Closing Bell - Closing Bell: Weighing Market Warning Signs 01/11/24

Episode Date: January 11, 2024

Has the sluggish start to 2024 lowered the bar heading into earnings season or is this a warning sign of rough trading ahead? Charles Schwab’s Liz Ann Sonder gives her expert take.  Plus, JPMorgan���s Meera Pandit is mapping out where she’s seeing opportunity this year and the two overseas markets she is avoiding right now. And, top analyst Mike Mayo maps out what he is watching ahead of bank earnings tomorrow morning. 

All right. All the best to Kelly. Welcome to Closing Bell right now. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with Wall Street playing it cool after a slightly warm inflation report. The majority of stocks in slow retreat. But the big cap index is very firm. A 1 percent comeback from early losses after the headline CPI came in a bit above expectations, leaving the S&P 500 less than 1% away from its old record high. That sits near the 4,800 mark. With an hour left in the session, big growth names continue to bolster the index and have led the intraday comeback from that early weakness to about the flat line, while small caps and banks continue to struggle after their strong fourth quarter rallies. The Treasury market took the CPI release in stride, yields moderately lower across the board, even as some Fed officials refused to ratify market expectations of rate cuts coming soon. That leads us to our talk of the tape. Has the sluggish start for most stocks

in 2024 lowered the bar helpfully entering earnings season, or is it a warning that an economic soft landing featuring a friendlier Fed cannot be taken for granted just yet? Let's get into all that with Lizanne Saunders, Charles Schwab, chief investment strategist. Lizanne, great to see you. Hi, Mike. Nice to see you, too. So, yeah, I guess the real simple story of how stocks have held up as well as they have for a while now is inflation coming down faster than the economy has weakened. How did today's data of last Friday's jobs numbers, how do you feel that all works together in terms of setting expectations

for the markets and the economy this year? Well, obviously, it was a little bit hotter than expected. And I think we're at that point in the disinflation cycle where it is unlikely to be linear. I think there are forces, including things like geopolitics and what's going on in the Mideast, that could disrupt a nice, clean path for inflation getting back to the Fed's target. But as you point out, there is still a disconnect between essentially what the Fed's been saying, what's embedded in the dots plots and their summary of economic projections,

and what the market has priced in. I was a little bit surprised that you didn't really see much of a needle move in terms of expectations for the March FOMC meeting, which still is about two thirds cut. One third stay the same in terms of probabilities. I think that may still be a little bit of a stretch in terms of the market's expectations. Yeah, it's interesting. We obviously a couple of months till that March meeting. We do have the PCE report, which is where the Fed's actual inflation target is reflected. And that comes in a couple of weeks. Folks looking at the CPI number saying maybe it translates to a little bit of a softer PCI number. But all that being

said, how much do you think the the priced expectations in the Fed funds futures market really reflects what most investors want to see and expect to see, as opposed to it just being, you know, kind of, you know, somewhere along the spectrum of possibilities? How much does the stock market rely on deep Fed rate cuts this year, perhaps? I guess we're going to have to see to the extent the market's expectations are wrong and the Fed has to more aggressively push back or do what they don't tend to do, which is actually surprise, let's say, at the March meeting by going against expectations, assuming those expectations don't adjust between now and then. I think it would be probably a pretty swift adjustment. I think not only has the market done well and stabilized here because of an expectation of yields moving down as well as the Fed starting to cut interest rates, but that helps to explain the move down the cap spectrum.

And not every day, but some of the lift that we've seen in small caps, the Russell 2000, equal weight relative to cap weight. But anytime there's a little bit of uncertainty, what you do see, you see a little bit of that reversion to the mean kind of trade. Today is a perfect example of that, where earlier this afternoon, only energy was in the green, but then you saw technology leapfrog that. So I think that there is still some money that automatically goes back to that corner when there's any uncertainty with regard to what has been the biggest driver, which is the combination of yields and Fed policy. Yeah, no doubt about it. It's sort of the defensive trade feels like it's the easy way

to sort of hide a little bit. What do you make of the overall action so far this year? I mean, obviously, in trying to figure out how much we're reacting to the data in the last week or two, we're also trying to digest a massive rally from the final two months of last year. We obviously, by everybody's acknowledgement, got a little bit stretched. You had sentiment needing to come off the boil. Where does that leave us? So I think sentiment is mixed right now. You have seen some of the attitudinal surveys of sentiment. The bullishness, which had gotten pretty rampant, had eased pretty quickly, and that was alongside some of the weakness that we saw up the cap spectrum. If you look over the last four to six weeks, you've seen that better performance by equal weight down the cap spectrum.

The one thing I would express is that I think investors should be really cautious if they're looking for opportunities outside of not just the Magnificent Seven, but up the cap spectrum into sort of the growth trio of tech communication services and consumer discretionary. I don't think you want to sacrifice quality, particularly if you're using as a base for ideas the russell 2000 because it's still got a hefty share of zombie companies not profitable companies um just as an fyi to you know viewers that aren't aware of this the s p 600 as another small cap index although not used as a benchmark as much has a has profitability filter. So you start with a higher quality component of

stocks maybe from which to choose. I don't think you want to sacrifice quality. And from a factor perspective, we are emphasizing almost what used to be called sort of a GARP approach. You want to look for those growth factors, but without sacrificing valuation factors. Right. So growth at a reasonable price is the GARP approach. I guess if you look at quality, I mean, quality really performed great last year based on most ways it's approached. That's largely in part, at least, because it has so much of those big mega cap tech names that work. That also usually gets captured in the quality filter. Are there other ways to approach it or modifications

you would make to just sort of trying to make sure you have quality more of a broad base as opposed to just essentially having a proxy for the Nasdaq 100? Yeah, I would say the way you expressed it is absolutely true that if you had taken a quality based approach, you would have benefited from also getting those names, many of the Magnificent Seven, because they've got strong cash flows. They've got that interest coverage, some of those factors that were leadership factors last year, and I think to some degree will continue. But factor leadership at the factor level was pretty consistent last year outside of those names, too. So I think you can apply factor-based screening. And the factors we've been emphasizing would be that GARP-type blend of factors, quality factors. So high return

on equity, strong free cash flow, positive earnings surprise, positive earnings revisions. The one that we've been emphasizing a lot last year that could change a little bit is interest coverage. When we get to the point where the Fed has actually pivoted to easier monetary policy, that may fade a little bit as a dominant concern. That was clearly the case last year where you wanted to look for those companies that had that strong interest coverage. But those would be the areas of emphasis. And you can apply screening for those factors across the spectrum of sectors, across the spectrum from a cap perspective. If you want to still emphasize those companies that have the more consistent, predictable earnings power and better balance sheets, does it suggest you don't think overall earnings growth is going to be that strong, that we're still going to be contending with pockets

of economic weakness, the consumer fatigue? You know, if you really believed the economy were going to reaccelerate and the Fed was going to cut, you might say, you know, buy lower quality. So I'm not terribly worried about the current earnings season in terms of whether the bar is set to high or not. I think we could have yet another quarter where you get a better than average beat rate, a better than average percent by which companies beat. What I'd be paying more close attention to, and this really has panned out over the last several quarters, is looking at the performance. What you've seen in the last several quarters is the benefit accrued to the stocks of companies that have beaten is more constrained than the hit taken by stocks of

companies that have missed. But it's also the innards of the reports that I think are particularly important, the differential between top line and bottom line, the protection of margins. If those margins have been protected, how are they doing it from a cost-cutting perspective or productivity perspective? And then importantly, because analysts are not really flying blind like they were a couple of years ago during the worst part of the pandemic, but they're not being given the same kind of precision around guidance, allowing them to be confident in out estimates. They're generally just confident maybe in making an adjustment out one or two quarters based on what companies say during the reporting period. But now that we're in that outlook period, we may get a better sense of whether calendar year 2024, which is low double digits, is realistic.

And that's what's embedded into valuation models. And that's so those are the bigger picture things that I'll be focused on versus just things like the beat rate. Sure. Absolutely. All right. Lizanne, stay with us. Let's bring in CNBC contributors Greg Branch of Veritas Financial and Joe Terranova of Virtus. Joe, you know, we were just remarking on the tape's resilience today, if nothing else. And actually all year it hasn't really sustained sell offs. It's been kind of choppy and sideways and small cap underperformance. Does it tell you anything? Well, I think it tells us that you don't want to concentrate in the direction of consensus, because consensus in 2023 was wrong, and so far consensus in 2024 would have had you moving away from quality.

And I completely agree with what Lizanne is saying. Quality should still be prioritized, and quality, to your point, Mike, is really all about those mega cap names. It's not the Mag 7 right now. It's the Mag 5 that's leading us higher, excluding Apple and Tesla. But they're incredibly important, and they're resilient. They seem to be a buffer, if you would, when we see these market sell-offs. But I think overall, volatility is going to remain elevated here. We've had quite a ride today.

You know, basically the S&P has had a 100-handle ride down and back up and now moving back lower once again. And I think that's because we've got this friction as to what's going to happen with the March rate cut. Yeah, well, for sure. And you're going to live with that, I guess, that unanswered question for a little while. Now, Greg, I know that you don't necessarily think we should be able to pencil in the earnings growth here and the Fed starting to to sort of ease up anytime soon. What leads you to all that? Yeah, first, let me say in terms of the earnings growth, there's no path for us to get to eight

percent earnings growth in the first quarter and certainly no path to 12 percent earnings growth for 2024 for calendar year without the number of rate cuts that consensus is expecting. I don't know if it matters. It used to. One of the things that kept me bearish through 2023 is I said there was no pathway to 8 percent growth in the fourth quarter. And here we are. We started the quarter with that as the expectation. We're down about 1.3 percent as the expectation now. Historically, when we had downward revisions of that magnitude, that served as a strong headwind to equities. And so I'm equally equally dubious about earnings for next year. But might it not matter again? And we know the reasons why it did.

As Lizanne was remarking, we did have some positive earnings revisions. The consumer was resilient. GDP was resilient. And so while we're experiencing that growth, investors blocked and put risk on. Sure. And then in terms of I mean, nobody's really expecting you're going to get any help from Fed rate cuts for the economy, for earnings, you know, in the first quarter. So it's kind of the economy we have right now is the one that you're going to be hearing about in three or four months, most likely in in corporate reports. And we were at this level, the S&P two years ago, and the forward earnings, at least, are higher now than they were back then. Therefore, the market's slightly less expensive cosmetically.

You don't think that's enough? I don't think that's enough, but I think the catalyst is something else. I think Fed Funds Futures actually does still expect a rate cut in March, and it still expects six or seven recuts. I think the Fed, after their posture pivot, their curious posture pivot, have been furiously walking that back across the board. Every governor has been reminding us that they haven't taken further hikes off the table. As you know, Mike, I think it's more likely

that we get another hike than we get a cut in that first quarter because the data just isn't supporting us reaching that 2% level that they're aiming for. Unemployment is not budging. We still have historically low claims. And with the CPI we just saw, core continues to grow in that 30 to 40 basis point range. So we haven't reached a new paradigm of disinflation to get us where the Fed is targeting. And as long as that's the case, as long as we're going to still have strong wage growth, that leads to strong services inflation. And the housing component has not capitulated in

the way that the Fed leads to at this point. We just saw another 50 basis points. I thought it might when we saw that 20 basis point two months ago. But here we are back in this similar range that it was in all of last year. I mean, look, first of all, Joe, what we know of the Fed's policy is they think the neutral rate is way lower than where we are right now. It's probably like two and a half percent or three percent. They know that the Fed funds rate is at five and a quarter plus, and they don't want that gap to be as wide. They don't want to be incrementally restrictive. And Powell has said, well, of course, we'll be cutting before the Fed, before inflation is at our target.

So all that together suggests it's a when, not if, in terms of a cut. Yeah, I would agree with that. Let's be careful because I don't view today's CPI as an inflection point in any way from the Federal Reserve. You will get PPI tomorrow. And we have a disinflationary trend that has not been defeated. We have a Federal Reserve that is no longer adversarial. And I think where that could be good as it relates to earnings, I share Greg's perspective that an 8% earnings growth in the first quarter is very optimistic. I understand that. And we know the areas where you'll see strength, communication services, technology, consumer discretionary. But where

I think earnings will matter this year is can you finally get the recovery in energy, in materials, in health care and in small caps, which are still in a technical earnings recession? I think looking towards those areas of the market is really going to allow you to see the future as to what earnings will matter most. We we actually have some headlines crossing just now from the head of the ECB, Christine Lagarde. Your area not in serious recession, ECB likely at peak rates. I think that more or less validates what we thought the ECB was talking about here in terms of, again, transitioning into easing mode. Which brings us, Lisanne, to this idea of what we do about setting our expectations for what the global economy can deliver this year. It seems as if, as we all know, a year ago, recession was considered to be kind of a foregone conclusion.

At the end of last year, people thought we had escaped it. I know you've been more referring to sort of rolling recessions and a more nuanced type cycle. How does it look right now? So I think the whole rolling nature of this cycle is likely to continue, at least in the near term, where, you know, assuming at some point we see more of a hit to services and it's been picked up and things like ISM. I mean, ISM services employment was was quite weak in the most recent readings. But assuming we get more of a dent on that side of the economy, the hope, of course, is that you've got resilience or maybe the start of recovery in areas that have already taken their big hits, have already had their hard landings like manufacturing

and housing and housing related. So I think that could persist. That's the way I think of the best case scenario versus just a traditional soft landing, because that ship sailed already for those aforementioned areas that have gotten hit. But I think globally what's interesting is if you think about sort of the quadrants of inflation, disinflation, boom, bust, you can find countries that are all over that map. And I don't think we can look at the world monolithically, either in terms of where they are in their growth cycle or where they are in terms of their inflation cycle. I think each region, each country has its own set of dynamics, which in turn leads to what happens with regard to things like central bank policy. So I think this is not an environment either at the stock

market level or thinking from a macro perspective where you can sort of look with this monolithic lens at what's going on in the world. Right. Yeah. And to some degree, the markets around the world have reflected that divergence. Greg, you know, if you're thinking that the economy looks a little sturdier than people think, or at least wage growth will remain relatively strong, but yet you think earnings aren't always going to come through across the board, where does it leave you in terms of investment tactics and how you would set yourself up for the year? Right. And as you point out, Mike, it leaves me kind of right between the two bull narratives that we've heard. The one is, is that the Fed will cut because they have to, because the economy is going to deteriorate faster than we expected

and sooner than we expected. And the other bull narrative we heard is that the Fed is going to cut because they can't, because they are definitively done raising. The fight with inflation is over. Disinflation will take care of itself from here. And I think the truth is somewhere in the middle. I don't think it's a rolling cycle. I think it's a delayed cycle. I think the early parts of the cycle is that the Fed raises rates. There's a dearth in credit growth and availability, and that decreases consumer and business spending. We haven't really seen step two of that yet. We thought we did when we looked at traditional sources of lending, but there was a wealth of private credit that stepped in and filled that from non-traditional

lenders. And therefore, we didn't see businesses stop spending, which is why the unemployment rate remains so stubborn. They're cash rich. We didn't really see the businesses stop spending, which is why the unemployment rate remains so stubborn. They're cash rich. We didn't really see the consumer stop spending. We did see them leverage up. And so I think that it'll be somewhere in between, which means that the Fed is probably not done yet. That will probably be a negative catalyst. And I think that we will see breath narrow again around those names that we saw work in 2023, around those names that have those strong secular tailwinds. And as Lizanne said, that can deliver us relative earnings growth and potentially positive revisions. All right. If the Fed's not done in terms of the tightening cycle,

a lot of people are in for a surprise. Not much time to prove it. We'll see how it goes. Greg, Lizanne, thank you so much. Joe, we'll see you again in the market. So we are getting some news out of CVS. Bertha Coombs has that for us. Hi, Bertha. Mike, as CVS continues to restructure, they are now looking to close some of the CVS pharmacies in Target locations. You'll recall back in 2015, CVS bought out Target's pharmacy operations and they've been operating in some 1,800 stores. In a statement to CNBC, the company says the pharmacy closures will begin in February and be completed by the end of April. Impacted employees will be offered comparable roles within the company. We have also reached out to Target, which has declined to comment. Now,

they are saying just select locations, according to a Wall Street Journal article. They have said maybe dozens. So it's not the majority of them. And Target, as we know, themselves are closing certain stores. So there might be some overlap with that. But nonetheless, you see all of these pharmacies trying to sort of right size their footprint as they focus more on services. Mike? Bertha, thanks so much. All right, let's send it over to Christina Partsenevelos for a look at the biggest names moving into the close.

Christina. Thanks, Mike. Well, Boeing is lower again as pressure mounts over last week's door blowout. On the Alaska Airlines 737 MAX 9 plane, the FAA says it's investigating whether the planemaker failed to ensure that certain parts were in a condition for safe operation. Boeing says it's going to comply with the agency's investigation, but you can see shares are tracking for their worst week since May. They're down about 2% today, down 10% this week so far, and the story

is actually weighing on parts manufacturer Spirit Aerosystems, which has fallen roughly about 11%, almost 12% this week thus far. Spirit also supplies parts to Boeing rival Airbus, which says it's also closely monitoring and learning from the investigation. But I'd like to point out that Airbus hit an all-time intraday high in European trading earlier today after announcing that it shattered its record for jet orders, up almost about 30 percent from its prior record set back in 2014. So a different situation for Airbus versus Boeing. Mike? Very. OK, Christina, thanks so much. We are just getting started. Up next, JPMorgan's Mira Panda is back, what she's forecasting for the year ahead and what global markets she's steering clear of right now. That's after this break. We are live from the New York Stock Exchange.

You're watching Closing Bell on CNBC. Stocks back in the red. The big cap index is hovering close to the flat line, just a little below after a peek into the green a little bit earlier as we head toward the close. Investors continuing to digest this morning's hotter than expected CPI print. Joining me now at Post 9 is J.P. Morgan's Mira Pandit to talk about what it could all mean. Mira, good to see you. Good to see you.

So modest upside to the headline CPI. It leads to this series of questions of does it change anything about the overall inflation trend? Does it change anything about what we should expect the Fed to do about it? And how much does all of that mean in terms of a make or break dynamic for the markets? This doesn't change our outlook on what the Fed does, on what CPI does from here on out, because we don't expect the path going forward on CPI to be a very even one when it comes to getting all the way down to the Fed's 2% target. But if you look at the last three months trend and annualize that on headline CPI, that's actually slightly below 2%. And on the core measure, just a little

bit above 3%. So we're still getting to the point where the Fed is seriously considering when they start cutting. So to your point earlier, I think it's still more of a when, not an if. But I do think slightly hotter jobs, slightly hotter CPI, and the fact that we had record easing in financial conditions in November, December probably pushes out that first cut to earliest May, maybe June, when we think about when that easing cycle actually begins. Now, there were moments in January of last year when the Fed Funds futures market said the Fed was going to be cutting by the end of 2023. It didn't happen. The economy held up better than anticipated. Stocks did OK. So I guess the big question is, as we just look at what the bond markets implied forecast is for the Fed funds at the end of this

year, does it really connect back to what the economy and earnings and the stock market are likely to do between here and that? What you're probably going to have to see is more of a convergence from what the Fed is expecting versus what the market's expecting. And perhaps they meet somewhere in the middle. I think right now the market is still digesting such a dramatic pivot from the Fed in December that we weren't really expecting for them to even say, yes, we're considering this and thinking about when cuts start. So I think that trying to calibrate that in the absence of a lot of data is a little bit difficult. But you've already

started to see the market price things out a little bit later, pricing less of a chance of a March rate cut. So at this point, I think that you still have some degree of convergence to reach between the two. And we need to see a little bit more data. But I don't worry about it too much. We might see a little bit of interim volatility in yields as we have over the last couple of days, getting now settling to around 4 percent because we're trying to figure out exactly where we land. Interested in your thoughts about opportunities or maybe hazards around the world. I mean, the Japanese stock market just flying really has broken out of a 30-plus year range. People getting excited about that because of

specific things happening in Japan. Obviously, China has not been able to get out of its own way. Europe kind of sluggish at this point. Where does that leave you as an investor looking to allocate? Internationally, we have seen that investors who were previously very bullish on China have really diverted some of their attention to areas like India because of some of the geopolitical challenges. And really more than anything, because it's so hard to put a bogey on exactly how much geopolitics is going to affect things, the property overhang that we're dealing with in China. I still think you might see a bit of a sentiment rally because there's a lot of bad headlines around China. But areas like India have some really positive features like demographics, industrial policy investment, again, long-term workforce trends,

and pretty good return on equity. And then when you think about Europe, potentially a little bit more sluggish growth there. Japan is, again, a pretty good avenue for that. Some people feel like, wow, Japan's run a long way. But if you look at valuations over the long run, they are still pretty cheap there. And I think that there's a lot of room left when you think about cash on corporate balance sheets in Japan to further equitize, to see more improvement in profit margins, more buyback. So I think that we're still in the early innings when it comes to that corporate reform there. And then I guess just quickly in terms of how U.S. markets are situated, do you think earnings are going to be able to come through to support where we are in the S&P 500? What are your expectations for how this year plays

out? Earnings do feel a little bit optimistic when we look at consensus expectations of double digit earnings growth. I think something more like five to six percent is a bit more reasonable. I think when you look underneath the hood, margins can look pretty stable because I think something more like 5% to 6% is a bit more reasonable. I think when you look underneath the hood, margins can look pretty stable because I think a lot of the worst of the wage pressures, input costs are behind us. Even if firms don't have that much pricing power, they don't need to exercise it as much. On the revenue side, that's a little bit of a question mark. If we're going to see slowing growth gradually throughout the year, that could weigh on revenues and really cause the consumer to be a bit more judicious. But overall, I think we still see positive earnings growth, just perhaps

not as lofty as the market expects. Usually the market could find its way if earnings growth is positive and yields are low. We'll see if that plays out, Mira. Appreciate it. Thanks for the time, Mira Pandit. Up next, breaking down the banks with several big names gearing up to report tomorrow morning. We'll hear from top analyst Mike Mayo with what he's expecting when those numbers hit the tape. Closing bell. We'll be right back. Citi shares falling today after the company warned of significantly higher charges and reserves that could push the bank to report a quarterly loss when it releases Q4 results tomorrow morning. Those expenses mainly tied to currency exposure in Argentina and some restructuring efforts. But our next guest calls the restatement a welcome one. Let's bring in Wells Fargo bank analyst Mike Mayo.

So, Mike, set this up in terms of what we heard from Citi and also what it just reflects about the remaking of the bank and, I guess, even greater transparency about the business. Well, I think what's missed here is Citi came out and we thought they'd have a $2 billion charge in the fourth quarter when they report tomorrow. And now it looks like it'll be $4 billion. It's like, are you kidding me? Just a month ago, we thought it would be $2 billion less. So the stock's down 2%. I get it. Some of this is, you know, it's non-cash charges. Some of it's pre-reserving. And some of it is taking extra charges for restructuring that could go further than people expect. But what was missed in the 20 plus page 8K that was released last night is Citigroup is now reporting in five lines of business for the first time ever in their history. And so this is the biggest restructuring in Citi's history.

And last night they gave you historical data for their five business lines. It's very simple. Services, banking, markets, consumer, and wealth. That's measure it to manage it. They're finally measuring it in a way that they're going to manage it. I think that will lead to better results. And people say, who is Citigroup? Well, I just told you, services, banking, and markets, that's 60% of core Citigroup. They're looking to sell more products to their 5,000 multinational firms, 12,000 other companies, more payments, banking markets to deepen that share.

So 60% of the company's really good. So the big question tomorrow is, I think this time it's different. The last 12 restructurings didn't work. I'm saying this one will work. Most people don't think it's different. The job for CEO Jane Frazier is to convince investors tomorrow that this time is truly different, that Citi really is more simple, and they can regain some lost credibility from the last year, five years, 10 years, 25 years. I'll even throw in there 100 years.

Yeah, well, arguably, yeah. I mean, you mentioned that the extra detail you're getting about the business and how much capital is being used and the returns from each of those businesses. It leads to some interesting conclusions, you think about. First of all, that the services business represents a massive percentage of the current public value of this company. Wow. I mean, you can buy one business line services and get the other four business lines almost for free. And now there's more information. So services is about 13 percent of capital, almost 25 percent of revenues and 50 percent

of deposits. So that truly is a crown jewel that's shinier than we had appreciated before. And that's what's new in the disclosure. I mean, we're getting a P&L, we're getting capital, we're getting all sorts of metrics. And that's how they're running the business. And now they're opening that up to all of us investors and everybody else. In general, what are you expecting in terms of the larger banks, what they're going to report in terms of, let's say, markets activity, which is sometimes an unknown going into the season? And how are they valued after this rally we had in the fourth quarter?

Well, let's pull the lens back a little bit. We're still looking for the third year in a row of negative earnings growth for banks. So if you're in the banks, you're playing it for later this year or for 2025 when we see kind of a hockey stick sort of inflection in positive earnings growth, which we don't expect positive year-over-year earnings growth until the fourth quarter of this year. You have headwinds from the rate environment. That still is going to hit the banks. The question is how much. And then capital markets, I don't have in my models much capital markets growth. But just a few hours ago, I hosted a call with the CEO of Jefferies, Rich Handler, and he said, the sun will come out. He didn't say

tomorrow, but he said the sun will come out just like Annie. So it made me wonder if I'm being too conservative with my assumptions. You have these strong backlogs. And the CEO of Jefferies said to us earlier is that these backlogs now seem more likely to be executed given the pent-up demand from private equity, the dry powder, strategic buyers who are doing well. They want to capitalize strategic partners who aren't doing as well. Just a lot of liquidity. Leveraged finance markets are open. So it'll be interesting to see what the banks say about capital markets, because the last year or two, they said, oh, great backlogs. Yeah. And then not much. And Jeffries, of course, you know, mid-size or just sub the top size investment bank that has a good window on a lot of that stuff.

Well, it's a window that we got one day before the banks report. Yeah, exactly. And they report a little before, right. And they reported earlier this week. So I'd say it's a tough revenue year, so it's really a lot comes down to costs and the guidance on the calls about what they're doing with costs, technology, AI, and really return on innovation, not just how much are you spending, what kind of returns are you getting. All right, Mike, appreciate it. We'll catch up with you after they report the numbers.

Mike Mayo. All right, tomorrow, don't miss City CFO Mark Mason after that company reports results. That is right here on Closing Bell at 3 p.m. Eastern time. Up next, we're tracking the biggest movers as we head into the close. Christina, standing by with those. Hi, Christina. Well, we have rental car company Hertz dumping electric vehicles for gas-powered cars. I'll explain why that's having an impact on Tesla. We also have other Tesla breaking news. I'll have all the details after this short break. Just about 17 minutes until the closing bell.

Let's get back to Christina for a look at the key stocks to watch. Christina. We actually have some breaking news. So DocuSign spiking in the last few minutes as Reuters reports Bain Capital and Hellman Friedman are competing to buy the company with an outcome expected in the next few weeks or so. DocuSign currently has a market cap around $12 billion, and that's why you can see the share price is inching closer to 10% right now. We also have some other news out in just this last hour. Tesla will stop most of its production near Berlin from January 29th to February 11th because of supply issues brought about by the conflict in the Red Sea.

This according to Reuters. You can see shares are down almost 3 percent, but they were actually negative on the day after a Bloomberg report that Tesla would increase the pay of U.S. factory workers, so hitting margins, and also after Hertz announced it was offloading 20,000 electric vehicles, such as Tesla's, from its fleet and instead opting for gas-powered cars. Yes, no EVs, gas instead. The rental car company says it's because of weak customer demand for EVs and it was just becoming too expensive to repair the EVs. Tesla's recent price cuts also raised depreciation costs for

Hertz. The company warning today it would weigh on its Q4 2023 results, but shared that it began offloading about 20,000 EVs last month. The offloading should help improve Hertz's cash flow and earnings this year and next. Nonetheless, shares are down over 4% for Hertz at the moment. Mike? Christina, thanks so much. Boy, DocuSign News, interesting. Private equity loves software, so we'll see if that comes together. Equity loves everything, though. That's true. They have plenty of ammo. All right, coming up, drilling down on today's mega deal, Chesapeake Energy and Southwestern agreeing to merge. All the details on that tie up and what it might mean for investing in the energy space ahead. Closing bell, be right back.

12 minutes till the closing bell. The S&P just marginally negative. Let's send it over to Julia Borsten for a look at the biggest moves in the media space today. There's plenty of them, Julia. A lot of movers in media. So let's start with the stock that is shooting higher. It is Netflix. Netflix shares now up 3%. They were up nearly 5% earlier today. On news that is ad-supported jumped to 23 million monthly active users. That's up from the 15 million number it announced just under three months ago. They also announced very high user engagement among those ad-supported viewers. Meanwhile, Warner Brothers Discovery and Paramount are plummeting on downgrades

from Redburn Atlantic Equities. Paramount shares, they're now down about five and a half percent. The firm's saying they see the most downside in the media space. And Paramount, Warner Brothers Discovery, those shares down four and a half percent on a downgrade to neutral. Now, Warner Brothers Discovery also got a note yesterday from Bank of America reiterating a buy rating on the stock, but noting that the company is managing through a challenging macro environment. Also want to just take a quick look at Disney here. Disney shares are up just fractionally after yesterday evening. The company announced some new ad tools, including shoppable video ads. Mike. Julia, thanks so much. All right. Up next, getting the green light. The SEC giving Bitcoin

ETFs the go ahead. We'll break down the biggest moves on this first day of trade. Plus don't miss IBM CEO Arvind Krishna coming up on overtime that is a four p.m. Eastern time closing bell be right back. We're now in the closing bell market zone vertices Joe Terranova is back with us to break down these crucial moments of the trading day. We're now in the closing bell market zone.

Vertis' Joe Terranova is back with us to break down these crucial moments of the trading day. Plus, Kate Rooney on the first day of trading for spot Bitcoin ETFs. And Pippa Stevens on a mega deal in the natural gas space. Joe, we had a comeback, about a 1% loss in the S&P. Back to even still this feeling of an internal below the surface pullback underway. Small caps, banks. What do you think it leads us heading into bank earnings tomorrow? Well, that's the interesting thing. I can't remember it. And I don't want to create more excitement than there really is. But I can't remember a quarterly earnings report from

the financial sector that had more of an opportunity to kind of steady what has been so far this year a disappointing start to that dispersion trade and broadening out. So financials could really steady the ship tomorrow morning. We'll see what is reported. Yeah, to your point, small caps down about nine-tenths of one percent, again, measured by the Russell 2000. So we will see how that goes. Let's get to Kate on those Bitcoin ETFs.

We made it through the first day, Kate. We did, Mike. So Bitcoin earlier hit its highest level in two years. It's lost a little bit of that momentum. It's actually up slightly now, but lost some of the hype earlier. Ether, though, the second largest cryptocurrency, has been up double digits today on expectations that that might be the next cryptocurrency to get an ETF wrapper. Grayscale today, by far the biggest fund at the launch date since it converted from an existing fund, GBTC, into an ETF. It's charging about six times what the next highest fee is out there for those ETFs.

Here's what the CEO said about it on Squawk Box earlier. Investors should have choice, but GBTC is coming to market in a very differentiated way. It is going to be, as of this morning, the second largest spot commodity ETF in the world. It has $28 billion of assets under management and other issuers may try and differentiate on fees. For GBTC, it's about size, liquidity and track record. Mike, one place you're not going to find a Bitcoin ETF today is Vanguard, the firm telling us that spot Bitcoin ETFs will not be available on that platform. And quote, we also have no plans to offer Vanguard Bitcoin ETFs or other crypto related products. These products do not align with our offer focused on asset classes such as equities,

bonds and cash, which Vanguard uses the building blocks of a well-balanced long term investment portfolio. Kate, thank you so much. Joe, the Vanguard news underscores the fact that you do not have universal buy-in, that this is a real asset class. You have true believers believing it's the only money or whatever it is, and you have deep skepticism. And then you have people in the middle. Does the existence of a spot Bitcoin ETF wrapper change your conclusion about whether to allocate toward it or not? Over the course of time, we'll understand if Bitcoin is able to traditionalize itself as an asset class. Really, the referendum on that is going to be, does the institutional investment community really show up? Because that's been what has been missing so far from

the participation. I think hedge funds overall are only about 10 percent. So in the coming days, it's going to get interesting. Look, this is a new shiny toy for the algos. You'll get options on the ETFs, which will be coming in the near term. I think the real battleground is Coinbase. Yeah, it was six and a half percent higher this morning then it reversed, I think it was 6% lower. Yeah, it's down almost 7% now. That's the real battleground in the near term. Off 19% this month. And when you say battleground, I mean, the degree to which you think Bitcoin ETFs are

the dominant vehicle is exactly why you would think that Coinbase loses some of its reason as being an important intermediary. The cannibalization of the high margin spot Bitcoin trading. I don't know necessarily how good that is for Coinbase. All right. Let's get to Pippa Stevens with more on this pretty big natural gas industry deal, Pippa. Yeah, Mike. So the Chesapeake Southwestern is the largest gas-focused deal in more than a decade.

And the combined company will become the largest U.S. nat gas producer, overtaking rival EQT. Andrew Dittmar from Enveris said it's a winning deal for Chesapeake, in part because it expands acreage in the Haynesville, that's western Louisiana and eastern Texas, and important thanks to proximity to LNG terminals, with overseas markets really seen as driving future nat gas demand growth. Now, nat gas has been on a tear so far this year, jumping more than 20 percent as much of the U.S. braces for frigid temperatures. But we were coming off a very low base after a warm fall cut demand, leading to a jump in storage levels. And while the front month is trading above $3, the next contracts out are in the $2.50 range, meaning for the time being, this is still very

much a spot market phenomenon. Mike? Yeah, Pippa, natural gas doing what it does, which is chase the weather in an exaggerated way. Joe, in terms of the industry dynamics right here, obviously, we've seen a little bit of an upwelling of M&A in energy in general. Is it just kind of opportunistic? You know, let's get some scale when prices are against us a bit. It's gaining scale. It's also usage of capital. They're not reinvesting in production.

So they're going out. They're buying the production. This is the fourth deal in the last four months. Collectively, you've got about $130 billion worth of deals. So I think the deal activity continues. I'm not necessarily sure if that's the incentive to invest in energy equities, because the response has been somewhat muted so far to some of the other deals. So what is the reason to invest in energy equities if you want to?

Higher prices, in particular for natural gas. Don't fall asleep on natural gas. I think a lot Higher prices in particular for natural gas. Don't fall asleep on natural gas. I think a lot of people are thinking about natural gas. In August of 2022, it was $10. It fell back towards $4 by the end of 22. We entered 23 at that $4 level, and we really could never push above 360. Here you are at 310. Don't fall asleep on the potential that you could have a cold weather snap that really drives the price of natural gas higher and shakes out a lot of the existing short positioning. And just real quick, what about the crude oil side? Because that's been kind of stuck. Absolutely puzzling. It's absolutely puzzling. Good luck trying to figure it out. Energy equities

go higher. Oil prices go lower. Oil prices go higher, energy prices go lower. Completely confusing. It is confusing. Certainly helps on the inflation side of things, which is where we started this day in this conversation. Joe, thanks very much. Here we go. We have about 30 seconds left until the close.

We have the S&P 500 just around the flat line. It did have a reflex sell-off, down about 1% in the morning in response to the hotter than expected CPI. Some Fed speak pushing back against rate-cut expectations. Still, the market managed to find its footing. The Dow also slightly in the green. Small-cap Russell 2000 continues to be the problem. Spot down about three-quarters of 1%.

Meanwhile, the VIX under 12.5%. Let's get over to overtime with Morgan and John. We'll be right back.