going to go? They're already going to go. I actually expect we might see inflation miss a bit to the downside relative to investor expectations tomorrow. It hinges a lot

on shelter prices, which we do expect to come down over the next couple of months. Inflation has clearly peaked. It's likely to move lower over the next couple of months. Inflation has clearly peaked. It's likely to move lower over the next several months further from here. But the reality is, is that core inflation and that super core PCE inflation that Chair Powell pays attention to, that is still too high. And wage growth, which we saw on Friday, still too high. And so from an investment perspective, the trend is known. Hikes coming in July. All right. Gabriela, you share the same view. Tomorrow is, I don't know, a nothing burger known. Hikes coming in July. All right. Gabriella, do you share the same view? Tomorrow is, I don't know, a nothing burger since the Fed's going to go.

Anyway, by the way, most firms on the street think you're going to get headline around, you know, 3% and you get core around the 5% level. So maybe, you know, give or take off of those numbers maybe causes a more dramatic move if it's more dramatically higher or lower than any of those projections. Absolutely. And of course, we look at the month over month figure, which are both expected to increase 0.3 percent. I think nothing burger for July, especially after the labor market report and recent Fed speeches. It really seems like we're good to go. And the market's already pricing in over 90 percent probability of that. But I do think there's interesting information there. We agree that there's a disinflationary process in place on its own. No need for further hikes.

But given the Fed is intent on doing so, I think the important information around the super core is whether we're seeing a normalization in prices, confirming the soft landing narrative recently that's propelled cyclicals higher. Or if perhaps if we miss too far on the downside, we're slowing down too much. Hard landing fears resurface. Or if it pops higher, we're reaccelerating too much and we're at risk of a policy error. So it needs to be just right and miss just enough. All right.

So what's the everything burger then? Earnings? If this is largely known, right, we think inflation is still coming down. The Fed's going to go in July. They may go another time. Is it all about earnings, which begin later this week? Earnings are certainly important, but we've already seen that headline revenues, while still positive in nominal terms, about 4.1 percent in the first quarter. We just got this information negative in real terms, 1.1 percent. And the market doesn't care a whole lot. Now, we know that market expectations don't tend to start pricing recession until recession is hitting. But what will tell us recession is

hitting may not actually be earnings. It's going to be the job numbers. And so until we see a meaningful deceleration in employment, market may not believe that this hard landing is hitting us, which I still expect is going to be the case later this year. There is a debate, you know, on Wall Street as to whether Gabrielle better than feared, which has largely been the case for the last few quarters, is good enough now. It was fine then, but it might not be good enough now. What's your view on that? So I do think, to your question, the everything burger really is earnings, just given that the whole return this year really has been driven by multiple expansion up 17%. So earnings have got to start coming through. The trick with this earnings season is that

expectations have not come down as they often do going into an earnings season, nowhere nearly as much as normal. So I do think beating those expectations is not enough because the expectations are not that low anymore. And for the earnings season, beyond just the macro read through, for example, from financials coming up on the state of the consumer, I think really the focus is on margins, margins, margins, right? For both the stock market investors and bond market investors, are companies able to maintain enough pricing power, but not too much where inflation then becomes a problem again? And we're back to talking about policy error and hard landing. So really, both CPI and earnings, it's really about finding a sweet spot here. So, Lauren, what's it tell you that, you know, the Dow's around the highs of the day. We're good.

We're good for 250. Rates are still elevated. We know the Fed is going to go. Who knows what CPI delivers tomorrow? And the market obviously doesn't think that earnings are going to be horrible. That may be better than feared is still good enough. But what does it tell you that the market is as resilient as it is? It's not just tech. Industrials, for example, the ETF that tracks that space, all-time high today. And many of the names within that are having a great day. Look, I think it tells us what is typically true late in the economic cycle, which is that when you still have lagging indicators, meaning mostly the consumer, propelling the economic cycle, which is that when you still have lagging indicators, meaning mostly the consumer, propelling the economy forward, the market and specifically investors don't believe that anything else is problematic, isn't going to happen. In fact, I think that if equity markets were flat, let's say, the recession is imminent conversation would already be much more imminent.

And that's why I think that some of this economic data that is sort of sitting just churning along with trend is convincing investors that a soft landing is still possible. Well, what if the leading indicators, which have all been reasonably weak, are signs of a trough? And that, you know, the consumer hangs in, these lagging indicators, as you suggest, and then the leading ones are as bad as they're going to be. And maybe that is in part why the market is as resilient as it's been. This is a question that's come up a lot lately because there are some early signs of housing, for example, starting to see green shoots, starting to rebound.

And I don't think that it's likely that we're seeing a trough in any of the leading indicators just yet. The reason is that we haven't really seen a meaningful economic deceleration despite 500 basis points of Fed hiking. And we know from past experience that when the Fed hikes this way, and specifically when credit and lending standards start to collapse, that economic activity is liable to slow. We've seen it in liquidity-sensitive sectors, but not so much in the economic sectors yet, including, as Gabriella very astutely points out, in profit margins. And so I don't think we've seen the bulk of the slowdown yet. It's still to come. But that's why I'm saying with them, why, if there's still, you know, this fear of economic deterioration, right, if the LEI, the leading economic indicators are so weak, why are industrials so good? Oh, I'm happy you brought out industrials. It's actually one of our

preferred sectors. And I think it's related to a couple of things, the reasons that cyclicals have been doing better. Certainly the resilience in the labor market has increased the soft landing odds. Just, of course, it keeps income and spending on track. But I also think it's because there's a certain willingness from investors to look through what if we're wrong and there is a recession. It's a short one. It's shallow. It's a technical recession. Let's look through. And I think especially for industrials, that's important because it's a kind of sector that benefits looking through a technical recession from long term tailwinds, which is the rise of industrial policy. We're spending, again, on the energy transition, on semiconductor manufacturing. These are all huge things. Reshoring, right?

Exactly. All this stuff. Reshoring production of critical materials and of semiconductors. That's a huge tailwind for the sector, recession or no recession. But I get the feeling that neither of you are looking through, that both of you are reasonably negative still on the market. Both of you are adding to bonds, right? I mean, is that the correct takeaway from your view, Lauren? I would argue that actually a near-term, let's call it pessimistic perspective, is an optimistic perspective for investors.

Because the quicker that you have a reset in the, because the quicker that you have a reset in the cycle, the quicker that you can have a pricing reset and that investors start to take advantage of some of the structural trends that we are seeing, higher rates, higher income, structural investment in energy, digital transformation, the infrastructure that goes around it. In fact, we're seeing, despite some of these really constructive long-term economic trends, investors being really hesitant to take advantage of some of the, let's call it, megatrend developments because they're so worried that the cycle might turn at some point. And actually, in a poll that we've recently done of our investment teams, even as recession expectations

get pushed out further, positioning from a more bearish, constructive perspective isn't changing. And that might suggest that actually there are some reasons to be more constructive when it comes to if a recession were to come sooner. What happens, Gabrielle, if all of these predictions and this belief that we're late cycle, as Lauren suggested, doesn't mean that the cycle actually ends. So it appears that we're late cycle, but the economy remains strong enough. Inflation actually comes down enough. The Fed is, you know, done soon, sooner, and that you just restart a new cycle.

And I think, remember pre-pandemic, we talked about late cycle ad nauseum for years and years and years, and the market went up and up. So I think ultimately, even if we do get a recession or we don't, ultimately it's about calibrating your exposure towards risk assets. For us, they're simply no longer the case to be underweight equities, right? A neutral allocation

makes sense. The reason to be so focused on adding fixed income, It's really the opportunity. The rates are going lower from here. So the window to capture these 15-year high yields is only here for a certain amount of time. The second one is for diversification to equities. Inflation is no longer the driving concern. And number three is just risk-reward. If yields go up, the ag would lose 1%. If they go down, you could gain 12%. That's why I wanted to ask you both about the risk-reward. Do you, Gabriella, do you not think that it's great for the second half for equity investors? After 17%, 16%, it's certainly not quite the same risk-reward trade-off. And that's why within equities, we're much more focused on adding to the value sectors

that haven't caught up as well, where they're still in a long-term story like industrials. International, where we think there the pessimism is far too extreme, especially Europe, ex-UK, as well as China and broader emerging markets. And number three, all with a quality overlay, because it's not smooth sailing from here, a recession or no. Sure. But if you want to add to the laggers, the assumption would be to me that you think there's going to be a catch up trade. So if tech continues to perform reasonably well and there is a catch up trade and you think those stocks are worth investing in, then that doesn't sound like a bad

risk reward environment for stocks beneath Beneath the surface, yes. At the index level, we might not go anywhere, but with a lot of flapping feet beneath the surface as you get some leadership change. What we wouldn't do, though, is go all in on all kinds of cyclicals because it is not quite the macro setup. And there are even some interesting defensives, which have been lagging, something like health care or consumer staples. What about this idea of risk-reward?

Has it gotten worse because of the gains of the first half as we make the turn? Even though we know, we think, the Fed is close to the end and earnings are hanging in, consumers hanging in, as you said. I would argue that as valuations have inched higher, actually across asset classes, that the risk-reward dynamic changes. But we're taking a very similar approach to what Gabriela is describing in equity, value core, overlay of profitable tech to take advantage of the changes in that sector that are frankly exciting, more exposure to international. But as equity markets have moved higher, we've been taking those gains and leveraging them in high yield. And that's not to say that the pricing opportunity and high yield has gotten better. Spreads have been tightening across credit asset classes. But the higher yield and the opportunity

to take advantage of that income generation opportunity, that segment of the portfolio that can work for you in a different way is still very attractive. Are we going to be reminded this earnings season, Gabrielle, about why we are so excited about what's happening in tech, that that's going to remain the place to be because expectations for earnings are only going to go up. Who knows if there's another NVIDIA-like surprise in the mix. We'll just have to wait and see in the next couple of weeks. Tech is really crucial because actually expectations for communication services and parts of tech have gone up since the second quarter began. So there's already a pretty high expectation, I wouldn't say necessarily of AI benefits filtering through already,

but of cost-cutting measures starting to really flow through in margins. So really the burden of proof here is on tech to show that the worst is over, especially after the run, not just in earnings expectations, but actual performance. And that's where perhaps there's lower expectations in parts of the value style that can surprise to the upside versus just kind of steady Eddie from here. You said profitable tech, Lauren. you're obviously talking about mega caps. Do they continue to lead? Is that going to be the dominant story for the remainder of the year? That's our expectation, at least where generative AI and trends around this sort of new leveraging of technology are concerned. That's not to say that mega cap tech are the only way to leverage this trend, not at all.

We're looking at, in addition to a thematic exposure to the digital transformation, also investing in equity and bond aspects of infrastructure and specifically digital infrastructure. So there are plenty of ways to leverage the trend. But even though the valuations of these companies have ticked higher in recent weeks as a result of the excitement over Gen AI, that's not necessarily what puts us into bubble territory. In fact, there's a lot of room to climb for these companies relative to bubbles past. And so I think it's important to be vigilant and to be mindful. But as long as these companies are printing reliable revenues, cutting costs, as Gabriella mentioned, it's difficult to fight that impulse up.

Yeah. I appreciate you both being here. It's been fun. Lauren and Gabriella, thank you. We'll see you soon. All right. Let's get to our Twitter question of the day. Now we want to know, is it time to lean in or back off of this rally? Wait for a better entry point, perhaps. Head to at CNBC closing bell on Twitter to vote the results a little later on in the hour. In the meantime, a check on some top stocks to watch as we head into the close. Christina Partsenevelos is here with that. Christina. Let's talk about hardware company Roku seeing its shares up double digits after announcing a partnership with Spotify. Viewers will be able to watch their favorite TV show and then during commercials buy products directly through the platform. Shopify will help users make purchases

without interrupting that streaming experience. It also gives both companies more insights to purchasing trends. You can see Shopify up a little bit less than 2%, but Roku, the bigger winner there. Sticking with the partnership theme, Shutterstock announcing a six-year partnership with chat GPT maker OpenAI. Shutterstock offers stock images, videos, and music, and it'll give OpenAI access to its database for computer training purposes and allow customers to use synthetic editing capabilities, aka alter any image in Shutterstock's library. See Shutterstock up 8.3%. Yeah. All right, Christina, we'll see you in just a bit. Yeah, thank you, Christina Partsenevelos. We're just getting started here. Up next, new developments in the big battle between the FTC and Microsoft over its acquisition of Activision Blizzard.

What might be next for that deal? We'll tell you after this break. Plus, Barrett Asset Management CIO Amy Kong is here. She's breaking down how she is playing the tech space right now and the other sectors she's seeing some big opportunities in right now. We're live from the New York Stock Exchange and you're watching Closing Bell on CNBC. Welcome back. We're following some new developments today in the battle between the FTC and Microsoft over its acquisition of Activision Blizzard. Steve Kovach has the very latest. Steve. Hey there, Scott. Yeah, Microsoft won its case against the FTC with the judge denying FTC's request to block the deal. The FTC still has the option to appeal by midnight Friday, and it's unclear for now if they'll do that. Meantime, our David Faber reporting

Microsoft nearing a deal with UK regulator, the Competition Markets Authority, after it rejected their transaction this spring. Faber saying Microsoft offered to divest part of its business and could close the deal as soon as Monday. As for the FTC case, Judge says it failed to prove Microsoft would remove Activision's hit game Call of Duty from PlayStation and make it exclusive to Xbox. She also said FTC failed to prove Microsoft would have an unfair advantage in cloud gaming. Decision raises questions also about the FTC's track record under chair, Lena Kahn, but it's going to continue.

We're expecting the FTC to sue Amazon as soon as the summer on antitrust ground, Scott. You know, beyond the Microsoft story, let's focus on the gaming industry, because Electronic Arts, EA, 5% gainer today. Take-Two Interactive is up almost 5% today, presumably on, okay, who's next? Right, and you just named two of the top ones right there, and you'll remember a year and a half ago when this Microsoft deal was first announced, there was talk that Comcast would want to buy Electronic Arts and merge that into the NBCU group. In an alternative universe, you and I are working for a video game company.

But look, these video game companies each pump out massive hits, billion-dollar franchises. It's like putting out a new Avengers movie every year for a lot of these companies. So they're very attractive. They have built-in audiences. They're guaranteed franchises. For example, you mentioned Take-Two. They're going to have a new Grand Theft Auto game. Remember, they raised their guidance so high, likely because that's coming.

So there's a lot of activity there, and I think people are starting to wake up. The one thing that you should look for is which of those names have the strongest mobile business, because I know we've been talking about Call of Duty so much, Scott, but the real reason Microsoft says they want to buy this company is because of mobile. That's where all the action is in gaming. That's where all the growth is. Now I'm wondering whether the judge's move today has opened the door to the possibility of a deal that could now get done, despite what the FTC might want with another perhaps tech giant looking at one of these companies or somebody else and feeling emboldened to maybe get something across the goal line. Yeah, exactly. And there

are too many other companies that would be kind of, at least on the big tech side, that would want to be acquisitive, maybe meta because, you know, the whole Oculus headsets thing, that is very gaming focused. Apple has Apple Arcade. Would they maybe want to buy a studio? You know, there's a lot of things there. But again, I would say if you're looking to who's next,

who has the strongest mobile business? We know, for example, Take-Two bought Zynga around the same time as this deal we're talking about happened. So a lot of these companies are trying to beef up the mobile business because, again, that's where all the growth is. But the headwind, of course, is Apple and Google dominate those platforms, and they take a huge slice. Yeah, nice day for those stocks. Steve, thank you. Steve Kovach, by the way, do not miss Activision Blizzard CEO Bobby Kotick right here on Closing Bell. That's tomorrow live from Sun Valley. That's at 3 p.m. Eastern time.

The tech rally taking a breather this week. The XLK on track for its fifth down day of the last six. My next guest suggests being selective when it comes to tech, looking to health care for some balance. Let's bring in Amy Kong of CI Barrett. Welcome. It's nice to see you. Welcome to our show. So big tech, let's start there first before we get to healthcare, because you're Apple, Alphabet, Microsoft, and NVIDIA. Where do you think the bar is now heading into earnings season for these companies? It's certainly high, at least higher, Scott. And we are cautious going into the earnings season where with new money, we are getting a little uncomfortable buying into this market rally that we have seen. I think earnings will be okay.

But in terms of adding money to the new market, we are taking a little bit of a pause. How do you address valuations when you look across the board from what they were at the beginning of the year to where they are now? Are you comfortable? Are you getting a little concerned that maybe some of them are over their skis? You know, as an investor, you never say no to a rally, but when we look under the hood, we are uncomfortable in terms of how we've gotten there.

Market multiple expansion has really been the key reason why we've seen this rally, not to mention the narrowness of the market expansion is really driven by the top five maybe six names how are you thinking about ai in general and and what it's meant to this space the sort of hype versus the hype and hope versus what the reality is some folks talking about a bubble in the space or not the mega trend is there and we do like the mega trend but when you think about realistically how do you execute that trend there could be some bumps on the road.

Regulation, I think in terms of thinking about talking to a bot of your medical history and getting some actual medical advice, I think there's a little bit of bumpiness along the way, and it probably gives us probably a better window to get into some of these names. But when we think about AI, we think of it in a couple of different ways, whether it's hyperscale cloud infrastructure, Amazon, Microsoft, whether it's pure place like Nvidia, or even strategic consulting like Accenture. Those are names that we are in right now. So let me go through a couple of names with you. Speaking of valuation, your expectation for Apple

going into earnings season, where that's one that people point to and say, that valuation makes me a little nervous, you know, over 30 times and a new all-time high for that stock in recent weeks. It does give us a little bit of a pause, same with Microsoft trading at about 31 times. But we think about their peg ratios, which I think is still reasonable right now. The fact that with Apple, their service segment, if you would, which was probably about 10% of revenues growing to closer to 20 today, margins above 70%. I think those metrics give us a little bit more comfort levels owning these stocks over the long term. All right, let's talk healthcare. Great sector

last year, undoubtedly, laggard this year. Second half going to bring something different? I think it's going to be case by case, right? Large cap pharma has probably been taking a pause with regards to divesting. We've seen that as a trend. I think they're probably going to be case by case, right? Large cap pharma has probably been taking a pause with regards to divesting. We've seen that as a trend. I think they're probably going to pick up M&A between now and maybe, you know, next couple of quarters. And that could add a little bit of excitement. Biotech, depending on which types of companies we're dealing with, I think there could be some excitement there, whether it's within large cap biotech, you know, whether it's eye diseases or weight loss, you name it. I think

we have to be very selective. Managed care is taking a little bit of a breather after outperforming last year. I think we're probably going to hit a little bit of bumpiness with regards to the elections coming up in 24. What about medical devices? Because Thermo Fisher is one of your top holdings. Yeah, we like them. But I think they're taking a little bit of a pause this time of the year just because they've had that COVID pandemic hype, if you would. And a lot of these companies are starting to really normalize their earnings. Lastly, real quick, JP Morgan. I mean, the banks get everything going in earnings. And this is actually the best performing large bank of the year stock. It's one of those set it and forget it kind of stocks.

Valuation is a little bit on the higher end. We think earnings coming into this at the end of this week actually could be OK, but loan provisions probably will take higher for some of these larger banks. We'll see you soon. Thanks for being here. Thanks, Scott. All right, that's Amy Kong joining us right here at Post 9. Up next, doubling down on the bear case. Canter's Eric Johnston is back ahead of tomorrow's crucial CPI print. And while some have flagged this as a positive catalyst for stocks, he's still not so sure about that. He defends his stance next. And later,

the star tech analyst Dan Ives is out with his Q2 tech earnings outlook. He gives his forecast, his top pick in the space. We'll do it ahead on Closing Bell. welcome back the major averages on track for back-to-back gains with the dow rebounding from its worst week since march our next guest believes the bear case for stocks is still building and has been since the end of last year when he first went back to his negative view joining me once again post nine cariner fit Fitzgerald, head of equity derivatives and cross-asset strategy is Eric Johnston. Welcome back. Scott, thanks for having me. Same guy, same view. You haven't changed your negative view? Same guy, same view. Circumstances are certainly ever-changing every day, but our overall view remains very similar. And what do you mean they're changing? How are circumstances changing, but your view is remaining the same? Sure. So there's clearly a lot of speculative forces that

are in the market. The market's got a lot of momentum. And I think if I was just looking at price, I didn't know anything about fundamentals, I would tell you that stocks look attractive. But there are fundamentals. And ultimately, I think owning stocks and playing that momentum, the speculation is playing with fire because the fundamental backdrop is extraordinarily poor. Valuations right now are at excessive levels relative to rates and on their own. The economic risk, the economic risk is one-sided, meaning there's not some idea where the economy is going to take off from here. The question is, is it going to hang on to this low growth or are we ultimately or when are we ultimately going to go into recession?

Let me stop you there. We're going to let you continue. You can make that same case more than 12 months ago that the economic risks were one sided. Then I can easily look now over the period of time and say, I actually think the economic risks are better today than they were a year ago. Yeah, I would disagree with that. So excess savings, they go down every day. They're still there. They go down every day. They're a lot lower today than they were nine months ago.

Student loan moratorium has been in place the entire time. That's coming to an end in the September, October time frame. Credit card balances. Credit card rates continue to go up every day, right? Every day the consumer is paying more. It's up 500 percentage points over the last year on over a trillion dollars. It's not like delinquencies are exploding, though. No, but the cost to the consumer is rising and is going to crowd out,

and we're already seeing some of this, crowd out other spending. But why do people like the Delta CEO, Ed Bastin, people buy airline tickets on their credit cards, presumably. Why does he keep talking about unwavering demand if the situation is getting so bad? At the moment, there is unwavering demand for service. Certainly most parts of service, whether it be cruise, airlines, etc. But that's only one part of the consumer dynamic. There's restaurants. And of course, there's, of course, the big goods market, which is faltering. The Johnson Red Book name or number came out today. It was a weekly number. It's real time.

Minus 0.4 percent, the lowest since 2020. And that's with inflation at 4% or 5%, which means that the unit sales are dropping very sharply, very sharply. And so it is a backdrop where not only do you have that going on, but you're also fighting this overall inflation dynamic, right? Which from a big picture perspective means the Fed is still going to be lingering out there as long as we are at these asset prices and an economy that has not rolled over yet. That's going to be a sort of a dampening effect on the overall level of the market. Not if inflation continues to come down. So if inflation comes down, first of all, it's a negative for earnings.

Earnings have benefited from inflation. That's number one. And number two is, sure, inflation is absolutely coming down for sure. But to get it to 2% on an ongoing basis, not a one-touch, right, because their average inflation target is 2%, is going to be challenging when the economy is still doing what it's doing today, which is not rolling over hard yet, and with asset prices where they are. And I would also bring out another point is that, you know, the Fed is potentially done with the rate hikes, but quantitative tightening from the Fed and from the ECB is going to continue, and that is meaningful. And then we have the Bank of Japan out there, right? Who's had accommodated policy for a very long time

that not today, not next month, but sometime probably in the next six months is going to then pivot to a hawkish tilt. Why is the market where it is? Sure. If things are so bad and the risks are so asymmetric to the downside, why are we where we are? So there's been, it's a great question,

and this has happened plenty of times in history where stock prices go well further than fundamentals. You can see it in individual stocks. You can see in the meme craze. You can see it in Tesla going to 400 before it dropped to 100. The AI thing is not the meme craze. You think it's the same? No, I'm talking about 2021. There have been times in history, whether it is the dot-com bubble going way through, whether it's in 2007 and home prices and what the market was doing up until September of 2007. I know, but where is that today? Where is that happening that likens to those periods you're mentioning? The point is that we're going through fair value. Stocks can, on their own, go through fair value for one month, two months, six months, two years. That's absolutely possible, right?

But ultimately, if you're owning stocks in that timeframe, you are playing with fire because ultimately fundamentals almost always win out. Do you not think that the fundamentals justify why mega cap tech is where it is? Because, I mean, that's been the balance of the gains, obviously. Sure. Is that not justified? So in some cases it is, in some cases it's not. AI is going to be revolutionary. We can all agree on that. How do you make money and what price do you pay for stocks today?

What price do you pay for Nvidia, Tesla, Microsoft, Apple? Is 31 and 34 or 75 times earnings the right multiples? The winners and losers from AI are still to be determined, right? Just like in the internet boom in the late 90s, the winners and losers are still to be determined. And the backbone of the internet of Cisco in 1999 turned out to be a very poor purchase, even though the internet became a transformational thing. But the level of profitability of these companies today versus anyone that you would cite back then is wholly different. Yes. These are different circumstances. But in the end, you are paying a significant premium for these stocks. And by the way, some of these tech stocks may be ultimately paying 34 times for Microsoft.

Maybe it will turn out to be the right thing. But in aggregate, when I look at the big mega cap seven stocks, right, they have a lot of good things going for them, right? And they do have some of these AI trends. They have great balance sheets. They're more secular as opposed to cyclical. Those are all things I've liked.

But at some point, is paying 32 times for Apple the right thing to do? And I would argue no. Well, we'll see what happens with earnings in a couple of weeks. Yes, that's possible. Some were questioning whether it was right to pay whatever you were paying for NVIDIA ahead of their earnings. And then their guidance was so dramatic, the PE went down after earnings based on their revenue guide. Absolutely. And I don't see that for an Apple or for some of these other names. But NVIDIA, absolutely.

I mean, I'm not going to disagree with you on that at all. They had a blowout number. They'll probably have another blowout number next quarter. Now, if on a short-term basis, you know, that could be a stock to own, but realize that with all these names that you are in a very speculative situation, right? Apple was a transformational product a year ago, two years ago, six years ago. And then the multiple has gone from 15 to 31. So I'm not saying that 15 is the right multiple,

but as great a company as Apple is, as transformational as it is, is 31 times earnings for a company that has negative revenue growth the right number? I think it's a very risky proposition to own it. Unless you think the worst is possibly behind that company in terms of where their revenue growth declines were coming from and that they arguably have the most powerful installed base in the history of any consumer products company ever yes and they did six years ago too i've been using airpods carplay the iphone's been attached to me for for for a very

long time right and the market has decided right now to pay 31 times for it. And as okay as it sounds right now, and the stock has significant momentum, I think you have to realize that you're owning something at a very expensive price, and there could be consequences. To be continued. Yes. To be continued. We'll talk to you soon.

Thanks for having me. All right, that's Eric Johnston joining us once again. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is standing by once again with that. Christina. Salesforce, hiking prices for the first time in years and the odds of a spot Bitcoin ETF winning approval in the U.S. just went up. Those stories next. About 15 minutes to go before the closing bell. Let's get back to Christina Partsenevelos now for a look at the key stocks she's watching. Christina.

I'm watching Coinbase shares because they're jumping on optimism on the potential U.S. approval of a Bitcoin ETF. The Chicago Board Options Exchange has confirmed a surveillance sharing agreement for five of its spot Bitcoin ETFs. What does that mean? The SEC can use these agreements, these surveillance agreements, to consider making changes to trading rules for new derivative products. That means the odds of a spot Bitcoin ETF winning approval in the U.S. just went up, and that's why Coinbase shares are almost 10% higher. Salesforce is climbing higher after the software provider said it will be raising prices by an average of 9% starting next month. This marks the company's first price hike in seven years,

as many tech companies are increasing spending to incorporate, what else, AI, artificial intelligence, into their products and services. Shares up 3.6%. Scott. Alright, appreciate it. Christina, thank you. Christina Partsenevelos. Last chance to weigh in on our Twitter question. We asked, is it time to lean into the rally or back off and wait for a better entry point? Head to at CNBC Closing Bell on Twitter. The results just after this break. The Twitter question, lean in or back off? Oh, boy.

Look at that. Virgil Tye, back off, barely winning. That's very interesting. Up next, we're talking about this rally. We're talking about the retail rally. Amazon Prime event kicks off. We're back in the market zone next. Highs of the day for the market

zone CBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Wedwish's Dan Ives on why he sees a green light to buy tech heading into earnings. Courtney Reagan on the rally in retail on day one of Amazon's Prime events. Good to have everybody. Mike, I mean, the bears just won't give in. You heard from Eric Johnston again. Yeah, the macro bear case hasn't really budged largely because it does rely on a lot of these things that take a while to show up. So you can sort of pin yourself to the

long lags, all these things that have been in place. The fact that, frankly, the Fed has wanted to restrain the economy. So isn't it going to happen now? I think what's interesting is the market itself. You kind of alluded to this. it's levitating here in the short term. It's not giving you a lot of negative feedback. It's not actually telling you, look, we see these little warning signs and we're alarmed about little systemic issues. It's just kind of consolidating above 4,400 in the S&P. It seems to want to use that as a floor this month. Maybe we're just feeding off of the seasonal tailwinds as long as they last maybe. You're kind of roping everybody in the speculative stuff starting to move I can see us building. Toward. Kind of a moment of tactical complacency going into the CPI but in general leadership looks pretty reassuring. In terms of it being cyclical. Credit looks okay.

So we'll see if anything disturbs that picture or if we're really just kind of emptying the tank on some of these bullish factors. Dan Ives, I feel like we have a game of red light, green light for technology. Red light to some is valuation. Green light to you, earnings and the fundamentals live up to the billing of the valuations? I view it as a bright green light because ultimately I think fundamentals across cloud, across consumer, across big tech are going to be much better than expected. And I think what we're starting to see with CIOs

is a definite change in terms of an uptick in spending. And that's why when I look at what's happened in Redmond with Microsoft, I continue to think that's on track toward $3 trillion. I think there's just going to be another quarter that shows more and more share gains. I look at what's happened on cybersecurity. I look at Apple on the consumer side. Scott, to me, it's a table pounder on broader tech going into earnings. But isn't all of that already in the stocks to some degree, just given

the gains and the valuations where they are now, Dan? I think to some extent, AI, in my opinion, it's a 1995 moment. I think it's the most transformational tech theme we've seen in 30 years. I don't believe it's in it. And I believe it. We're talking about much a broader rally across small and mid cap. And when I look at large cap, I think those continue to lead here. And a lot of bears, they'll come out of hibernation, coming into earnings. But I think these numbers across the board send them back into hibernation.

I don't know. Some of these bears may never, may never come out, given their views. Dan, thank you. That's Dan Ives. Courtney Reagan, I'm looking at Amazon. Day one of Prime Day, one and a quarter percent higher. Yeah, that's interesting, actually, Scott, because that's better than what we normally see from an Amazon performance on Prime Day. Since 2015, shares of Amazon actually fall on average just two-tenths of a percent, though, during the event. But then they gain it back, plus a little the following day. What are we expecting this year? Well, Insider Intelligence does estimate that Amazon's Prime Day sales will increase 10 percent over what we saw last year,

totaling more than $8 billion worldwide. Sales for the retailer could be nearly $13 billion. It does prove to draw incremental sales, though, generally for online retail overall during the event. Best Buy, Target, Walmart, those are at least among some of the retailers that offer competing sales on or around Amazon's Prime Day event. And Adobe does forecast that the two-day Prime event will drive more than $13 billion of total U.S. online spend. So others get to participate in this, too. That's 9.5% more than last year. And to your point, we are seeing some retail names rally today.

The XRT and the iBuy online retail ETFs both outperforming the broader market. Look at the iBuy ETF, more than 3.5% higher. Etsy, Burlington, Revolve, those are among the leaders in the XRT, that broader retail ETF, up 6% or more. But then you've got Peloton and Affirm. They're leading the iBuy ETF. And interestingly, Peloton products are being discounted some on Amazon today. The online behemoth, of course, also offers Affirm financing. So perhaps there's a halo effect for some of these names. But generally, retail just kind of becomes in focus on a day like today. And then we're all waiting for the

CPI report. So how will inflation play on the consumer psyche? We could see things turn around or not. We'll see. Yeah, thank you, Courtney Reagan. I'll turn back to Mike Santoli just to take this mega cap tech conversation since we're talking about Amazon, Ives is still to your left. We're talking about mega caps, major flashing green light, he says. Look, they were bought on every dip. You know, yesterday we had that mechanical sell off in the six largest names and most of them have found their footing here.

I think that's probably going to be a pretty stubborn response pattern. That said, if I look at the way Apple has traded this year, I keep pointing this out. It's at too perfect a 45 degree angle to say that it's responding to new information about Apple's business. It's the market is rewarding various attributes that these companies have right now in the moment. I think the more if you want to be super bullish for the market, you say those can kind of take some time off, take a breather, consolidate a little bit. The rest of the market can do a little more to find some traction and do some of the work for a little while. And then we'll see where it leaves us in a few months. So I wouldn't say there's some reason to sort of outright get negative on this group.

I keep putting up for the whole market. Anywhere between here and 5,000 on the S&P, it seems like we're going to get stretched before we get anywhere close to that. But we were at $4,800 over a year and a half ago, okay, with a smaller economy and lower earnings, and with 500 basis points of Fed tightening ahead of us. So, you know, you can't say that there'd be something wildly off base if we traded higher from here, even if valuation gets less friendly and we're starting to see some crowding again into the biggest names. Dow's good for near 1%. We're just about the

highs of the day as we have one minute left in the session. What do you make of industrials broadly, the XLI at these elevated levels? I think it's one of the more reassuring things about the internal action in the market. That said, I looked at the industrials in terms of what really is working. It's not necessarily the conglomerates. You have pockets like machinery and, you know, engine makers and things like that. Ingersoll, all-time high today. And the sort of compounder fastenalls and Grangers of the world, which are kind of quietly just kind of do well in many environments. Plus, by the way, airlines are up 35% this year.

So I think it tells a pretty decent story about the capex cycle, travel, things like that, even if it's not something that's saying that the underlying economy is about to accelerate in a wholesale way. It looks like we're going to get a three-handle gain on the Dow better than 300 points as we head towards this mode. Two-thirds of 1% of the S&P, all ahead of CPI tomorrow morning. Overtime picks up that story with Morgan and John.