Closing Bell - Closing Bell: What's Next for the AI Trade 6/20/24

Episode Date: June 20, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

All right guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the intraday tech tumble and this move in the Dow. We're going to get to that too. Whether the biggest names have gone too far too fast in tech and what might happen next, we'll ask our experts over this final stretch, including Ed Yardeni. He will join us in just a little bit. In the meantime, let's just show you the scorecard with 60 minutes to go in regulation. Take a look at the Dow. It's up near 1% here. A little bit of a late-day surge as some names like Salesforce and Caterpillar and McDonald's, Travelers, Chevron's having a pretty good day. Dow would be up more than 440 points if not for Apple and Microsoft. That's where we want to zero in, the NASDAQ. It was up earlier. It rolled pretty hard as well. Midday. I said Apple, but NVIDIA rolled over to that stock was lower. We're going to watch both of those over this final stretch. About a six percent swing in shares of NVIDIA today. That is interesting because at one point it was up three percent, only adding to its place as the most valuable company in this market. Well, Apple, it's five-week win streak.

It's in jeopardy with that move right there, down 2%. Chipotle is another stock to keep an eye on, too. Its major reversal as well is front and center. It's down near 7%. We'll watch it, of course, over the final stretch here. It does take us to our talk of the tape, the tech trade, whether it simply got too top-heavy. Let's welcome in now Adam Parker. He's the founder and CEO of Trivariate Research with me here at Post9.

It's interesting. Good to see you. So, you know, maybe some money's coming out of these big names. It's going into some of the more cyclical plays, industrials and energy. And we can get to all that. But what about this midday rollover in the NASDAQ? Does it mean anything to you? I don't think so. I mean, I think some people just collect profits when things rip higher.

You've had huge moves in the AI trade in the last month across so many names that, you know, it's not like these stocks have a God-given right to go up 3%, 4%, 5% every single day. NVIDIA would beg to differ with you, man. Well, yeah. But, you know, so I'm not totally surprised you can get some consolidation here or there. You know, it's funny. I've had a lot of investor conversations this week. I bet you have.

Yeah. Is this the inning one of a— everyone seems to think two things that are incongruous. We're in the first or second inning of a 10-year trade, but it's probably going to sell off hard in somewhere like August or September, something like that. That seems to be the consensus view just because it's hard to believe that you can get this much appreciation unfettered for this long.

So there's a bit of a debate. A lot of my questions from people have been, will we rotate into software from semis? Will we rotate into industrials from semis? Just something other than the AI semiconductor beneficiary trade. Speaking of that, the move in NVIDIA, was it starting to make you a little nervous? Do you think it was too much? Was it starting to get silly? You know, Stacey Raskin, by the way, who replaced you at Bernstein,

made the argument today that, you know, before NVIDIA had its big breakout, it was like at 60 times. Now it's like 40. And it's justified to be there. Yeah, there's been a huge up with revisions. Yeah, I think in a medium to long-term view, it probably can. I mean, look, most of my conversations have been about who will benefit from, which profit pools will there be from AI?

Where will the return on the AI investment first be realized and therefore justified? And, you know, so is it in the power space? Is it healthcare services on the cost side? Will it be, kind of where the profit bulls will suss out? Because I think it's hard, I know and so does Stacy that semiconductors are cyclical. Okay, and so. Yeah, is this one?

Well, TSM says they're full to the end of 26. They can't see that far in the future. So let's say it's middle of 25. To get negative on semis a year in advance seems early to me. So I don't want to say the trade's over. That's not my call at all. I'm just saying that's where the conversation's been with clients. My view is we're going to be higher on the AI trade, you know, by year end.

Well, I mean, if you discuss the valuation, we did discuss it with Keith Meister, Corvex, yesterday, who had this to say on that issue, whether it's too expensive, whether it's gotten a little crazy, let's listen. My take on Nvidia is, people come on and talk about the P multiple. And I think that's the wrong thing to focus on. The question is, are they over-earning or not? If they're not over-earning, you know,

they deserve a really high multiple and it's an amazing business. I mean, that's my story. He brought up things like, you know, do they have a real moat or are they just, you know, a pull forward? Is it, this is going to be the same type of power in this business, pun intended, five years from now, 10 years from now? How would you view that as somebody who was so in-depth in covering this space and stocks like this, including this one? You covered this. He's an incredibly smart guy. I actually talked to him earlier today about something else. So I have massive.

He processes information way faster than I do. So but I think they probably are over-earning. That doesn't mean they won't grow GDP plus high singles from here. But, you know, they have more pricing power now than they will three, five years from now in the system. So from that standpoint, they're probably over-earning. You know, I agree, valuation,

I think all valuation paradigms aren't gonna be very effective. We talked about that a lot last year on the show, which is, you know, to sit there and say I'm buying something because it's cheap on EV to sales, that doesn't work. Or I'm shorting because it's expensive. I certainly would not walk in the office and short NVIDIA. I think you'd have to want to be unemployed to do that. So, to me, that's not the right call. I think the right, you know, right call is where else can we see beneficiaries?

Where could there be more multiple expansion? Because Raskin's point is right. Maybe it's not that expensive in absolute terms, but the question is, can I get multiple expansion from here? Or am I just playing for the underlying cash flow growth and earnings growth to offset the slow multiple erosion? I'm probably more in that view, that it's going to appreciate at a less rapid rate going forward. Do you feel like the market's in a pretty good place? You know, I know a lot would be made of a slide in NVIDIA, but if the money comes out of the NVIDIAs and it goes into other areas,

I would say that's a more, not just okay, that's preferred. It's healthier. Yeah, look, the three things that the market, why is the market going up? Financial conditions are easy. That's number one. Two, as, the three things that the market, why is the market going up? Financial conditions are easy. That's number one. Two, as we talked about for a long time, I still think margins are going up for a lot of businesses. And three, you have this dream, this awesome dream of AI productivity that could last for five to ten years. So all of a sudden, you could be sketching out higher earnings growth for the next ten years than you had in the last ten.

So that's why the market's up. There's like a really good dream. The bear case is something, you know, on rails, you know, it kind of screws up financial conditions. So is it a real bad U.S. consumer that slows and, you know, big, you know, delinquencies on credit cards? Is it something really bad out of China? Is it real estate, private credit? Like something has to cause you to have a re-evaluation of the financial conditions. And right now, our call, our phrase has been, you're innocent until proven guilty. As long as you believe this AI productivity is there,

you're going to be okay with equities. If you get some data point that says, wait a minute, you are over-earning, then, and I think Keith's phrase is right, if you get confident you're over-earning at some point in the July guidance or October guidance, then I think you'll get that kind of meaningful reset. For now, it's innocent until proven guilty. Joe Terranova's here with us, too, of Virtus Investment Partners.

Keith Lerner as well of Truist. Joe's a CNBC contributor. Do you want to weigh in? Let's start with the NVIDIA question. I mean, it's an interesting reversal midday. I said about a 6% swing. What do we just make of the whole phenomenon of this trade at this very moment? Well, I like the conversation that you're having because I agree with the premise that it's OK if we see the growth trade

have a much needed correction. And I think that's what's unfolding. The first thing you do is you look at other areas of the market and you say, are they behaving today? Is credit behaving? Yes, it is. Is crypto behaving? Yes, it is. Are other sectors stepping forward and performing nicely like health care? Yes, in fact, they are. So I'm OK with that. I've never been one that said, look, with NVIDIA, you have to buy it here. I don't believe that's the case. I think NVIDIA has been susceptible over the last 10 years to corrections. And you could expect there's going to be a day where NVIDIA is down 10%. Sure, but you could have said, and it would have been perfectly reasonable to say,

at $900, would I recommend you buy it here? No. At $950, would I recommend you buy it here? No. $1,100? No. Stock keeps going up. Right. So people look stupid when they feel like they they pass these opportunities up and the stock keeps going up. Yeah. Well, here we are at 135. The other day I sold half split. Obviously, right. I sold half of my XLG position. That's just intuitively looking at it, saying, OK, it feels as though we've reached a little bit of a crescendo to me. It does feel that way to me.

I agree with Adam. You don't want to sell the stock short by any means. I also think it's important to understand you're coming up on the end of the quarter. And the end of the quarter matters. Remember, this has been a volatile quarter. Friday is triple witching. You have nearly $5 trillion worth of options that will expire. You have an index rebalance on Friday. And the following week,

you have the Russell that's going to rebalance. So I think that's coming into play today as well. Volatility. I think it's coming into play. I think it's churning a lot of this growth trade. And I think you have to understand you're probably going to see that over the next week or so. You believe that? Yeah, there's a lot of short-term dynamics. That makes sense to me. You know, i think the challenge like you said look the number one exhibit that we've written at triberrit the most clicked on was maybe a year ago it was called the the nvidia god trade okay and it was a classic lightning bolt and we said the problem with not owning it now is you're saying you know you're

near the top that you know when it goes down you're going to buy it again and then you're going to hold it all the way up and like i like, I don't know when the top is. That's the problem. And so I think what my view is I have to own some and just acknowledge that when it goes down 10% or 15% or 20%, maybe in a few days, that I made more money on the way up to offset that. I have to have so much profits that I'm willing to deal with the 20% down before I trim some.

That's been my mental mindset. So, Keith, do you feel like the growth trade in general is a little long in the tooth? And we don't have to focus just on these technology stocks to have this conversation. We can show an intraday of Chipotle, for example, CMG. It's down more than 6%. That's part of a growth trade. Way more expensive than NVIDIA. Well, of course. Slightly more. 59 times. Are those types of growth stocks the ones we really need to pay attention to,

more so than the growthy mega cap names? Yeah, well, first, great to be with you guys. Great conversation. I do think it's an overall momentum trade, but big picture, if you take a step back, the S&P technology sector, the outperformance over the last month is about 11%. You have to go back to 2002 to see something similar. So I do think we're somewhat stretched and we're due for a pause. But I also think the timeframes for investors really matter. You know, what's interesting, if you look back last year, at the same time going into June, the S&P technology sector was up 40 percent.

Now, that was off a much lower base coming off of that 2022 correction. But what happened after that? Coming into June, then you traded sideways for three or four months before you made another move higher. So longer term, we're still overweight tech. We think that's where the earnings momentum will continue to be. But short term, we're realistic that we've had extreme outperformance. The rubber band is stretched and we think more likely this this overboard condition works itself off by by by moving sideways in a choppy range, letting those earnings catch up and letting some of this kind of last bit of momentum that's coming here over the last few weeks where every day you you know look at the first thing and you see

the video up three percent that that likely changes and you start to see a bit more of a rotation outside of that but again we're looking at this more than just the next three months we're looking over the next 12 to 18 24 months and we still think that tech likely outperforms but short term we we are a little bit less bullish. There are some signs, Joe, that the energy trade is maybe waking up, perhaps. You like that area. Do you like that? That was good hands. That was Olympian. Dropped a pen. It was like doing a tightrope walk on the mic cable.

Plus for those who are not here to see it. The gymnastics of television. Go ahead. So oil is bouncing here, and it's really on inventories. And we saw a drawdown in inventories. The SPR drew down as well. You know we've had overweight exposure to energy since April of 2022. Last several quarters, it has been difficult. Very conflicted when you're looking at energy. It looks like it's starting. Then it stops. It looks like it's going in the other direction.

Energy was $73 just six weeks ago. So we're playing a little bit of catch-up now in the near term with energy equities. Let's see where the momentum goes with this. Some of the better names that I like, NPC, One Oak, and my favorite name above all is Diamondback, ticker symbol FANG. But it has to prove itself here. It's got to get above 85 and spot oil. And we need to see the consistency in earnings for a lot of these energy companies as well. The meetings that I do, one observation that was funny is just every tech PM now seems to be talking about megawatts and power. Utility trade.

Yeah, just because they're concerned about powering the AI trade. Among other reasons. I mean, Meister was yesterday. Yeah, totally. It makes sense. I mean, you're seeing, you know, Gates talk about Nuke. You're seeing Amazon buy some power. You know, Illinois, you know, kind of governments.

I mean, there's a lot of focus on this area. So if you're S&P indexed and energy is four and change percent and utilities are two and change percent, that's 6% for that combo. I don't know why you can't own 9%, 10% in the portfolio. It's not like you're taking massive excess risk. And it does feel like asymmetric upside. If it was GDP growth in the past, maybe it's GDP plus four or five now. And that's certainly not in the price yet. So let me ask you, because positioning is always important when you look at this, how many have left the energy trade, which the evidence statistically will tell you the oil trade,

the natural gas trade, that we've seen the exits and gone into the utility trade? I think there's two or three utility stocks that we all know that are up a lot. But more broadly, I don't think so. I don't think guys are buying that gas. They're not buying range resources on higher net gas or whatever. So I think it's... But are they selling energy names and buying utility names? You know, I don't know. I don't know.

Because a lot of guys I talk to just don't do energy at all. You know, so it's tricky because they don't want to make a commodity price call. So Keith, what other areas of the market are exciting to you or not so much right now? Yeah, well, I'm not overly excited right now. We did upgrade equities at the end of April. We've had about an 8% or 9% move. So we're more in this consolidation camp. I mean, utilities are kind of boring, but they are trading at the lowest relative valuation since about 2009. And we think rates likely come down some more. So I think as a place we're getting yield and some pickup,

I think that's actually an interesting place. I do think on a short-term basis, because of these mega cap stocks pulling back, that equal rate index, which we haven't seen in any broaden out of the trade, but that index has underperformed by about 5% over the last month. So I think you'll see a little bit more reversion there as well. Is that a longer-term place that I want to be? Not necessarily, but to kind of go through the chop if you're a shorter-term trader, that's where I would be looking. And I also, you know, we talked about commodities.

We actually like, you know, we like with some of the political uncertainties starting to heat up. We like areas like gold, which has been consolidating, and also the commodity index itself. Just more broadly, just to kind of hedge some of the risks that we think we'll see, because we have over 40 elections going on this year. And we're going to start seeing things in the U.S. heat up as well on the election front. You guys know that, you know, if yields continue to come down and money may look like it wants to move out of tech, that we're going to have small cap and Russell conversations again. It's only natural to do that. But you make the point repeatedly, I think, still stay large in whatever stocks you like from whatever sectors you prefer to stay large. I think there's like a thing that cross asset really high macro people

do is they say, OK, well, large cap looks expensive versus small cap, so we're recommending to our field to buy small cap. But the devil's in the details. When you actually look at, say, the small cap growth universe, it really is just an inferior universe to the large cap. It has way less profit margin expansion. It has way more companies lose money. It's way lower quality, and we know quality works in growth. And its sector constitution is inferior. So I think small cap growth is an inferior asset class. And if you mess there, then you got to hope that

you're stock picking, which you should have more stock picking opportunities for sure, a little bit more idiosyncratic in small cap, but you've got to make that alphast to offset the underperformance of the asset class. I want to hit one more thing that you alluded to. You sort of threw a question, an open question out as to whether, well, is money going to come out of chips and go into software? And that reminded me of a note you put out within the last week or so, which suggested don't be tempted to buy the dip in some of these software stocks.

You still feel that way? Yeah. My general view of the equity market has been, you know, especially the AI stuff has been we're calling it innocent until proven guilty. Like you want to own these AI semis until you get something that makes you guilty. With software, a lot of the, you know, maybe Adobe last Friday changed the minds on some. I ask you this on a day when Salesforce, by the way, is leading the Dow. Which is up, right. Yeah, it's up. Because, you know, Salesforce and now and Workday had a bad three-month stretch.

It kind of looked like late February, March until a week or two ago. They were down, what, 30% or so, I'd say, on average. I think people are really thinking through software differently. To say I like them because they're cheaper versus their own history and easy to forecast in sales or something seems disingenuous to me. I think that part of the market is really going to be more, despite today's trade, is really going to be more guilty and too proven innocent if they can ever be proven innocent, meaning I need accelerating revenue growth. I'm not going to buy software unless I think the revenue is accelerating.

And these businesses that are exposed to humans, number of headcount, seats like Workday, human capital, I think they're maybe structurally in trouble compared to the software focused on AI. And so we'll see how that fleshes out, but I think that's what we need to understand in the next couple of quarters is their growth rate really going to be the same as you thought. So I'm not as optimistic on that you know human seat count related software so before I came on I did a last check of my momentum indicators if I go outside of AI and technology the strongest momentum in the near term I see right now healthcare Merck Amgen McKesson names that I've added recently in the last

couple of weeks healthcare don't lose sight of it. I think something's building there. All right. I think we'll leave it there. You don't have anything to say about Kohl's, right, today? No. Good? No.

Well, we can talk about the Celtics instead, though, if you want. Oh, yeah. Congrats. That was awesome. Good for you. Awesome guy. All right. Go Celtics.

Yes. All right. Keith, thank you. Joe's going to come back in the market zone, and Adam will talk to you soon. To Pippa Stevens now for a look at the biggest names moving into the close. Pippa. Hey, Scott. Well, Gilead is the top stock in the S&P today and on track for its best day in more than a year. After the company said a late stage trial of its HIV drug showed 100 percent efficacy for preventing the virus in women. The results bringing Gilead one step closer to broadening its HIV division.

And from the S&P's best performer to the worst, that would be Apple supplier Jabil, which is sinking today. The company beat earnings and revenue estimates in its latest report, but pointed to softness in its automotive and transportation markets. That stock down 11.5%. Scott? All right, Pippa, thank you. Back to you in a few.

We're just getting started here up next, looking beyond NVIDIA for AI upside. That is how Aldridge's Ankur Crawford is approaching the tech space right now. She's here at Post9 Next with her best ideas. Well, NASDAQ, you see they're down by 1%. NVIDIA is pulling back from its earlier gains as well. The AI darling has led the trend of late up nearly 200% over the last year. My next guest, though, finding other ways to play the AI boom outside of the Mag 7. Joining me now at Post 9 is Aldra's Ankur Crawford. Welcome back.

I know you're looking at ways outside of the Mag 7, but you own the entire Mag 7, correct? We do. All right. So are you nervous now or how are you feeling about these stocks? I feel fine. I feel great, actually. Well, I mean, you should because the gains have been great. The gains have been great.

But now what? So let's just put it all in perspective. NVIDIA, in the last two months, is up over 68% as of this morning. If it gives up 3%, I mean, that's to be expected. A stock can't keep going up every single day. Is that justified, though? It's amazing to me how easy it just rolls off the tongue. Well, NVIDIA is up 68% in the last couple of years. Oh, it's not easy.

I mean, does that make sense to you though? It does given where the numbers have gone. So if you look at the whispers for NVIDIA, they're approaching $5, which used to be $50 in the split adjusted, so $5 in earnings, which used to be like $3.50. So as the market gets more confidence that they're not over-earning on 2025, the multiple necessarily goes up. So then the question will become, is it over-earning on 2026? Well, we're not going to be able to answer those questions for a while, correct? So is that somewhat of a safety net in this trade for now, that we've got to wait for earnings? We're weeks away, several weeks away from that. So what happens to the stock in the meantime? It can just tread water, keeps going up.

I would like to see a tread water, to be honest, because it's not healthy for a stock to just keep going up. It gets frothy. So I would like to see everything rest. I'd like to see the market rest and pause and let's see what happens through earnings season. I expect earnings season for the MAG7 will be pretty good. I don't think that's the case for everything in the market. And given that our economy is on slightly shakier ground, I think you're going to end up getting consolidation into MAG7 as they put up the numbers. You feel like the economy is

shaky? I do think you're starting to see cracks in the economy. I mean, the consumer isn't great. You see the transports are a little weak, or they have been weak for the last six quarters with negative volume growth. And so it's not all is good. Are you getting less positive than on the market itself because of that? So if you look at the rest of the market, the rest of the market actually hasn't done that well. So I would say I have not been like super bullish on the market itself.

What I have been bullish on is the fact that the secular growth in AI and in technology is going to pull along many of the stocks that the market is composed of. We tease this segment as, you know, yes, the Mag7 seems to be everything, but there are other stocks that can capitalize on this trend that you've talked so positively about that are outside the brightest lights in the market.

Like what? So one of my favorite names over the last couple of years has been TSMC. And, you know, they're the supplier to the supplier who is a supplier to the world so you know I think it's a really interesting name and in part because I think it's one of the most strategic businesses on this planet and you know there's a lot of geopolitical tension and geopolitical noise around it but if if TSM, if Taiwan gets attacked by China, we have bigger issues than owning TSM. So you told our production team

that you watched the interview that we did yesterday with Keith Meister and that you agreed with a lot of what he said. Specifically, what stuck out to you that you said, you know what, I agree with that point of view because he addressed the market, suggested that rate cuts would not be good for stocks because they would happen for the wrong reason. He's been buying, you know, the energy transition type trades, utilities.

He also spoke about Nvidia. So what specifically caught your eye? I feel like he took a lot of the words out of my mouth in that, you know, the Fed can't cut. So it's higher for longer. I've been saying that for quite a few years. He talked about NVIDIA and making sure they're not over-earning. And he had talked about the power transition trade and owning Vertiv.

And I think that we are thinking about things in a lot of the same ways, in that you have to look beyond. Like, AI right now is affecting the chip sector, but what goes beyond that? You think utilities, for example, are a legitimate and not too late way to play that trade? So I will say we own a utility called Constellation Energy. It's a nuclear utility. I am a nuclear bull. And in part because we need clean energy and we need nuclear to be our baseload power. And so everything surrounding nuclear, I think, will benefit over the next decade, whether that's a company like Cameco with uranium or Constellation Energy that gets to price their capacity at a

different level as we move forward. So I don't know about all of the utilities because I think they're all very nuanced. But at least for some of the nuclear assets, I'm pretty bullish. Quickly on the point that he made that you mentioned at the top about the Fed can't cut, right? His idea on that was you don't want them to cut. Rate cuts are going to be bad because if they do that, it's going to because going to be because the economy is kind of rolled over. And that's going to be bad for stocks. So be careful what you wish for. Kind of. Right. And my view is they probably cut in Q1 when we get the softest data. Oh, Q1. So you don't even think we're going to get a cut this year?

No, I don't think we get a cut this year. I hope we don't get a cut this year. And the markets going to be all right? I think the markets will be fine. Make that the last word. It's good to see you. Ankur Crawford here, Post 9. Coming up, the valuation situation.

Ed Yardeni, he's back with us. He's going to size up this latest melt-up in stocks. Why he is expecting the rally to finally broaden out beyond big tech. He makes his case when we return on The Bell. We're back. NASDAQ pulling back this afternoon. Did hit an all-time high yet again earlier in the session. The index trading around its highest valuation now since mid-2021. Let's bring in Ed Yardeni. He's from Yardeni Research, obviously, whether this rally's gotten overextended.

Nice to see you. Welcome back. Thank you very much, Scott. I mean, you do point out that the tech sector at large has a valuation at near 31 times. Correct. What do I take from that in terms of a strategy or how I should be thinking about this market in the here and now? Well, look, I think there are clear signs that we are in the early phase of a melt up. And one of the signs is that I was expected to see the S&P 500 at 5,400

by year end. And here we are at 5,500. It's basically mid-year. So I feel like the bull market has kind of left the hoof marks all over me because it's been so powerful. Same thing happened to me last year. I thought we'd get to 4,600 by the middle of the year. We got there by the end of the year. We got there by the middle of the year. I would say that this is a melt-up that is both earnings-led and evaluation-led. If it was just all valuation-led, I'd be very concerned about too much speculative excesses. But the reality is these tech stocks have moved on better than expected earnings, and lots of news that suggests that the AI revolution really is boosting their earnings. Sure, but there are valid questions

that have been asked today, yesterday and in days prior for NVIDIA, for example, whether it's over-earning. You've heard those words used. I find it interesting that you said we are in the early phases. This looks like the early phase of a melt-up. Some would look at the activity in NVIDIA and say, well, that doesn't feel like the early phase of a melt-up. Some would look at the activity in NVIDIA and say, well, that doesn't feel like the early phase of a melt-up. This feels like we're in the later innings. We're about to bring in the closer. Well, I think the comparisons that are being made are to the late 1990s, and we saw Cisco go straight up and then straight down. Back in those days, there were a lot more excesses than there are today. Back in the late 1990s, companies that made telecom equipment, many of them financed their

buyers. In other words, there was seller financing, which is a very dangerous way to run a business. There's also a lot of dot-coms that got a first round of financing, bought a lot of equipment for the internet, and then didn't get the second round of business. There's also a lot of dot-coms that got a first round of financing, bought a lot of equipment for the internet, and then didn't get the second round of financing. This time around, NVIDIA is getting purchases from very, very rich technology companies that can certainly afford to buy its chips. Look, I think the GPU chip is basically a fast computer. And I think that while everybody's been trying to figure out what artificial intelligence is all about, I think it's really big data on speed and on steroids. And I think the whole idea that we're going to be

moving and having some quantum computers, I think GPUs are kind of the quantum computers. So we've got a technology here that we just saw Accenture, for example, report that some of its earnings were boosted by using AI. I know everybody's going to claim that, though, Ed, you know that. But their stock is up on legitimate news. I mean, they didn't just make that up.

No, I get you. But, I mean, a lot of stocks are up over a significant period of time because, you know, if you've mentioned AI, they're going to start saying that hamburgers are being

made more efficient because we utilize AI and that's helping the French fries be crispier. Hold on, Scott. You've got some real companies announcing some solid information. I mean, dell is going to be providing uh some ai related technologies to

elon musk and elon musk is going to put a lot of these technologies together to build a supercomputer i know i mean he he has more often than not delivered on what he said he's going to do and i think he basically views gpus as supercomputers when they're all put together. And I agree with that. No, look, I'm not suggesting that there aren't legitimate gains for these stocks. But at some point, I think it's OK to sort of lean back and say, are all of the gains that we've seen justified? That's all. We also haven't really talked that much

of late about rate cuts. I feel like the market's kind of moved on from the daily obsession with that concept, because I think we figure we're in a decent enough place where we don't really need them. We'd like them and we think we're going to get them, but it's not essential at this moment. I have referenced my conversation several times already with Keith Meister of Corvex Management, who weighed in on the idea of what rate cuts would mean to the stock market. I want you to listen and then react on the other side, please. Absolutely. I think rate cuts will actually be a negative for the market. You do? Yeah. I mean, sure. Like, why would we be cutting rates? We'd be cutting rates because

things are rolling over. Right. So if we can stay with short term rates at five and a quarter, five and a half longer term rates at four and a quarter and full employment, I think that's a healthy backdrop. What do you make of those comments? Well, look, the economy has demonstrated that it's very resilient. I think interest rates have normalized. I think there's no particular reason why the Fed has to rush to lower interest rates. But if they lower it, it'll be because inflation has, in fact, come down to their 2% target, which I think they will achieve before the end of the year.

And it'll also be because they see some signs that the economy is slowing. We just saw some signs, for example, in the housing market that it's continuing to experience what I've been calling a rolling recession. But if they cut interest rates, the stock market is going to go higher. It's not going to go lower. The economy is not in bad shape. It doesn't really need interest rates. And if it gets them, it'll be because the Fed's trying to avert a recession

and probably will succeed. Scott, you've got to give the Fed credit here. The past two years, they've done a pretty good job. Look, many people that we've spoken with give the Fed a lot of credit here, including Meister himself. I think people fairly criticize the delay in starting to fight inflation. I think that's fair. But they caught up.

Sure, but there's also the risk, and the chair himself has alluded to the two sided risks of waiting too long. It's there's no guarantee that they're going to cut because inflation is tamed completely. They could be patient too long and then cause a problem. And I think part of the point that that's being made is that they could be late to react like they were late to react in the front. Yeah. Well, look, I think that, as you know, Scott, 2022, 2023, we were among the few who thought that there was not going to be a recession after all. No, no hard landing without soft landing. And we realized there was no landing at

all. And I think a lot of the diehard hard landers are now saying that if the Fed doesn't lower interest rates, oh, my gosh, we're going to have a terrible recession. It just doesn't make any sense to me. The economy is just way too strong. A lot of the interest rates, it's less interest rate sensitive. But I will say this, if the economy starts rolling over, I think the Fed will respond pretty quickly. And I think the Fed will respond pretty quickly. And I think the economy will respond pretty quickly to that, as will the stock market. I mean, we've got a huge wealth effect that's occurred in the stock market. If it starts lowering interest rates, the bond market is going to be another source of tremendous positive wealth effect.

So I'm not terribly worried about the economy rolling over in a fashion that just leads to a recession because, oh, my gosh, the Fed was too late. Ed, you make these conversations fun. I always look forward to them. We'll see you again soon. That's Ed Yardeni, Yardeni Research. Up next, we're tracking the biggest movers into the close. Pippa Stevens once again with that. Pippa, what do you say? Hey, Scott. Well, the skies are looking kind of cloudy for one sector. We've got the details coming up next. We're less than 15 from the close. Back to Pippa Stevens now for a look at the stocks that she is watching.

Pippa? Hey, Scott. Solar stocks are under pressure after Germany-based SMA Solar cut its revenue guidance. They make the same products as Enphase and SolarEdge, which are now tumbling in sympathy. JP Morgan cutting its targets on the two stocks, noting that SolarEdge has the larger presence in Europe. And Penn Entertainment popping after Boyd Gaming reportedly approached the company

with interest in an acquisition, according to Reuters' citing sources. The potential merger would be the biggest in the space since 2020. Now, Boyd is the smaller of the two and would need to win over Disney, which has a partnership with Penn through ESPN. Now, we did reach out to both companies. You see their Penn up 7%. Scott? Yeah, Pippa, interesting.

A lot of talk lately about Penn over the last few weeks. Thank you for that, Pippa Stevens. Still ahead, concentration concerns. One major Wall Street firm further boosting the tech weighting in their model portfolios does raise the question if individual investors are getting overexposed. Maybe they want to be more exposed. We'll break it down next. Coming up next, more on this late-day move in the markets, the S&P trying for another record-closing high.

We're going to run you through these critical final minutes inside the Market Zone, and we'll do it next. Into the Market Zone we go. CNBC Senior Markets Commentator Mike Santoli and Virtus Investments Joe Terranova, both here to break down these crucial final moments of the trading day. Mike, I'll get your take here on what we've seen today. Interesting reversal. Nice move in the Dow.

What's your take? Quick whipsaw. Definitely an unwind of what we've seen as being the extreme. So what we know is that we've got near record levels of divergence within the indexes. We've had this real upside stampede of kind of leverage trade upon leverage trade, and the winners, it's trying to relieve those extremes, the market is, through rotation rather than just everything goes down. Because that's been one of the questions out there.

We haven't settled it, but for now, it's been this kind of move from the stuff that got super stretched and overheated into things that hadn't worked. This whole, like, energy up 2% and tech down 1%. But it wasn't just tech. Downside reversal sharply in Lilly, in CMG, in all the things that have been bulletproof recently. So we also know we tagged 5500. Strategists have been tripping over themselves to raise their targets. And for whether it's real or not, the week after June options expiration, which is next week, has been pretty stormy. So I wonder if people are just kind of saying maybe enough for now on the stuff that's worked. A story today

that caught my eye that I want both of your takes on, because I think you'll find it interesting too, is that Morgan Stanley Wealth Management has boosted the tech holdings in their model portfolio, okay? Pre-designed portfolios for people who don't know how these work, right? Unless you are a uber high net worth person who is getting super specialized and personalized portfolio construction, many of our viewers who are clients of whatever firm are getting put in a so-called model portfolio. The fact that the tech holdings in the NVIDIAs and Alphabets and Broadcoms are being boosted now, what is your takeaway on this? Two things.

One, this is a growth portfolio by definition. Therefore, what you're working with is the growth universe. To me, what it says is there is a scarcity of fundamental conviction in reliable growth stories. And that's kind of where we've been for a little while. And that's why you have the divergences. So I'm sure they have to have like the sell side analyst part of the house kind of endorsing these stocks. And it feeds into a basket of things that we can we can buy. It does seem as if you're kind of raising your exposure to what's already worked. And that's the question is whether you're sacrificing diversification.

That's why I bring it up. Whether, you know, the point was made by by Josh on halftime,, of, look, this is what the customers want. They're calling up their advisors and saying, hey, why don't we have more NVIDIA? Why don't we have more exposure to these types of names? I'm tired of pushing my nose up to the window looking into this market saying, where's my turn? Scott, this is momentum in its purest form. I had a financial advisor say to me several weeks back, your ETF provides me the solution to the phone calls I get from my clients who say, hey, I heard about that stock on CNBC. Why don't I own it? Josh is right. That's exactly what this is. But this

is chasing the momentum in the market. It's growth. It's 49 percent exposure to technology, 12 percent exposure to communication services. Tell me, is there any other area of the market where you get that type of growth and momentum? The question is, people raise, like you said, Mike, or alluded to it at the very least, of this type of stuff doesn't necessarily happen at the beginning. It happens once these moves have taken place, and then the momentum, to Joe's point, takes hold, and then the phone calls pick up from the clients. We have a market, though, that is somewhat unusual in that if you want quality, I keep saying this, if you want quality, if you want earnings momentum, if you want price

momentum, if you want good balance sheets, high returns on capital, all those things, they're getting you to the same names. That gives you mega cap over small cap. It gives you growth over value. It gives you tech over most everything else. You have to decide on a different set of variables if you want to avoid big tech overexposure, which means I want to go value. I want to go contrarian. I want to go low volatility or dividend yield.

By the way, let's make it clear. This is not a criticism of Morgan Stanley. Sure, no. Not at all. This is a broader conversation. That's how the process plays out. About model portfolios in general, how things happen along the way after big moves or in the midst of big moves.

Who knows if it's after big moves? Who knows where we are in the cycle of an Nvidia move, for example? No, it's a reflection of where we are today. And you almost have to embrace the concentration if you want the exposure to the growth, to the quality, to the momentum itself, because that's the only way that you're going to be able to capture the full performance. If you go equal weighted, you're going to underperform.

By the way, the other, I think, point that's worth making, and I know we don't have hardly any time, is just how much people want to, people who manage different kinds of funds, want to be in these model portfolios because of the immediate exposure that you get to people. You throw your AUM that way. And you want to model. And they trade around it.

You know, it's not just to set it and forget it. So we're getting some kind of filter on. So it's tough, guys. We'll be red on the S&P. That's that, too. But that's going to go out near 300. In to OSC with Morgan and John.