Closing Bell - Closing Bell: What Will Lead in the Second Half? 6/27/24

Episode Date: June 27, 2024

Will the same AI related stocks lead the market or will it finally broaden in a meaningful way? Trivariate’s Adam Parker, Virtus Investment Partners’ Joe Terranova and Requisite Capital’s Bryn Talkington break down what they are forecasting. Plus, Nike shareholder Kevin McCarthy tells us what he is expecting from that report in Overtime. And, Walgreens shares sank on the back of some weak results. We break down those numbers and how the rest of the drugstores are faring. 

Welcome to Closing Bell. I'm Scott Wapner, live from CNBC headquarters. This make or break hour begins with the second half setup. Whether this record-setting rally has legs and how much is hanging on that PCE tomorrow, we will ask our experts over this final stretch. Take a look at the scorecard with 60 minutes to go now in regulation. Pretty tight trading ahead of the Fed's favorite inflation read tomorrow. Take a look at the majors there. Got a little bit of work to do on the Dow and the S&P, NASDAQ positive.

Well, not to say there isn't some interesting action in today's session, even while we're waiting for that report. Amazon hitting two trillion dollars in market cap, as you know, a day ago and extending those gains today. Half times Josh Brown doubling down on that stock, doubling his own position. And the stock was moving higher today as he made that bullish case yet again. Meta, also nicely in the green, along with Apple. Nvidia, well, it is lower again and it is pacing for a losing week. We will chart it over this final stretch. We're also watching shares of Nike today ahead of earnings and overtime, but a pretty tough run lately for that stock. We're going to set you up for that key report as well. It does take us to our talk of the tape. What will lead in the second half of the year? The same AI-related stocks, or will the market finally broaden in a meaningful way? Let's ask Adam Parker. He's the CEO of Trivariate

Research and a CNBC contributor. He's with us out at our HQ. Welcome. It's good to have you out here. Yeah, great to be here. So you're pretty satisfied with where stocks have been for the first half of the year. And how does that color your view for where you think we're going to go from here? Yeah, it's funny. We hold our big event this week. Trivariate does. We had 25 investors in the room.

It was sort of interesting. Everyone pitching ideas. Nobody pitched a short idea. It's interesting. In the past, that's been the case. And I'd say 11 or 12 of the folks used a different valuation metric to justify everything from next year's earnings to I think somebody used an adjusted EBITDA in 2026 number. Right. So people are really kind of starting. I came with thinking, wow, people are reaching for justifying the valuation to get their upside on some of these long pitches. It made me a little bit worried. Wait, so you had 25 people in the room, and it sounds to me like you're describing a, I don't know, overwhelmingly is the right word, but pretty bullish group.

People weren't as cautious as I thought they were going to be, and that was one of my key takeaways. My view is the financial conditions that we've talked about in your show for a year or nine months, really since November of last year, being easy, that's what it says when you look at the Bloomberg number or the Chicago Fed number. When you talk to people on the ground who are in real estate or small business lending, it's a little bit tighter. So the question is, is private credit going to fill that void? Are we still going to see easy conditions? I think the second thing we talked about a lot is margins. And most people are sketching out lots of stock ideas. They can see margin expansion in the second half of the year. That's been a key part of your whole thing.

OK, your view has been colored since we've been having these conversations for the better part of eight months to a year on the idea that margins are going to hold up and then stocks are going to do well as a result. That's been a key part of your thesis. It is. And it still is. And I think, look, it's pretty tried and tested. Stock stocks where the margins go up tend to do well and then multiples tend to expand So I think right now, what do I think I think financial conditions probably okay margins probably could come up Estimates are a little bit too high people probably lower in September and I think the market can be okay I don't think it'll appreciate in the second half year at the rate than first. That's hard to sketch out another double-digit second half return. So I think we'll have some volatility late in the summer, but I think one in the year higher.

Are we going to be talking about the same kinds of stocks for the remainder of the year, or do we have a more meaningful broadening of this market? If so, what enables that to happen? Obviously, the last month, we've seen the narrow market again, the MAG-7 working. But if you look year to date, we've seen a lot of dispersion in every sector. It hasn't just been the MAG-7. We've seen, I think, every sector except for real estate's up. So there's been things to own. I sometimes go into these meetings I do thinking, like, what's the excuse everyone's going to use for why they're not keeping up?

Is it going to be the concentration, you know, narrow argument, or what's it going to be? It's a reasonable argument to make. I mean, if you're indexing, it is what it is. You're in these stocks or you're not. And if you're not, you're hurting. Right. If you're long only and you're indexed to the S&P, I think you have less than an excuse. Right. If you're at a hedge fund, it's hard to charge fees and then own them. So you got to carve alpha out elsewhere. And I think that's been harder. You know, my general view, though, is that we're probably skewed to the upside still, just because I don't think we're going to see anything that destroys that dream of AI productivity. Most of my meetings, what people are saying is, when will we

get frustrated that there isn't return on the CapEx investment yet for AI? Which are going to be the ultimate profit pool beneficiaries in AI? Is it going to be power? You've seen, you know, VST and PWR rip higher. Is it going to be transmission and electrification industrial, you know, eaten high? Like there's stocks you can point to that have done well. So people are trying to figure out, do I just buy the obvious stuff? Cause we're still in the first inning of a nine, nine in game where it's going to pull back 30% and I'll get a second bite of the apple. So that's where my conversations about AI are generally centered. So you said of 25 people in the room, it's an ideas gathering. Nobody pitches a short idea.

You've been coming to us pretty consistently pitching some short ideas too. You've been thinking about those kinds of stuff. Are you in turn also reducing the kinds of things that you would even short? No. No, I think for me, my framework, and we wrote a big note on on Sunday, is look, you need exposure to the themes you're confident are to grow above GDP for the next three to five years. What are they? They're still AI semis, electrification, industrials, housing, life sciences, and healthcare services, power.

And then you want to avoid the things that I think are shorts, physical retail boxes, human being focused software, banks, things that real estate, commercial real estate, things that you think they're in excess for a while. Why banks, though? Why banks? I mean, if you're pretty reasonably positive on the economy of where we are, why are banks not going to work? Well, it's a good point. I mean, look, historically, they were economically sensitive.

The reason is if the economy is strong, they don't fully participate. And if it's weak, they do fully participate. And the downside. So I just, what I need to believe on banks is that they're going to be productivity beneficiaries from AI. And I'm unwilling to believe that because early in the cycle, they're going to see the spending first. They have to run the existing systems at the same time they have the new systems. And lately, so I don't think they'll see the cost cutting as early as other. So you're telling me that we shouldn't be positive on sectors that are not going to benefit from a productivity standpoint from AI. So it's like AI or nothing. It's like if you're an AI beneficiary in some way by the stocks. If you're not a direct beneficiary from it, either through productivity or spending to

your business, you don't want to own those kinds of stocks? Some of them you do if their value stocks are improving their balance sheet or something. But banks generally compete on pricing. They've invested in productivity my whole life. And it certainly hasn't ex post accrued to the shareholder incrementally. Usually what it manifests itself is, you know, inferior service to the end user or something else. So I think the economy can be fine and banks can do okay. But like I said, take a step back and say, okay, you're a bank's guy and you're long and you love it. What are you rooting for at the

interest rate environment? You're rooting for the long end to back up because the economy's good, but the front end to come down and you NIMS are going to go up. It's a tricky call. Well, that's part of it. It's part of it. That's why the bank stocks have been doing better as yields have come down. But if that works, then I'd rather just own some of the other stuff that I know is going to grow above GDP much more confidently. So it's not like maybe you won't short the banks, but you just won't keep up with the broader market.

I mean, some have done pretty darn well. I mean, it's like JP Morgan is up 17 percent year to date. That's not a city's up 19. It's not a value stock. Goldman Sachs has been around record highs. Those stocks have by and large kept up with the market. They have. And I think from here, I think it's harder. And I think what you're playing for there, depending if it's capital market sensitive or not, is that when we ultimately get more activity, more spins, more IPOs, less broken IPOs, that they'll participate and maybe you'll pay a tiny bit of a multiple on that. So it's not like I hate banks. I just don't think they're going to keep up as much as the better above GDP growers. Let's bring in CNBC contributors Joe Terranova of Virtus Investment Partners and

Bryn Talkington of Requisite Capital Management. It's good to have you both with us. All right, Bryn, what do you make of what Adam had to say? Does your view largely match up with Adam's? Well, I think the narrative of you have to own things, I don't think Adam said this. I think you said this and then y'all talked around it, is that you have to only own things around AI and productivity. I mean, we haven't seen that productivity. And I mean, once again, I'm bullish on Palantir, NVIDIA, I own all those names, but I think the productivity gain from AI is still just a narrative. It's a let's hope this happens. Right now, everything's on the margins. Everything's like Apple's going to do some cool stuff with iPhone gadgets or, you know, you've got note takers. But we really had I don't think we will see really big productivity gains for some time to come.

And so I think you always have to be mindful of valuations. And I continue to see that when it comes to growth, people continue to feel really comfortable in the Q's, you know, in the Amazons, the Metas, the Apples, et cetera, because I think not only do you have that AI story, story, right, because there's no revenues from that, but you also have this durability of earnings. And if you look across, like Amazon and Meta are going to grow revenues this quarter in Q2 at 56, grow earnings at 56%, Microsoft at 27. You know, and so I think that you still are going to have people in these names because of the durability and the growth, plus the optionality of optionality of what could come from AI in the next, you know,

three to five years. It doesn't mean, though, Joe, that, you know, the other kinds of names can't do well, but Bryn makes a good point. If the overwhelming majority of the money is going towards these names, then the other names are only going to do so well. They can do well, but you're going to be looking at sector performances that are, for example, you know, six or six and a half to seven percent, not the kinds of even close to gains in tech of of twenty eight, for example. Absolutely. And I agree with everything that Adam has said and Bryn has highlighted as well. And what's interesting is that if you think about the capital that is sitting in cash on the sidelines and a lot of conversations that I'm having with advisors this week, what they're sharing with me is that that capital is coming back into the market, but that capital is actually going into the fixed income market

because they see that as where the value is. And if that's occurring, that's to the detriment of the type of stocks that you're talking about, the industrials, the financials, the XAI halo. And I think something very interesting has unfolded in this quarter as we've seen the retreat in yields. Those sectors have not benefited with actual inflows from an asset allocation perspective. So I'll just highlight what Adam said at the beginning. I think the second half is a good one, but I don't see why we change the playbook at all where it's about AI, it's about semis, it's about exposure to technology. And I think it's represented in the performance you're seeing from names like Amazon in the last several days.

Yeah, look, we're searching at Trivariate for every AI-related word and every earnings call transcript and every webcast presentation to see who's benefiting. Well, you better get some printer toner. Because, I mean, it's like you're going to be printing out thousands of pages because everybody is talking about it and those who aren't will. We do it with our NVIDIA GPU in the cloud. There's no printing.

I'm serious. It's out on EQX. We just do it very efficiently. But you get my point. No, so what I'm serious. It's out on EQX. We just do it very efficiently. But you get my point. No. So what I'm saying is now you start looking for a large language model or GPU because people make up that they're doing AI when they're not. If you look at the medical distribution space, MCK, COR, CAH, they are talking a little bit about productivity. And Bryn, I assume you meant outside of the obvious kind of semiconductor stuff, but you're seeing a little bit from the consulting firms, a little bit from power, a little bit from AI software where the revenue trajectory is picking up.

I agree with you that the ultimate profit pool is a little bit unknown and paying word AI and they think that what they're really just saying is some sort of like efficiency and analytics or better extraction of data. Like I just told you, I could search every earnings call transcript for the last 15 years for like 10 words in two hours. Okay. If I did that 10 years ago, I'd have to open it, control F type in and it would take, you know, so the efficiency is massive, but I didn't describe anything that's AI. Something generative is much more complex. So I think people are misusing the phrase AI a lot. I want to ask everybody this.

Do you think right now, in the here and now, Bryn, I'll start with you because you own the stock, NVIDIA. Is it the market's greatest asset right now or is it the market's greatest liability? Because of how much it's run, now people are wondering whether there's going to be more volatility in the name asset. OK, well, it got you here. It's already had a one hundred and fifty plus percent gain year to date. What is it now? I definitely think it's not its biggest liability. I mean, their earnings don't come out. I don't think August 31st, but they're delivering the goods. So I think it's the biggest asset because all of the other hyperscalers are buying from NVIDIA. They have 80% margin market share with huge margins.

So I still think it's not definitely the biggest liability, but I think it can cool off though. And so it may not be its biggest driver going forward because I do think these other companies that have earnings much, much quicker than NVIDIA, like an Amazon, which are going to have huge efficiencies, I think are going to do really well. And I think from a positioning perspective, I think you're going to see more money flowing outside of like the speculative zero date options flowing into some other names like an Amazon, a Meta, et cetera, than an NVIDIA over the next couple of months because earnings are

so far out. Yeah. Joe, how would you answer that question? I mean, it's paying all due respect to the move that we've seen in NVIDIA, but the stock's gone up an awful lot in a reasonably short period of time. Does that make it a liability at this point? So it is clearly the MVP of the stock market. I agree with Grin. It's the greatest asset. But therefore, it's also one of the market's biggest risks. The risk being that not just NVIDIA, but a lot of these companies in the AI halo, don't deliver on the expected earnings growth. How do you want to assess that?

I mean, it's the best. It's the best product early on in a multi-year cycle. I could see somebody wanting to own Taiwan Semi, which is a monopoly, or other things to get exposure to the same theme. You know, that's a trillion market cap cap it'll probably be two or three eventually i mean there's other things you can own um i could see people wanting to say you know in in hock 10 we trust and we'll we'll buy broadcom and he's he's got zucks here and that's a one plus one equals three i mean there's there's other ways to play it than just nvidia but you're looking at the best company with the best product capturing the most amount of pricing right now and and look taiwan semi says they're filled to the end of 2026. Like, we all know they don't have vision past six or nine months.

So I think the only thing is we're innocent until proven guilty, meaning you need to see something that makes you nervous they're three to six months away from being able to meet demand. I don't think we're going to see that in the second half this year. So if you think we get a totally different playbook in the second half here, I'm with you, Joe. Like, I don't think it's a different playbook unless something makes you nervous that they're close to playbook in the second half here. I'm with you, Joe. I don't think it's a different playbook unless something makes you nervous

that they're close to meeting demand in the first half of 2025. So then, Joe, we're just going to be talking about the same narrow market then until we're not. Yeah, we are. And maybe, you know, listen, I shot you a note right before the show. I think there's something within software, and credit Brad Gerstner for bringing this up last week. I don't know where Adam and Bryn are on this,

but software in the last several days seems to be recovering. I own a lot of these names. I'm interested in them. Bryn mentioned Palantir. Palantir is a name that I might be adding to that position. So there's something interesting that's going on in software. We'll see if it's more than just a near-term bounce. Well, CRM, for example, it's up 4% today, is Salesforce.

You made the case, Adam, earlier to not, don't be sucked in by the dip in software. It really depends if your software that is related to human beings and like seat count and revenue per employee. So I could see the human capital management stuff or the ERP stuff being a little bit more guilty and too proven. Are you talking about like the workdays? Yeah, like workday. Stock wasn't good, you know, kind of late February to May. capital management stuff or the ERP stuff, being a little bit more guilty and too proven is. Are you talking about like the work days?

Yeah, like work day. Stock wasn't good, you know, kind of late February to May. Neither was Salesforce or ServiceNow or others. Right. I think Adobe's print a couple of Fridays ago got people. I think that was a catalyst, Joe, right, to get people a little bit back in the software. But I kind of look at it, think, let's see what the revenues look like and if they can sketch out a 2025 acceleration story. In the interim, I know semis are going to be good.

I know semis grow way above GDP for the next 5, 10 years. And I'm not really sure how all this software is going to play out because they're not as important unless you're talking about something around security and sort of the AI stack or transmission or other stuff. Then those are going to still work. Joe, you got a lot of marbles on the line in overtime today in terms of Nike, right? You just bought it, didn't you? I did. And listen, Scott, you know that's technical in its nature. The expectations for Nike going into this report are low. I mean, you're talking about sales growth at 1%. That could be a multi-decade low. So you want to hear fundamentally, you want to hear what's going on in China. You want to hear what's going on with innovation. And then, you

know, as a derivative of all of this, what's going on with the relationship with the WNBA. But they have to step forth with some strong innovation. They have to exhibit some better than expected growth. And the thing that you have to your advantage fundamentally is that the expectations are so low. But the reasoning behind my being in the trade is purely technical. All right. Bryn, do you have a thought on Nike? Any temptation to get into this? I mean, I definitely have a temptation. I was with Joe when he walked to the trade. I don't buy companies the day before earnings. It's just like a hard rule. There's too much can go wrong. Look at Micron. I mean, you got your face ripped off if you bought the call or did a put call spread or whatever right before earnings.

So we'll see what they say. I don't think it'll recover fully after earnings if they're good. So maybe I would step in after their earnings report when we get some more understanding of the fundamentals. I know you don't like consumer names, but what about this? Nike's got probably a durable brand that at some point will be a good buy. I mean, I know we're wearing their shoes a lot more in the office than we used to be, right? But, you know, look, I could see what Joe's saying. Maybe technically as a short-term trade, it's good.

But I think you need to believe the innovation for 2025 before you get a big position that you're going to hold for a while. Guys, we're going to leave it there. Adam, thanks for coming out here. Good to see you. Brandon, you as well. Joe, we'll talk to you soon. See you, a big position you're going to hold for a while so guys we're going to leave it there adam thanks for coming out here yeah good to see you yeah brand new as well joe we'll talk to you soon see you joe see you send it to pippa stevens now for a look at the biggest names moving into the close hey pippa hey scott shares of chewy surging after meme stock leader roaring kitty posted an animated dog on x at one point today those shares were up 34 before being halted for volatility well off the highs, but the stock's still up 80 percent in the last month. And Levi Strauss is tanking 16 percent after the company's Q2 revenue came in light.

The company also warning that consumers have been generally cautious and aren't spending a lot on discretionary items. The retailer, though, did hike its dividend by 8 percent, its first increase in six quarters. Scott? All right, Pippa. Appreciate that, Pippa. Stevens, we're just getting started up next. More on Nike's earnings. They are on deck in overtime. It's been a rough year so far, down double digits.

Neuberger Berman's Kevin McCarthy, he owns that stock. Today he's going to tell us what he's going to be looking for in the results. We'll do it after the break. We're live at our global headquarters today, and you're watching Closing Bell on CNBC. As we said, we're watching Nike shares less than an hour away now from earnings and overtime. Stock's been under a bunch of pressure this year, falling near 13 percent. Joining me now for the setup ahead of those results, Neuberger Berman, portfolio manager and Nike shareholder Kevin McCarthy. Welcome back. It's good to see you. Thank you, Scott. Nice to see you. What's been the problem here? Nike has been, as you probably know, in the kind of early stages behind the scenes of doing an innovation reboot,

for basically the last year, they started really in Ernst in probably mid-2023. But the communication hasn't been great. And quite frankly, we need to have just more plain talk and accountability. Right now, we're in a stage where the pipeline is building, but we need more proof points throughout the fall for this kind of newness to kind of take shape. Right now, newness is very important. Newness is about 10% of their sales. And why this is so important is the newness is what drives the top-line brand T.

It drives the full-price selling. And of course, it drives the margins. And the good news is we're seeing very early hints of this. We saw that in March with Nike upsetting Adidas with getting the German football federation. We just saw in the last couple of days the top five NBA draft picks all wearing Nike. And I encourage you to do a search of the Pegasus 41. It's a workhorse shoe that's been around since 83. But if you do a Google trend search on that and look at how the tracking of that versus the last five, it's very encouraging. So that plus some brand heat that we're seeing with the Olympics, I think, you know, there are early proof points

that innovation is starting to come around, but they need additional layers of this to come into fruition over the next six to 12 months. You make interesting points. And when you say of this Pegasus shoe, excuse me, that it's been around since 1983, and therefore there's been a lack of innovation as well. Has this company been too reliant on the past?

We know about all the hype around the Jordan brand and all that, and that's never going to go away, right? I'm not suggesting in any way, shape, or form it will. Those are still the shoes that a lot of people want to wear. But has the company been too reliant on what was rather than what is going to be? That argument could definitely be made. And I would say that there was a course correction that was needed as a result of this focus on growing DTC and kind of taking their eye off the ball on the storytelling, the connections with the athletes. And that's something that, you know,

really when I'm alluding to the fact that the reboot started in mid-23, it was new leadership that came in. It was breaking down the functional silos. And so it's really kind of still in the early stages. I do think even though they're going through this franchise management with the Jordans, the Dunks, the Air Force right now, which will give them a little bit of a pass on this quarter. I'm not expecting anything exceptional, you know, like flattish revenues, some margin and kind of high 80s EPS. But they really, to the comments made by the previous people on, you know, they really need to show that there's sustainability with the innovation going forward. And I think today it's incumbent upon management really to do, you know, results aside, it's incumbent on them to do three things. One,

provide line of sight to high team margins for the business over a several year period. Two, we need to understand how these layers of innovations are going to come into play and that they're sufficient enough to offset the franchise management process that's going to be unfolding in the first half of next year so that there is ultimately growth. And then the last thing is we need accountability. We need to know who's running point and with what strategy. Obviously, there's going to be more told on that coming at the analyst. Who's running point?

I mean, if we're questioning who's running point, I mean, John Donahue is the CEO. He's running. His contract expires in January. Everything that you've suggested is wrong with this company seems to flow back to execution, management and everything else. Do you think, do they need a change? They do. They do. I think they need to have, they've got a couple internal candidates right

now that are very capable running product and running marketplace. I think those are two very good candidates right there. You've got a couple ex-Nike candidates too that have been in the discussion. And then you also have other competitors that have been discussed. But I do think that it's assumed that the leadership of this company will be changing over the next six months. I wonder what that means for the performance between sort of now and then and the kinds of changes that even could be made, like the ones that you're calling for. I suppose we'll see. Kevin, I appreciate your time very much. Thank you. That's Kevin McCarthy, Neuberger Berman. Thank you. Joining us here on Closing Bell up next with Fed stress tests now in the rear view.

Investors looking ahead as the banks are set to announce their capital return plans tomorrow. Top banking analyst Mike Mayo is back. He's going to break down what is really at stake for the biggest names in that space. Who do you really need to watch out for tomorrow with any potential announcements? Mayo's going to tell you next. All right, welcome back. We're watching the banks today after those stress tests yesterday. The stock slightly higher after all 31 of the banks showed they were able to withstand a severe recession scenario. This comes as they prepare to release their capital return plans tomorrow.

Joining me now is Mike Mayo, Wells Fargo. It's good to see you. Thanks for coming out here. You say that these stress tests were tougher than expected. In what sense? Well, I'd summarize the toughness of the Fed stress test as the three C's. The first C would be credit card losses were higher than they were before. The second C was be credit card losses were higher than they were before. The second C was commercial loan losses. I think it was the highest ever in the Fed stress test. And the third

C, which is kind of surprising, is costs. Costs were quite a bit higher, even though fees are lower. And the Fed kind of extrapolated 2023 results forward. I think that was an unusually low level for fees, whereas the year before that, they extrapolated kind of high level 2023 results forward, I think that was an unusually low level for fees, whereas the year before that, they extrapolated kind of high level. I think the truth is somewhere in between, but costs kind of dinged several banks, such as Goldman Sachs. The other thing that stuck out to you was another C, if you will, and that's Citi, which is your number one pick. You say they did especially well? Who would think that we'd be mentioning Citi Group, Fed stress test, and a good result in the same sentence? Like, wow, after those times when Citi failed the Fed

stress test, I was on your show, I think, after one of those times calling for some, you know, management accountability. But here, Citi... Just say it mildly. But here, Citi, like, that was a surprise that surprise. We estimate they have 30 base points lower capital in the future, and that's the best of the bunch from what we saw yesterday. I think I was right for the wrong reason, though. I thought I'd be right because they've exited a lot of consumer business outside the United States, and as you simplify, it pays dividends, literally and figuratively.

But the reason is their revenues, especially their fee revenues, are deemed more resilient than others, at least on a comparison basis, and they benefit from that. So you're finally seeing the Fed give recognition to some of those powerful fee revenue streams, such as their global payments business, which I estimate that one business line is worth the entire market cap of Citigroup. So buy one line of business, get the other four almost for free at Citigroup. You say that Bank of America had disappointing results. Why? Well, it comes down to some of the loss assumptions, some of the expense assumptions. The regulators require about 70 basis points higher capital out of Bank of America. But

if you zoom out a little bit, Bank of America, I estimate they had $30 billion of excess capital after this test. They have $20 billion of excess capital, piling on about $14 or $15 billion of excess capital a year. So it's different shades of gray. So you shouldn't change your buy or sell decision based on that result. Well, do they need to change? Would they change their buyback or dividend type decision based on that result? Because, I mean, ultimately, that's what we're looking ahead to potentially tomorrow. Who says what? Absolutely. And I think nothing changes in terms of a material increase in buybacks of banks from the first half this year to the second half this year and into

2025. For everybody. Nothing changes. Maybe it slows on the margin for a few. But remember, the Fed used year end data. First quarter bank results were really good and they built up capital and rates have come down. And so you'll see a benefit to the capital ratio. So in the end of the day, the Fed is requiring about a half percent more capital for banks and banks. Capital ratios are up about a half a percent year over year. So you're kind of the same place. But all banks have somewhere between three and 30 percent of excess capital as a percentage of market cap. So it's you're in a good place. And don't miss the big picture here. The Fed threw the kitchen sink at the banks.

This is a scenario that's worse than the global financial crisis. You're talking about 8% decline in GDP, 10% peak unemployment, 40% decline in commercial real estate from these levels. I mean, everything's going south at the same time in this test. And after applying that test, banks have enough excess capital equaling to 10% of their market cap. So banks, U.S. banks are in a very good, resilient place. Why is Goldman Sachs today down 2% on the other side of these results, which you declare to be worse than expected? So I love and hate the Fed stress test.

I love it because it shows the banks are much more resilient. Remember the global financial crisis? Banks are prepared for a tail risk like that. That's fantastic. But I hate the fact that it's a black box and you have such volatile results. Goldman Sachs got a reprieve last year and they're going back to where they were two years ago. They're in the Fed stress test versus last year.

The revenues are down and the expense are up over 10 percent. Like that's not the way Goldman Sachs has acted in the past. But look, it's better to be conservative than not. But in the scheme of things, that was a little surprise from my standpoint. What gets the bank stocks in general to do better? They're up eight and a half percent year to date. Adam Parker, who you mentioned earlier, he was sitting in the seat in which you are now suggesting he doesn't like the bank stocks.

And he says when times are good, they do less than the rest of the market. And then when times are bad, that's when that's when they feel it. So it's like you're kind of damned if you do damned if you don't. You're at a tipping point here for the banks. I said this at the start of the year. I said July 1st around then is the tipping point for the banks. I said this at the start of the year. I said July 1st, around then, is the tipping point for the banks. That's when you start seeing an inflection there, net interest income, as you go into the second half of the year. Operating leverage goes from negative to positive. EPS growth starting the fourth quarter of this year goes from negative to positive.

You're looking at three years of negative earnings growth, down 20% for the three years ending this year. And then for the two years after that, earnings should be up by one third. And by the way, about half of that one third EPS increase is somewhat baked in due to the fixed asset repricing that's on the bank's book. So stay tuned. I'll be back in the second half of this year. We're to look at that inflection. Where go earnings? That's where stocks follow. All right. We'll check in with you, Mike Mayo. Thanks for coming out. Thanks for having me.

All right. Up next, we track the biggest movers into the close. Pippa Stevens is back with that. Pippa. Well, Scott, variety is the spice of life, and this stock is serving. We've got all the details coming up next. We're about 15 from the close. Let's get back to Pippa Stevens now for a look at the key stocks that she is watching. Tell us what you see.

Well, Scott, Spicemaker McCormick jumping on second quarter earnings, which beat on the top and bottom line. Here's what CEO Brendan Foley told CNBC about the state of consumers. There is a lot more value seeking behavior out there. We definitely see that for us because we have such a broad range and we're hitting a lot of different price points and also a lot of different brands. It allows us to serve that consumer. I think what consumers are saying is they're cooking more at home as a result of that. And shares of RAH jumping 10% after the furniture company announced that CEO Gary Friedman bought $10 million worth of shares at an average price of $2.1610 per share. He now holds just over a quarter of all of the company's outstanding shares. Scott?

All right, Pippa, thank you. Pippa Stevens. We're also tracking today shares of HIMS and HERS. Brandon Gomez is here with what's behind the move we're seeing in the market today. Brandon? Yeah, Scott, take a look at shares of HIMS and HERS Health. Now, they're pulling back from double-digit losses following on a short report by Hunter Brook Media claiming that HIMS is selling knockoff GLP-1 drugs through a loophole, also saying its GLP-1 drug has ties to a fraudulent supplier. Now, I reached out to the company as well as their supplier, and HIMS refutes all the claims, saying their supply is completely legitimate, allowed by FDA policy, and that long term they do plan on offering those branded GLP-1

drugs. Their supplier did just get back to me as well, saying all fraud claims in the report are not related to operations of BPI or its current owners and management team. Now, I did check as well on the FDA's website, and BPI Labs is listed as a registered compounder. Worth noting too here, though, Scott, on the report that Hunterbrook Media is the journalism arm of Hunterbrook Capital, which has raised some conflict of interest concerns in the past. Hunterbrook Media co-founder and publisher joins Closing Bell Overtime next hour. Scott? All right. We'll look forward to that. Brandon, thank you. Brandon Gomez still ahead. Walgreens shares, they are plummeting in today's session on the heels of some weak results. We're

going to drill down on that report as well. Tell you how the rest of the drugstores are faring today. The bell's coming right back. With the majority of Bokksu's leadership team identifying as LGBTQ, we believe it's what makes us stronger as a company, fosters innovation, and allows our company culture to thrive. I'm so honored to be a leader in this community and hope that our successes here at Bokksu inspire other leaders, entrepreneurs, and CEOs to create opportunities and environments where the queer community can be embraced and celebrated. All right, welcome back. Shares of Micron sinking after reporting results last night,

but several Wall Street analysts say this slide is a buying opportunity and could make for a critical ai play for all the details head to cnbc.com pro pick or scan the qr code on your screen up next we set you up for earnings in ot we told you nike's reporting within the hour we run you through the key metrics to look out for inside the market zone next all right closing bell market zone time. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Walgreens is heading for its worst day ever. Bertha Coombs with those details. And Sima Modi looking ahead to those Nike earnings coming out in overtime.

All right, Mike, what's on your mind today as you watch this market throughout the day? You know, Scott, a week ago, I sat here and said, oh, we're going to have this big June options expiration. That was last Friday. That's going to probably release the market to kind of move around a little bit more. You're not going to have that sort of anchor of a lot of the accumulated options positions. Well, this week has really been nothing if not steady, almost to a fault. We're working on the seventh day where the S&P won't move as much as half a percent. And below the surface, as we keep talking about, things are going their own way. It's kind of random walk one way or the other.

Now, that being said, I think it does reflect a pretty stable and somewhat comfortable macro picture. You had Apple on a week-to-date basis more than offset the losses from NVIDIA. And so therefore, it's kind of like mega caps taking their turn. And that's the way this market, I guess, plays defense or just buys its time going into that PCE number tomorrow. We did have actually bonds rally into that expected print. Yeah. I mean, and again today, you've seen, you know, NVIDIA's lower, Mike, by about two and a half percent. But, you know, Microsoft, Meta, we talked about Amazon hitting that all-time high. You know, Josh Brown was talking about it earlier today, doubling his position yet again.

Alphabet is in the green, too. So NVIDIA goes down. The slack is somewhat picked up by some of these other names. It has been. And obviously, you know, as long as it can work, it's relatively healthy, although people are raising some alarms about just the degree to which the average stock is deviating from what the big cap driven indexes are doing. That being said, even though you have Amazon and Apple coming in and helping out, you do have a break in the momentum

factor relative to the overall market that happened when NVIDIA peaked over a week ago. And that's also what happened in March. And that whole cohort went sideways relative to the market for several weeks, really two months. So I'm not saying it's going to happen again, but it's nothing that's gone on this week has really broken us out of that idea that the overheated parts of of this market are still in cool off mode. All right. Not overheated at all. In fact, it's cold today. Walgreens is Bertha Coombs heading for the worst day ever. What's going on? You know, the quarter saw their health care unit, which includes Village MD, actually cut its losses after some cutbacks. Boots UK saw strong comps. The big problem for Walgreens remains its U.S. pharmacy.

Reimbursement pressure on the generic drugs in the back of the store and then margin pressure in front of store from consumers who CEO Tim Wentworth says are still stunned by the sting of high prices and wait for discounts on discretionary goods. And then there's theft. He says the 8,500 store footprint right now is just too big. Walgreens was already on track to close 200 stores, but Wentworth told me about 10 times that many are underperforming. He's mindful of the impact in low-income areas, but says they need more community help if they're going to keep those stores open. Shares today, Scott, hitting a 27-year low.

Wow. Bertha, thank you. Bertha Coombs. All right, Seema, set the table for us here. Nike stock down double digits from a percentage point year to date. What do we need to hear tonight? That's right. Well, the stock has lagged, as you just pointed out. It's not only underperformed the S&P retail ETF, but the broader market this, down about 13%. Wedbush Securities chalks that up to a lack of product innovation, though analysts are encouraged by Nike's partners like Foot Locker and Dick's Sporting Goods that have been positive on Nike's new pipeline and momentum growing around its lifestyle running category. Now, other topics investors will want clarity on Nike supply chain in China, efforts to diversify and its projected return on investment on the upcoming Paris Olympics. Scott. All right, Seema, I appreciate that. That's Seema Modi. All right, Mike.

Nike stocks not done well, as we said, you got new competition coming into the marketplace. I don't know what your expectations are here, if any, at this point, but we had a guest on earlier in this hour who was pretty negative on the execution, on management, and said they need a change. Yeah, I mean, I think the market is somewhat reflecting that. It's been a slow bleed of enthusiasm in terms of analyst opinion and posture toward the stock. You're looking at, in the current fiscal year, the one that just started, expected sales are basically supposed to be even with two or three years ago. Net income expected to be flat with two or three years ago. So clearly, anything that gives a hint that you're going to be changing the top line growth story away from stagnation is probably what the street is craving.

Stock is definitely way underperforming. It doesn't make it outright cheap, but it makes it sort of cheap in Nike terms. If you want to, you know, great on the curve of saying great, great American consumer brands and what do you pay for them? The other thing I think it sort of underscores is that we keep talking about how the huge tech platform companies are driving a huge percentage of the overall earnings growth. Stocks like Nike are flat on earnings for years. Disney is flat versus 2018 or down. Best Buy, like all these big consumer names, have still been earning below peak levels for a while. So that's sort of the bull case if you can get any of them moving in the right direction and trying to capitalize on what still is, at least for now, a decent

economy. I'm thinking about, you know, as we have less than a minute left tomorrow morning, this PCE. You know, I know everybody's sort of fixated on this and what it's going to mean for the calendar of cuts, if you will. And, you know, Bostick was out today saying, yeah, appropriate later this year. Also talked about the, quote, orderly slowdown of the economy. You do start to get the feeling that there are more people inside that room concerned about doing damage to an economy they don't need to do. Yes, and some of them are giving voice to that concern. I do think if it's a benign PCE inflation number tomorrow, you can open up July to be that meeting when they can set the stage for an easing move, if not an outright ease. All right, all roads lead to PC tomorrow morning.

Mike Santoli, thank you very much. You see the bells are ringing. The green across the board are going to send it into overtime now with John Corbett.