Closing Bell - Closing Bell: Wall Street’s Waiting Game? 6/13/24

Episode Date: June 13, 2024

Can Wall Street stay patient as long as the Federal Reserve as we await confirmation of a soft economic landing? Our all-star panel of Joe Terranova, Courtney Garcia and Adam Parker break down their market forecasts. Plus, BofA Global Research’s Jill Carey Hall tells us where she is finding opportunity in small caps. And, Morgan Stanley’s Michael Mauboussin looks under the surface at market breadth … and what it might mean for the future of this rally. 

You're listening to Closing Bell in Progress. That has been President Biden and President Zelensky of Ukraine at the G7 meeting in Italy, announcing a new security agreement as well as a $50 billion loan backed by Russian assets and a new set of sanctions against Russia to back Ukraine's war effort there. Welcome to Closing Bell. I'm Mike Santoli. In today for Scott Wapner. This make or break hour begins with another day of chips and dips.

AI propelled semiconductor leaders Broadcom and Nvidia holding the S&P 500 up and NASDAQ as well near record highs while a hefty majority of stocks pull back. Any positive close for the S&P and NASDAQ would be a fresh all time high. While the Dow, as you see there, continues to lag. It's about three and a half percent below all-time high above 40,000. Small cap stocks also struggling today. The Russell 2000 down by almost 1% after a little bit of a pop yesterday. That even with Treasury yields falling sharply today, following an encouraging wholesale inflation reading

and uptick in unemployment claims this morning. You see the 10-year down below 425. It actually was at 4.5 just a couple days ago, about 460 two weeks ago. We start with our talk of the tape. Can Wall Street stay patient as long as the Federal Reserve can as we await confirmation of a soft economic landing? And where within this uneven equity market should investors be focusing their attention? Let's bring in Joe Terranova of Virtus Investment Partners, Courtney Garcia of Payne Capital Management, and Adam Parker of Trivariate Research, all three CNBC contributors. Joe, high-level stuff here. We got used to this idea that economic resilience,

earnings coming back, the Fed not doing anything but poised to perhaps ease, was enough for the market to get by. Maybe the breadth of the market is not necessarily showing a lot of cheer today, but has anything changed after the Fed meeting, after some of those numbers this morning? No, I don't think anything's changed after the Fed meeting, but I do think in the last month, a lot has changed when you're thinking about how to invest, because it is, can you go beyond AI and technology to invest? And right now, the answer to that is, it's very difficult to do so. If you study performance so far, month to date, in the 11 S&P sectors, there's only five that are higher.

And if you look on the quarter, there's only four that are higher, while the S&P is 3% higher. So there's a very clear dynamic that's unfolding within the market. We thought that we were getting a broadening out of opportunity, and we thought a lot of that, the catalyst was going to be yields pulling back. Well, what's happened since May 29th? You have a 10-year that's pulled back 40 basis points and a two-year that's pulled back 30 basis points. And you're not getting the response from the other areas of the market beyond AI and technology. So some things that I've done personally, I added the XLG, which is an ETF that focuses on the largest 50 companies. 50 percent of that is affiliated with the Super 6. I've added some health care names, but it's a tough environment right now

to look for opportunities beyond AI and technology. You know, Courtney, I guess the question is, do you essentially assume that the mode the market's been trading in, you know, kind of narrow, these larger companies doing well and the rest not so much, you assume they have it right and therefore it's going to continue? Or is the relative weakness of the rest of the market creating a chance to make a bet that maybe the market has it wrong or this is a growth scare that's going to pass? Yeah, I do think that you want to start to look at other areas of the market here because what's happening is the three largest companies, which is Microsoft, Apple, NVIDIA, now constitute over 20 percent of the S&P 500, which really hasn't happened since

at least 2000. And these over concentrations of markets don't tend to last over the long run. So do we own them? Absolutely. Do I think this is ending in the short term? No, but I do think there's a lot of other areas of opportunity. And especially when you look at artificial intelligence, there's a lot of beneficiaries of that, specifically things like energy, right? You're going to have to be able to provide the energy to these data centers, to artificial intelligence, looking at things like your metals, like copper, which is really used in the electrification and creating these processes. I think there's a lot of opportunity that's had other than those three major companies, which have already just had such a run. At some point in time, we're going to see that come back

down. Adam, I know you've taken a look at kind of what specifically is working and why, perhaps, in the market, whether it's a certain style. Is it just the AI theme? I mean, look, I can point to Chipotle and Costco. They're not up because of AI. They have similar looking charts. So what is the market privileging right now? You know, quality and momentum, right? I mean, I think a lot of institutional investors I talked to are having pretty good years, stock picking wise, either long only or hedge funds. I think if you strip out quality and momentum and sort of the 60 high quality growth stocks in the index, the performance is probably closer to the market, you know, because the alpha on top of quality and momentum hasn't been that great.

I actually think it's been broad, more of a broad rally since last November. There's a lot of semis that are up. It's not just NVIDIA. I mean, you can plot Broadcom or others. So there's lots that are up. But I think the reason the market's up is the same story. Financial conditions are easy and gross margins are going up. What do you sprinkle the frosting on top of that cake is?

This AI dream. And the dream is so awesome that you're in this innocent until guilty proven mode for a while. I just spent the last three days on the West Coast and I can tell you, I think people really believe in the potential for productivity and something needs to burst that bubble. And I don't think they're going to be held accountable for return on investment in the next couple of quarters. Yeah, it's a longer term. It seems as if there is some some, you know, giving the benefit of the doubt to those people that are investing the most heavily in this book.

But I guess I keep coming back, though, to maybe, Courtney, you know, if quality and momentum is all that matters and people are essentially willing to capitalize the AI theme so aggressively, does it imply that we're afraid of the companies more closely linked to the real economy? In other words, we're kind of worried about the economy is going to wobble or perhaps earnings aren't going to come back the way right now the consensus would have it? I think the bigger thing is where interest rates are going, because I think a lot of the other areas of the economy that are more cyclical, are more sensitive to interest rates, we're seeing that when interest rates are going to come down, keeps getting pushed out into the future. I think that's the bigger concern with the rest of the economy. In the meantime, you're getting this kind of fear of missing out,

where even though Nvidia keeps hitting all new highs, people want to be in that trade, and you're seeing additional money go in there. So there's kind of two sides of the markets where people are flooding into your largest companies. But on the other side, they continue to put more money in cash because people are still nervous about a future recession. But the overall data on the economy continues to be strong. And I think for that reason, you do want to make sure you are investing properly, but making sure you are better diversified than just those couple of companies, because I think that's going to be too short.

Well, a couple of companies today, Joe Broadcom and NVIDIA basically are good for, you know, half a percent of upside in the S&P 500. We'd be down without them. Broadcom in particular, one of these fascinating stories where it was like, oh, this is kind of a no growth, free cash flow, cash cow type story. All of a sudden they have leverage to the data center AI trend and it becomes hockey stick stock price and earnings estimates. And guess what? We're going to do a 10 for one stock split because that's what we do. And because people will take any news as good news when you're in that, you know, that kind of anointed category. Where does that leave the stock right now or the or the even the little bit broader group? From my perspective, it leaves a stock position to potentially challenge a trillion-dollar market cap.

Everything that you heard from this company is what you wanted to hear. That's like a 25% run from here, right? And it can easily be attained. Everything you wanted to hear from the company last night, you heard. VMware, it's finally beginning to contribute to the company. They raised the guidance on AI revenue. They spoke about other non-AI areas of the business beginning to improve. And those areas of the business had been struggling. So

you heard everything that you wanted to hear. And it's a great example of a company that is contributing in AI. I've owned the company now for the better part of the last year. And I have to tell you, I can't even begin to think about selling it. Can't even begin to think about selling this company because, you know, I'm laughing. Adam's mentioning quality and momentum. I'm sitting there saying to myself, okay, I checked the box on two of those things. But the problem is don't go and equally weight them right now because that's the biggest challenge. Hawk Tan's on, you know, Meta's board, as you know, and they're spending a lot of time with Zuck.

So I think, you know, I agree with you. He's in the Venn diagram, like all the circles. He's sitting right in the middle of the Venn. So I guess the question is, is it that easy and obvious that the ones that have already been identified are going to continue to win in this environment? And not only that, but that the Amazons and the Metas that are writing the checks are gonna get the benefit of the doubt because guess what?

That was just gonna be cash sitting on the balance sheet buying back stock and it's actually being kind of mobilized. At some point, the street's gonna demand some return on that investment. For now, you're willing to believe that that investment is gonna get them even farther ahead down in the future. So I think the risk-reward skewed to the positive for the AI trade. It took up half of the conversations I did in the 20 meetings I did earlier this week in the West Coast.

People are trying to figure out the profit pools. Certainly power is one of them. But there's others. The productivity. I think, you know, Joe mentioned something I agree with. Healthcare, healthcare services distribution. I think people don't like that sector. It's election year.

The stock's missed on utilization and cost. But I'm looking at businesses with lots of employees where I can predict the customer and employee behavior and maybe benefit from AI productivity. I'm willing to believe that earlier than I am for maybe banks where I have to run systems in parallel, the CapEx first before I benefit. So I think there'll be a phase two here where people focus on the cost beneficiary, not the revenue, and that's probably the next wave of it. So I kind of like that, and plus I hate romanticizing my contrarian, and now Joe and I agree, so maybe we're forming a consensus by accident. But I don't think people love health care when I talk to them.

No, but as yields fall lower, biotech comes back into favor. XBI is a name I put on. Amgem is a name that I've put on. McKesson, Merck, these are all areas. But I think when you think about AI, you think about tech, and you think about the contribution of the market right now. Here we are, 24 hours removed from the Federal Reserve meeting. And really the risk to all of us is that the AI and tech story falls apart. I don't think the risk is the Federal Reserve. I don't think the, and we've kind of focused on,

is the risk the Federal Reserve? Look, the Federal Reserve, the next move is a cut. It's all you need to know. It's a cut. It's innocent until proven guilty, I think, for now, you know, because we got this sort of data vacuum until, you know, July. You know, if there's any prenegs or whatever. Taiwan Semi just told you you're good until 2026. So it's kind of hard to see what makes me panic in the next two weeks. Other than, you know, the valuation just gets scary. The issue now is that like a quarter of the S&P on a day-to-day basis is kind of moving based on AI, green or red. So at some point, if it goes the other direction,

you think you're kind of a diversified passive index investor, and you got those bets on the table. On the flip side, though, I'd say the software sector, particularly the stocks that are exposed to human beings, which was an amazing business for 15 years, whether it's now or CRM or Adobe or, you know, Workday, I think people are maybe guilty until proven innocent on them because they need to show revenue acceleration for you to get excited. And what's happened here is people saying, well, I don't know when it'll happen, but maybe, you know, they're just rapper companies

and they're not like the most important part anymore. And so now the AI trade for them is guilty until proven innocent. So, like, I agree with Joe. There's a lot of things underneath that have changed in the last month, even if it's, you know, kind of the Fed isn't the thing that changed. So now hardware is eating the world. We'll see what happens. All right. Adam, Courtney, Joe, good to talk to you. Thanks very much.

Thanks, Mike. Good to see you. All right. We are just getting started. Up next, betting big on small caps. Bank of America Global Research's Jill Carey-Hall has been bullish on the space for a while. She'll tell us the best way to invest there now. That's after this break. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. The Russell 2000 pulling back from yesterday's post-CPI gains, a cooler inflation report and potential rate cut on the horizon.

Those are said to be a green light for a further broadening of the market rally. So is now the time to bet on small caps. Let's ask Jill Carey-Hall of B of A Global Research. She is here with me at Post 9. Jill, it's good to see you. We've been waiting for the conditions, I guess, to be in place to see whether, in fact, small caps get a reprieve. Everyone can point to the underperformance versus large. It's been extreme for a while. What do you think it might take? And I guess how to approach small caps within a portfolio? Right. Yeah. Thanks for having me. I mean,

I think, you know, a lot of the macro conditions have been favorable going into the year. We were positive on small caps for the fact that, you know, GDP has been better than expected. We're seeing a manufacturing recovery. We're seeing an inflection in a lot of the cycle indicators. So that's all positive. But after the April inflation data came in hotter than expected, we kind of took a more tactically cautious stance on the Russell 2000. I talked to a lot of investors, and I think investors are kind of waiting for not just the Fed to be done hiking, but for those cuts to actually seem like a reality given all of the rate sensitivity and refinancing risk in the Russell 2000. So I think this inflation print was a step in the right direction, but it was really the first soft inflation print that we've seen this year.

So I think we want to see further evidence, and I think that's what the Fed wants to see as well, that inflation is actually easing. And I think we want to see also more confirmation just that the back end loaded profits recovery that analysts are expecting for small caps actually looks like it's going to come to fruition. First quarter earnings was pretty good, but revisions have still been negative. And when you kind of look at how that's trended, the profits recovery earlier this year was expected to start a lot sooner than it's now been pushed out to. So by the end of the year, we see a very back unloaded profits recovery. So I think those are sort of what could cause the broader Russell 2000 to do well. But in the meantime, we still see pockets of opportunity in small caps. I was going to say the clarity on a rate cut or the reality of a rate cut, is it something that in an actual, tangible, practical way is going to matter

a lot for, let's say, the typical small cap company? Or is it more about a signal to investors that there's a little bit of a different risk reward setting up? Well, I think one rate cut may not necessarily matter as much as just the fact that we rates are not going to stay high forever and that we could be going into an easing cycle especially since you know roughly half of debt on small cap balance sheets is either short term or floating rate and you know credit spreads are pretty narrow right now but obviously if we see those widen and if rates stay high that becomes more and more of a risk so if we can see more confidence that we're going to be in a cutting cycle i think that should you know give investors can see more confidence that we're going to be in a cutting cycle I think that should be you know give investors a bit

more confidence and in terms of the profiles of small caps right something you should you start to hear now and maybe it's just more of a indication of where sentiment is is. Look the Russell two thousand the entire market cap is smaller

than three individual mega cap stocks- why do you have to care I guess from a bit of a market perspective it. And you know maybe that's a good sign people aren't looking as much. But you said you have to care? I guess from a market perspective. And, you know, maybe that's a good sign. People aren't looking as much. But you said you have ideas about, you know, where within small caps makes sense right now. Where can you add a little value? Well, I think this is, you know, a good environment to be selective. You know, pick stocks or be active rather than

passive. You know, I think there's problems with both small and large cap indices. The large cap index has been very concentrated in a small number of stocks. The Russell 2000 has a very high proportion of, you know, non-profitable stocks right now. So, you know, we rather than owning the index, we would focus on, you know, higher quality small cap stocks that are more cyclical, could benefit from some of the improving economic trends if that continues, but that don't have a lot of leverage or refinancing risk on their balance sheets or that aren't as rate sensitive, because I think those parts of small caps could still do well near term. And then if we get more confidence on some of the things that I mentioned, then that could be a better environment for the

Russell overall. Gotcha. And so obviously it's sort of outside of tech, a little more old economy with some of the cyclicals. Yeah. Cyclicals value, but tilting toward quality, yeah. Great. Jill, appreciate the update. Thank you. All right. Up next, the S&P trying for another record close. Morgan Stanley's Michael Mauboussin is looking under the surface for what the fate of this rally might really be.

He joins me at Post 9 for a rare interview after this break. 20 minutes until the closing bell. Let's send it over to Christina Partsenevelos for a look at the key stocks to watch into the close. Hey, Christina. Hi, Mike. Well, Broadcom's earnings beat and bump in guidance, impacting server assembler Supermicro

to the tune of about 13.5%. Right now, it's the biggest gainer on the S&P 500, actually 12.5%. There's no direct connection between the two companies besides Broadcom's AI revenues climbing in the quarter with more expected in the near term. That AI theme remains intact and that bodes well for Supermicro given they benefit from all of that AI infrastructure spending. For all more details on that spending and a lot more,

tune into the CEO of Supermicro on Closing Bell Overtime at 4 p.m. Eastern today. And sticking with chips, networking company Arista Networks hitting a new all-time high today after. Also driven by Broadcom, which raised networking growth to 40% year-over-year from 35%. Broadcom CEO says CapEx spending is shifting towards networking inside the data center versus just compute. That is a good sign for Arista Networks and why shares are up 6%. Mike? is shifting towards networking inside the data center versus just compute. That is a good sign for a risk to networks and why shares are up 6%. Mike? Christina, thank you very much. Thanks.

Another closing high in sight for the S&P 500, the record-breaking run, forcing many investors to look under the surface of the index at market breadth and extreme concentration. Let's bring in Michael Mauboussin. He's Managing Director at Morgan Stanley Investment Management. Michael, it's great to have you on. Great to see you, Mike. You've done some pretty deep work on not just the history of concentrated markets within the S&P 500, but kind of what drives it and I guess whether to be worried about it, because people mostly talk about it as somehow a risk or a distortion or something to be concerned about. Yeah, exactly.

The first thing I'll say is, you know, going back, we went back to 1950, trying to get 75 years of history. We're now at year end at 27 percent. Last night we're at 31 percent. This is the top 10 stocks of total market capitalization. Last time we were at this level was 1963. And you have to really go back to the 1930s to see a sustained period of this. So the fundamental question you get to is, back to the 1930s to see a sustained period of this. So the fundamental

questions you get to is, why is everybody so worried about this? And I think the thing that's really been disturbing for investors is the sharp rise over the last decade. So the last 10 years has been the largest increase in concentration we've ever seen. And I guess, you know, there have been some who've said, look, it just reflects dynamics within the economy, whether it's kind of a winner-take-most economy for the biggest names or a willingness to put a heavy premium on certain types of companies. Or, you know, is it somehow a mispricing? Is it an overvaluation?

Is it a misallocation of capital? And it might be all of the above. But there are two things we can point to that are interesting. One is we looked at just large-cap versus small-cap stocks and their return on invested capital, right, which is a measure of their economic performance. And that gap was about 80 basis points differential in the 1990s. And that gap has opened up to over 400 basis points, so four percentage points. So the underlying economics are better. The second thing we looked at, this is going to sound a little fancy, but we use a term called economic profit. So it's really

return on capital times the amount of invested capital. And it turns out the top 10 companies last year, which are again 27% of market, were almost 70% of the economic profit. If you actually go back over time, even when those concentration numbers were in the teens, it was 40, 50% of economic profit. So there may be some other things other than fund models, but there's certainly something that underpins what we see. There was a fascinating piece, kind of a counterfactual in your work, which was, you know, you have to test the idea that maybe when the market was much more balanced, let's say in the early 90s, it wasn't concentrated enough. In other words, the market was missing the point

that there were going to be these huge winners. Right. When you look around, two things to say on that. One is you look around the world, we're the, you know, the top 12 markets in equity cap. We're the fourth most diversified. Now, it is the biggest market, but it's the fourth most diversified. So actually, this is not unusual if you take it on a global level. But yeah, we did that counterfactual, which was to say, like, if markets, if prices were right at the end of this year, like, what should they have been five years ago or 10 years ago? And you're exactly right. They should have been much higher. So, you know, you're arguing the markets are efficient now and they were inefficient before. It could

have been the other way around. You could argue argue both ways. But that is an interesting thing. Again, it's just because we're in new territory. I'm just about observing, not predicting, just observing, like, you know, what could make this be. Because it is interesting because the other periods you mentioned, the early 60s, where you had this extreme concentration and then another one that was almost as concentrated, let's say, around the top of the market in 2000. Well, after the early 60s, you had pretty good markets for a while. After 2000, you had a rough decade. So that in itself doesn't tell you a lot.

What I did like is the history of whether you want to own the first, the largest kind of stock in the market or the second or third. That's an amazing story. So we went back to 1950, created an index. So it starts at 100. And if you just own the top stock for every year, so it rotates, right, that index went from 100 to 4, 1, 2, 3, 4 in 2023. Now that actually, so it was bad the whole time. But what's interesting is that actually was a huge recovery. So it went from 100 to 1,

1, like 1.5 in 2013. And it's actually in the last decade, the number one, two, three stocks have been fabulous. So if you look at 75 years of history 65 years number one stocks been a bad stock to own last decade It's been fabulous interesting and I guess so many of the other things that people are pointing to as Extremes at this point whether it's well large versus small stocks growth over value Quality over I guess, lower quality. They all seem like maybe they're related to this type of preference for these kinds of companies that now rise to the top. Yeah, and part of this, look, we have to talk about artificial intelligence. To some degree, that may be a combination.

So the underlying fundamentals are good. We've documented that. But the AI lift in, say, the last 18 months has also played into that. And the first obvious thing is what everybody's talking about, which is the infrastructure play, and that would be NVIDIA. But the second interesting question is, is AI a sustaining innovation that helps the incumbents get stronger? So those lists of companies we see. Or is it a disruptive innovation in the sense that new companies will come along? And it feels like the bet, at least for now, and time will tell what the answer is, that it feels like it's just making the stronger, stronger. Yeah. And, you know, I guess the other thing that you'd have to investigate to some

degree is whether, in fact, there's some kind of behavioral aspect of this, right? I mean, I know you look a lot at investor behavior and hurting and, you know, the stories we tell ourselves. Does it seem like we can tie any of this to that? Yeah. I mean, it does feel like that a little bit, right? Fear of missing out. And when you see these stocks do so well for so long. But the other tricky thing is you think about companies like NVIDIA. I mean, I've been doing this for a long time. I don't recall ever seeing a company deliver numbers like this. And the operating leverage, in other words, the incremental profits as a function of the incremental revenues is really extraordinary. So, you know, eventually this is going to end. But for now,

it's hard to know how long that will last. And meantime, very difficult for stock pickers, which I think is why a lot of professional investors are uneasy about this, right? It feels like you could never own enough of the winners. Yeah, we looked at the mutual funds that benchmark against the S&P 500. Their average market cap in their portfolio is quite a bit smaller than the S&P 500. So when large cap does well, it's challenging for those active managers. When small caps do well, it's the opposite. So under that setting, in nine out of the last 10 years, large caps have done better. So it's been a difficult backdrop.

Yeah, it'd be difficult for an active manager to have 20% of assets in the three stocks, which is what the S&P 500 does right now. Michael, great to talk to you. Thanks so much. Nice to see you, Mike. Appreciate the time. All right, up next, we're setting you up for earnings in overtime. Adobe reporting at the top of the hour. We'll break everything down for you that you need to watch in that report after this break. Thatro risk advisors, chief technical market strategist, John Kolovis, shares his market outlook with more record closing highs likely. Plus, Phil LeBeau on Tesla's shareholder meeting and Pippa Stevens looks ahead to Adobe earnings out after the bell.

Welcome all. John, market kind of hovering here at the index level. Another day where the majority of stocks not really participating. What's your read as we sort of click modestly to new records, but everyone has a question about whether it's sustainable. Right, exactly. I'm bullish but cautious here on the tape. If you look at the chart of the S&P 500, higher highs, higher lows, moving averages in the right directions. What's not to like? There's plenty we can argue about, but I'm still bullish.

I think the S&P can get up to around 55, 50 or so on this next leg higher before something more serious could happen. And so if you're bullish on the index, the index itself is kind of the truth at this point in terms of aggregate market behavior. Would you kind of own an S&P-like portfolio? In other words, you're not looking to pull laggards? That's exactly right. You want to be where the strength is. And that's what this narrow breath is telling us, right? If the breath is terrible, don't fight it. Embrace it. Be in those areas of the market that are the strongest, the best charts. So you want to lean into it. If you think back in 1998, if you folded your arms and you were bearish from 1998 to 2000, I guarantee you got tapped on the shoulder.

Yeah, 1998, that's when, you know, the Dow transport started to lag in a narrow market. And then you had two years to kind of sit there as the market went higher. When it comes to the time of year, it's interesting. A lot of focus on July as being this melt up potential for the Nasdaq. If you look at the seasonal tendencies and where flows might come from. On the other hand, late June, sometimes a little choppy. And then you have the election year dynamics. So how do you synthesize all that?

So a good way to think about it is a lot of my clients are asking me, I don't get it. Why is the S&P at all-time highs and VIX is all-time lows and we have this crazy election coming up? But historically, when you look at the seasonal trends for VIX in particular, it actually trends down lower throughout the election year than bottom somewhere in mid-August and then ramps up. And guess where it peaks? Election day, right? So it's kind of par for the course to see VIX at lows, S&P at highs, and even going into what should be an insane election season. It's pretty consistent with historical norms. And I keep pointing out, too, I mean, when it comes to

the VIX, the volatility index, the fact that you have a lot of kind of divergences within the market, parts of the index going down, others going up, the index level volatility has been really calm. It has been relatively calm. It's a pretty orderly advance for the S&P. But you've talked a lot about and everybody else is it's the rest of the market that's not orderly at all. Small caps, mid caps, unprofitable companies, higher beta stocks, completely different story altogether. When you say kind of take what the market's giving you, I mean, semiconductors remain at the focal point. It's hard to deny their leadership. On the other hand, is it getting extended? Is the risk reward, has it basically they've been too good for too long? Yeah, I think

so. I think on a shorter term basis, the risk reward is not favorable anymore. I think it's one to one. Longer term, I brought a chart that goes back to 1969, and it shows that it broke out of a 20-year base in 2020. And there's still upside to be had on that chart. So from a very simple chart reading, there's still another 80% potential on the upside on that particular chart. But on a shorter-term basis, it's way too high above its 50-month moving average. And when it's 130% above its 50-month moving average, it tends to pull back

about 20%. So buybacks should be repurchased. I was going to say, it looks a little vertical there in that chart. Really quick word, are treasury yields breaking down here? Why you got to ask me that question? It's a tricky one. It's a tricky one. Yes, purely on the charts, they are breaking down. The 10-year should be pointed towards 418 as the next support level. What's giving me issue here is that I'm noticing that credit spreads are starting to widen out a little bit and the dollar is insanely strong here as well.

Why won't it break down? So I've been using this term like technical Goldilocks would have to be underneath 430 on the 10-year, but breadth is negative four to one today. Yeah, right. And it's a ton of new loads. So I think we need to see more evidence that growth is not deteriorating. And I think that's what the market is expecting to occupy with. John, great to see you. Thanks so much. All right. Hey, Phil, what are we waiting for in terms of the Tesla vote? And what do we know? Well, we expect to get those results at least, what, maybe a half hour, 35 minutes from now. That's the start of the Tesla annual meeting.

Sometime during that meeting, we expect them to announce the results of two votes that the shareholders have been waging here for some time. First, on the pay package for Elon Musk, as well as the reincorporation from Delaware to Texas. And last night on X, Elon Musk posted a chart and said, thank you for your support because both of the votes appear to be on track to pass by wide margins. That was not a final vote. That was just him saying they appear to be on track to pass by wide margins. All of this sets up the question, if you're a shareholder, what happens next? Well, we've already seen some of it today with Tesla shares moving higher. This is triggering a relief rally. The question is, how long does this rally last? Is it a one day pop? Wedbush believes there could be as much as

a twenty five dollar bounce in here. Now, it's also been trending higher over the last couple of days. But that's the real question. How long does this relief rally last? And then after that, it becomes fundamentals. Some of that will likely be discussed at the annual meeting during the Q&A session tonight. As you take a look at shares of Tesla, Mike, that meeting starts at 4.30 Eastern time. And again, we think that sometime in that meeting, we will get the results or shortly after the meeting. You know how this goes. These annual meetings, they say the polls open two minutes later, the polls close. They know the results. It's just a matter of when they announce that. Yeah, unlikely it's so close that

they won't actually have a way to call it one way or the other. And Phil, I guess, you know, a decent test today in terms of how the market would react to an affirmative vote, right? I mean, even though the stock is well off its highs from the morning, presumably the market would react to an affirmative vote, right? I mean, even though the stock is well-authenticized from the morning, presumably the market is trading on the assumption it's more likely that his pay package passed. That means the 9% dilution for Tesla shareholders because of must stake going up. I guess that's a net positive because you didn't know for sure how the market was going to take it. Right. And I think when you look at the retail investors, now this is just conjecture. My gut tells me that almost all of them probably said,

give him the money because a Tesla is Elon Musk. Elon Musk is Tesla. And B, this takes off the discussion or should end a lot of the discussion about him ultimately saying, well, look, if I'm not going to be able to, you know, be the head of Tesla and get compensated the way I should, I'll take the marbles and go somewhere else. That discussion is largely going to be muted for now, Mike. And that's the two reasons why the stock is moving higher. But remember this, Mike, this doesn't mean that he gets the pay package. The Delaware courts still need to make a decision here. Ultimately, this is a legal case, not just shareholders saying we'll give them the money.

Right. It's a shareholder endorsement, but it doesn't settle the issue finally, Phil. All right. Thanks very much. We'll see how those numbers come out in a little while. Pippa, Adobe after the close. Yeah. So, Mike, that's pretty muted expectations here going into Adobe's print after the company's revenue guidance back in March underwhelmed the street. Now, Adobe isn't entirely enterprise focused, but after those weak workday and sales forces disappointing quarters, investors will be watching Adobe's digital experience segment, which is about 25 percent of total revenue. Now, updates around AI also really important, with Oppenheimer saying that opinions have shifted from Adobe as an AI winner to fears about competition from AI. But on the flip side, Morgan Stanley in a note titled Looking Through

the Valley of Darkness said ramping product cycles and easing comps in the second half of the year could be a clearing event for very weak investor sentiment. And those shares, Mike, are down about 23 percent this year. Yeah, we were just talking about the way investors are looking, you know, pretty dimly on software in this AI world, Pip, and we'll see how those numbers come through. All right, as we head into the close, one minute left, we are on track for new records for the S&P 500 and the Nasdaq. The S&P up about one third of one percent, owing a lot to NVIDIA and Broadcom. Together, they are more than accounting for the entire gain in the S&P 500,

with Broadcom up 12% and NVIDIA up nearly 4%. You have 2 to 1 negative to positive stocks on the New York Stock Exchange. So another day when breadth is negative, the Russell 2000 down by eight-tenths of 1%. So a very, very split and selective market. Bonds have been rallying all day. That, you would think, would be supportive. The 10-year Treasury yield down below 4.25 percent. It was at four and a half at the highs just on Monday.

And here we are, 53, 54.35 for the S&P 500. That's one quarter of 1%, continuing to log a winning week, at least for now. That's going to do it for Closing Bell. Let's send it to overtime. It's more than Brennan and John Ford.