Closing Bell - Countdown to the Crucial Jobs Report 7/6/23

Episode Date: July 6, 2023

Will tomorrow’s jobs report seal the fate for more Fed hikes this year? And what might that mean for markets? Tony Pasquariello of Goldman Sachs gives his take. Plus, Big Technology’s Alex Kantrowitz breaks down what’s at stake as Meta’s threads launches to take on Twitter. And, BTIG’s Jonathan Krinsky is flagging one sector that has underperformed this year that he says could bounce back in a big way. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with stocks falling, bond yields jumping, investors worried about more rate hikes after strong ADP jobs and ISM services data this morning, and some hawkish Fed speak. Here is your scorecard with 60 minutes left to go in the session. You see the Dow down just about 1%, a good deal up off the lows. The S&P 500 has almost halved its maximum drop for the day. It's down almost three quarters of one percent. The Russell 2000, again, the underperformer, a little bit of traction in the Nasdaq, also halved its losses from earlier. The two year Treasury yield did hit a 16 year high earlier, although the yield has moderated throughout the day.

It was up at 510, now down toward 5%. That all brings us to our talk of the tape and whether tomorrow's jobs report will seal the fate for more Fed rate hikes this year and what it all might mean for markets. Let's ask Tony Pasquarello of Goldman Sachs. He joins me here at Post 9. Tony, good to see you. Thanks, Mike. Good to be here. So stock market unable to fully ignore or set aside this moving yield. It's coming with better economic numbers.

And I guess the story for the year so far is the economy has held up better than expected. Lots of pessimism has kind of been burned off as stocks went higher. Where does that leave us in your mind right now? You nailed it. A very strong run of data punctuated by a blowout ADP number today. And I think it introduces this question into the market. Can stocks maintain this almost immunity that we've enjoyed this year, as distinct from last year, to higher interest rates? I think it's mostly the move higher in rates has mostly come from a good place. Strong data. We're contemplating might the Fed sneak in 25 basis points here or there, September, November? Very different from the regime last year, 5% in a straight line, including four blasts of 75 basis points.

I also think kind of an interesting reveal today, mega cap tech stocks down less than 1%, our basket of non-profitable tech stocks down 4%. And so I do think there's also this kind of question of what is long duration, what is not. I think we would argue the very top of the index is not necessarily long duration, making the money today, making the margins today. Yeah. So the very top mega cap growth stocks that have been relatively bulletproof, it seems as if it's just the reliability of the profit streams that the market is paying up for right here. You do see some wear and tear, though, underneath things like banks down another couple of percent. Some of the more cyclical groups, we mentioned small caps. So does it feel

as if it's a tenuous situation or is it just kind of routine pullback? We had a good run. I think about it this way. If we go back two months to the beginning of May, the U.S. two-year note yields up 100 basis points since then. NASDAQ's up 15 percent. So again, that's, I think, kind of the correlation shift that we've enjoyed this year, again, in contrast to last year. I think if we look at U.S. mega cap tech companies, it's the story we know. It's the best balance sheets in the world, still generating enormous free cash flow, returning that free cash flow. And then you introduced, of course, in the past couple of months, the right tail and the form of AI. So a big reveal coming through the sequence of earnings,

Q2 earnings in the next three or four weeks. So we're going to learn a lot. But I'd say on net, for anyone who's been around to remember the late 90s, which you and I both do, when the Nasdaq freight trains are running full steam ahead, you really don't want to step in front of them too early. No, exactly. I mean, especially when you consider and you'd never want to say that this is an underappreciated part of the market or people don't get all that you just laid out there, except a lot of these stocks aren't back to where they were a year and a half ago. And the overall NASDAQ 100 is not as expensive even as it was a year and a half ago on earnings. So I guess you have to look at both sides there. I wonder how it feels to you in terms of the investor's posture at this point, because you

were able to say for much of this year, look, the consensus is very skeptical, underinvested, doesn't own enough in the way of equity exposure. Has that been normalized at this point? It has. So if we were having this conversation just say two months ago, I would say the professional trading community who we know best have fairly low levels of exposure. I think as we sit here today, that has changed. I think people have more skin in the game today. We can see that in our prime brokerage data. We can see that in CFTC data on S&P futures.

We can see that in the options market, call versus put skew. We can see that in sentiment measures. I also think the retail army, if you will, is a little bit more engaged today versus where they were earlier in the year. Our basket of meme stocks is up over 60% on the year. So I do think people are more engaged. If I were to try to put goalposts on, say, a down 10 to up 10 scale, at the peak of the market in 2021, that was a plus 10. Coming into this year, after a very long year last year, of course, minus 5. I put current positioning at a plus 5.

OK. So sort of halfway between neutral and way over our skis, I guess, on that level. How do things look in terms of the setup, just into tomorrow's number, in terms of does this market crave more confirmation that the economy is strong as long as this inflation is still in place, or are we going to be sensitive to every wiggle in yields? I think there's an element of turbulence that you felt today so when two's breached 5% when ten year note yields breached 4% again

you felt a pinch in the market you hadn't felt in a long time. I still think in the end the biggest story of the year and part of the reason stocks have performed so well this year. Is the durability of the U. S. economy and I think that story

starts and ends with the U. S. labor market we've added 1.6 million jobs. You know, if ADP is mostly correct, that number will be 2 million after tomorrow. Nominal GDP growth in the first half of this year, north of five, call it five and a half percent. So that's been a bulwark for stocks all year, alongside of course, the mega cap tech stocks

that we mentioned. I think in the end, if you ask the market, would you prefer a stronger labor market or a weaker labor market? I think it's shown in its hand, it would market, would you prefer a stronger labor market or a weaker labor market? I think it's shown in its hand it would gladly take medium term a stronger labor market. Does it feel to you in terms of the way clients are thinking about things that the soft landing scenario or the look, there's a recession somewhere out there, but we don't have to worry about it yet. That position has now been fully embraced. Well, I think if we use the interest rate strip as a signal,

it's just pushed it further out. In other words, we've taken back all the implied cuts that were in the curve for later this year. We've taken actually all the implied cuts for the first half of next year. So the bond market is basically saying the Fed's not doing anything probably until the middle of next year, and then it may need to cut 100 in the back end of 2024. I think the equity markets essentially mirrored that as well.

Meaning that that's where the economic downturn risk sits somewhere out in the middle of next year. That's correct. Gotcha. That's correct. And then in terms of, I mean, like seasonals are only friendly for another couple of weeks. I'm just sort of wondering if we're at a point here where, you know, the consensus seemed to be week first half of 23, strengthen the second half if we're going to have to work off a little bit of what we built up in the first half. So it has been a year where very little has gone as expected, full of surprises. I don't know many

people expected NASDAQ to be off to its best start on record. I certainly didn't. And again, part of that story has been thanks to the labor market and part of it's been to the very top of the index, eye-popping returns of mega cap tech. I think if we kind of run the forward-looking analysis today with consideration for economic growth, earnings growth, valuation, and money flow, I think the market's taking a lot of credit for the good news that we have in hand. And so could we have a period of consolidation over the course of summer, setting up for maybe a year-end rally? That would be the customary pattern, and I think that kind of fits with the way we're looking at things. Tony, great to catch up with you. Thanks so much. Appreciate the time.

All right, let's send it over to Steve Leisman for more on today's data and tomorrow's job report. Steve, how are you doing? Hey, Mike, it was a double-take number for me. We had the strong jobs and service sector data together with Hawkers Fed Talk, prompting the street to rethink the outlook for rate hikes, pushing down stocks, and obviously raising bond yields, as you've been talking about. This was the double take number. This ADP private sector, you see the estimate was 220, came in at more than double the estimate, confirming the high frequency data that we've been reporting on this week suggests that who knows what the number is going to be.

But a strong jobs report looks to be on tap. The service sector and educational services, they drove the hiring inside that number, as well as leisure and hospitality. Jobless claims were higher, but not much increase so far in the continuing claims number remaining under 1.8. That suggests those who lose work and apply for claims, they're pretty quickly finding work again. And the ISM service index beating expectations. More importantly, that employment index inside it also showing growth as well. All of this raising questions. Is that 240 number that the Wall Street estimate average for the jobs report tomorrow?

Could it be on the weak side? And should the market be thinking more like the Fed does about two more hikes this year? Well, they are thinking a little bit more about it today, July at 89%. That's for the first hike. And then September, that number is probably 10 points higher, as is the November probability for the second hike. Not quite at 50 percent, but they're thinking hard about whether or not the Fed comes in with a second hike this year. Meanwhile, New Dallas Fed President Lori Logan, she made some hawkish remarks this morning, saying the Fed ought to hike again, dismissing factors like the lagged effects of prior rate hikes, tightening bank credit standards. Some thought that might have stayed the Fed's hands.

Doesn't look to be the case, at least for Lori Logan, a voter this year. We're going to have Austin Goolsbee on, Chicago Fed President, exclusively tomorrow at 1030, or sorry, 1130. And we're going to put all of these questions to him, Mr. Mike. All right, Steve. Now, what can we say at this point about the market sense? Now, coming into this period, the market had the sense of, hey, you know, we can breathe a little bit easier about the way the Fed views the labor market. They don't seem to be really targeting some big jump in unemployment to get the job done on inflation. Does it change right here with this run of hot numbers? We got the jolts data today. I guess you could read that sort of either direction. But I guess what are the stakes for tomorrow's number in terms of causing a rethink for the

whole path for the Fed? Well, we just had a discussion on the 2.30 CNBC news call about what a Goldilocks number is and what the opposite of Goldilocks is. So let me lay out Goldilocks, a number that is somewhere in the 200s. That'd be a good number, plus or minus a tenth or two on the unemployment rate. The workweek may be lengthening out a little bit, and average hourly wages being in the zero, three, or lower range. That would be fine. And I think, Mike, and you tell me if I'm wrong about this, the market is more or less okay with two more hikes. I think that's the upper end of tolerance for the current level of the market. It's when we start talking about the possibility of, say, a third hike or a fourth hike getting up into the sixes that's

where the market might really be concerned obviously the five percent yield on the two year is a challenge for equities uh because you can put your money there for two years earn five percent with little risk uh that's an increasing challenge to it so the other side of that is if we hit that 400 number a big boost in wages, a decline in participation rate. Those are the sorts of things that would you write in your question. And I like the question because it says strong jobs is not enough to really concern the Fed. The Fed has no measure or metric when it comes to what it wants in jobs. What it wants is inflation to come down. It believes that a weaker or a less tight job market is a means to that end,

but it itself is not the end. Watch for, in the jobs report, the impact or the potential impact on inflation, not the level itself. Yeah, I think that's the correct read, how the market is probably okay at this point with two more hikes. After all, it's small moves spread apart. We're talking about 50 basis points now in Halloween, basically. So maybe that's palatable.

Any more might be a little tougher, Steve. Thanks very much. We'll certainly talk to you tomorrow. Let's bring in Ayako Yashioca of Wealth Enhancement Group, as well as Peter Cicchini of Exonic to talk more about this. Aya, how would you feel about the way the market is postured ahead of tomorrow's number? Now, on the one hand, the market maybe is looking for an excuse to pull back on almost anything. On the other, the yields have gotten up into the zone that has become uncomfortable for stocks a couple of times in the last couple of years. Yes. Hi, Mike. Thanks again for having me. And, you know, we've talked about this a couple of

times in that, you know, the current interest rate environment yields going higher, valuations being relatively elevated, at least in the near term. And then, you know, economic data that's been relatively resilient. But, you know, expectations are for a continued slowdown, maybe at a pace that's not as bad as everybody initially thought. But that combination isn't typically the combination that pushes markets higher. So we expect at least a little bit of a pullback, especially as we head into earnings season. You know, Peter, that's certainly very true that that combination is not typically what would be a bullish formula for stocks. But there's been a lot that is atypical, isn't there, about this current cycle?

Or at least it's an elongated process. I know you've been kind of looking for the economy to weaken. Here we are, I think, trying to contend with data that say, OK, we might be heating up again on the economy. What's your read? Yeah, you know, I think June numbers were strong. That ADP print, if it's not revised, was unequivocally strong. Payrolls will obviously tell more of a story tomorrow. I do think the trend, though, has been for weaker. PMIs have been been weakening. ISM has been weakening. The trend has clearly been weaker there. Initial claims, which bottomed out around 180,000, hit about 265.

They were a little bit stronger this morning, meaning fewer claims. But I think the trend is a little bit weaker. People get carried away. We have recency bias relative to the more recent prints. But at the end of the day, I think, you know, this long and variable lag that Jerome Powell even admitted is even longer and more variable than normal will eventually manifest. We had an unprecedented stimulus coming into this. And I believe that stimulus and the pent up savings have prolonged the cycle a little bit. You know, defaults are rising, Mike, especially in weaker middle market companies. We can see all the telltale signs. And never have we not had a recession with the yield curve this inverted and with lending standards this tight going back to 1964. If you boil that all down, does that mean that, you know, this is a huge buying opportunity for treasuries because of the

backup in yields we've seen? Yeah, you know, we are contemplating that, right? This might be the time to receive in swaps. The instance in which it would not be, Mike, I think would be if the Fed were to, quote unquote, lose control. We don't think that that's going to be the case. But yes, over the next six months or so, there will be a point in time where becoming bullish of the long end will make sense. If, in fact, our economic forecasts are anywhere near correct. And on a practical level, what areas of the market would you feel comfortable with in terms of fresh money, putting it in there,

given the environment doesn't necessarily to you look like it's it's a necessarily attractive combination. Sure so as Peter said we like fixed income as well but if you want to stick to the equity markets we do see some pockets of value you know health care hasn't done as well this year as much as tech has and we think industrials also offer some good value. And then lastly, small caps have really sort of been left for dead. And the differential between small cap valuations and large cap valuations has widened to an area that we feel that small caps could be attractive going forward. They're much more sensitive to sort of the higher interest rates and

economic sensitivity is high. But we think that over the long term, they can sort of the higher interest rates and, you know, economic sensitivity is high. But we think that over the long term, they can sort of come back to some sort of outperformance relative to large caps. Peter, you mentioned defaults have been ticking higher in some of the more stressed areas in the corporate borrowing area. And I guess, you know, you would look at the benchmarks and say credit markets have been pretty firm. The spreads have not really blown out. That's been part of the bull case. Is there an explanation for that to have or is it, again, just a matter of, you know, time has to work its way through? Yeah, look, you know, we've been a little bit, you know, off on the timing. This has taken, you know, kind of three to six months longer than I thought it would.

But there's always that sort of lull where spreads widen and then they stabilize. And what it really takes is a pickup in defaults to widen spreads out to their recession-wise of whatever, if we talk about CDX high yield 800 to 1,000 basis points. And that's pretty typical. I'm not saying anything that's atypical of a cycle that happens every 10 to 12 years. It's, again, a much longer cycle period this time around. So I do think that the credit markets are painting a mixed picture because clearly spreads are not tight in high yield, but they're also not quite wide. We would expect, again, capitulation to come around 1,000 basis points or so on high yield spreads. And that would probably correspond to default rates somewhere between eight and 10 percent. And that's again, that's not atypical.

And it's just taking a little bit longer because of the unprecedented stimulus that has solidified both consumer and corporate balance sheets. If you're a little bit cautious about exactly what the markets are offering you right here, some of that view is reflected in the Fed minutes that were released yesterday. This idea that there are vulnerabilities in the economy. Do you think the Fed is either in the process of going too far with rate hikes or already has or or do they have to keep, you know, keep cinching tighter while inflation remains here? I think they have to keep inching a little bit more. You know, fighting inflation is their number one goal. And when the labor market continues to stay tight, if wage inflation

continues to contribute to the overall inflation picture, they're going to have to continue to raise rates. All right. Well, they seem on course to do that at least once more. Aya Peter, thanks very much. Good to speak with you today. Let's get to our Twitter question of the day. We want to know, what do investors want to see in tomorrow's payroll number? Want it to beat expectations, a downside surprise, or should jobs be in line with estimates to satisfy the markets? Head to at CNBC closing bell on Twitter to vote.

We'll share the results later in the hour. Head to at CNBC closing bell on Twitter to vote. We'll share the results later in the hour. We're just getting started. Up next, why one top technician says one of the worst performing sectors could be set up to outperform this year. He will make his case. And later, a can't miss interview. Amazon CEO Andy Jassy on exclusively on overtime. That's 4 p.m. Eastern time. We are live from the New York Stock Exchange, Dow down 354. You're watching Closing Bell on CNBC. Let's go to check on some top stocks to watch as we head into the close. Christina Partsenevelos is here with that. Hey, Christina. Hi, Mike. Well, shares of buy now, pay later provider Affirm are plunging almost about 14% on a downgrade from Piper Sandler. Actually, that's a little bit better, about 12.5%.

But what the analysts are saying is that the loans on Affirm's balance sheet continue to grow and they expect operating margins to be pressured by high interest rates. But they do maintain their price target of $11 a share, which is still lower than the trading price right now of $13. Green goddess. That's my go-to sweet green salad. Shares are jumping right now, not because I like the salad, but they're jumping about 15% after Bank of America upgraded the stock to buy, citing growing foot traffic. Even with the slower than expected return to the office, the analyst says the salad chain's plans to automate operations could help with margins. Keep in mind, it opened its first robotic kitchen this past May in Illinois.

Mike. Christina, thank you. Thanks. Metashare's, meantime, pulling back slightly after getting a boost yesterday following the launch of its new Twitter rival called Threads. The app, which is designed for sharing real-time text updates up to 500 characters long, has already racked up over 30 million signups. That's according to Meta CEO Mark Zuckerberg. Here to discuss what it all means for the broader social space is Alex Kantrowitz. He's also a CNBC contributor. Alex, not every day, I guess, you get a big new entrant in this area. What's your, I guess, top-down take on

what Meta is after here in terms of the size of the opportunity? I mean, Meta is huge. It's $125 billion in revenue. This is not necessarily a make-or-break business opportunity, but what is it doing in terms of, you know, grabbing a new piece of the audience? Absolutely right. There was always hesitance within Meta to try to go after the Twitter space because it just seemed so small. Twitter's best year was 2021. It made $5 billion. Meta made over $100 billion last year. So you would say, OK, this is relatively small. I think what they're saying is with relatively little extra work, they could end up making a good deal of money because the thing with Twitter is it always struggled to monetize.

It didn't have the ad system, didn't have the optimization, didn't have the targeting that Meta does. Meta is making about four times the amount per user than Snapchat, one of its clearest competitors. So if we could apply that magic onto a similar product that looks like Twitter and acts like Twitter, you know, maybe you're looking at $20 billion of incremental revenue a year if it goes according to plan. I suppose that if they can somehow, if there's nothing about the text-based sharing of news and views, which is what Twitter is, that limits the revenue potential of the ad market. I mean, I guess that's the question, isn't it?

Is it the structure and the format of a Twitter-like product, or is it just Twitter didn't do it right? I think you do take a little ding when you're in the news business because you're going to have advertisers that are going to be like, I'd much rather be around fashion, I'd much rather be around shopping on Instagram and not around people yelling about the news on a place like Twitter. However, I think that's just a small percentage of the ding here. I think advertisers want to be on a place where ads work. I think Meta has shown that their ads can work regardless of context because they know the users so well. And if they can take that system and put it on to this new product, onto Threads, you could see advertisers go there. Maybe it's a little bit less than the money they're making on Instagram, but I don't think

that much less. Do you think a billion users is actually in sight as Zuckerberg has floated? So I don't think that's going to happen, but I'll tell you the path there. One of the interesting things I'm seeing with Threads is that what they've done is they've basically taken a Reels-like algorithm and applied it on a Twitter-like interface. What that means is there's no following tab there. It's just for you. It's just stuff the algorithm suggests. And the people you want to follow is just a signal.

So what that does is it expands the universe of good posts you're going to see, similar to the way that TikTok does that in a way that Facebook couldn't. So they're transitioning the algorithm. They're making it look and work a little bit more like TikTok. If they get that right, you could see a much bigger user base than Twitter because the toughest thing with Twitter was building the follow graph, building the people that you want to interact with. If they can solve that, they have a really good path ahead.

From a broader perspective, I just wonder what it all suggests, everything going on in this area, just about the way it's all fragmenting out. You know, TikTok took a big audience. We don't know if it was zero-sum game, but obviously it takes attention. And so you're seeing right now, it seems to be, you know, draining engagement from someplace, threads would be. And what does it mean either for advertisers or for overall focus on social networks as a place where people are spending their time. Great point. So the first thing I'll say is that meta right now is locked in the battle of its life with TikTok, right? It's struggled, it's marshaled all of its forces to try to win the battle for

public content with TikTok. That means the introduction of Reels and putting it prominently in products like Instagram, right? So this might actually divert some focus that it needed to win this battle against TikTok. Now you think about the actual Twitter-like product. You have Twitter. You have Blue Sky. You have Mastodon. You have Threads now. You have Notes from Substack.

It's crazy. There's so many different products. And what that might do is basically, you know, what was nice about centralization, what was nice about Twitter is if news was breaking, if something was happening, it was there. Now, if you have five, six, seven different services, all of them use utility, and there's a chance they might just dissolve and not be as important as they have been in the past. Yeah, I guess you don't necessarily want to be surfing in real time from one to the other. Confusing enough, thanks for breaking it down for us, Alex.

Appreciate it. Thank you. All right. Up next, a real estate reversal. BTIG's Jonathan Korinsky breaking down a big shift in the charts that he's looking at and how it could impact the sector in a major way. And later, getting bullish on Microsoft. That stuck up more than 40% this year.

And now one top Wall Street analyst upping his price target on the tech giant. He'll join us and make his bull case that is ahead. Closing bell, we'll be right back. Greets have been the worst performing sector over the past year, with the group falling nearly 8%. But our next guest is seeing a turn in the charts and says real estate could be setting up to outperform. Joining us now is BTIG's Jonathan Krinsky. Jonathan, you know, obviously a bit contrarian. We have yields going up. The very well understood challenges to commercial real estate down the road. What are you seeing technically that gives you a sense that maybe there's a trend change here?

Yeah. So as you mentioned, Mike, worst performing sector, not only over the last 12, but the last 18 months. So just, you know, pretty, pretty poor performance there. Sentiment probably equally as poor in the space. You know, I think it's important to remember, first of all, how much sentiment can matter. So if you go back six months ago, where was sentiment on the tech sector? It was pretty negative, right? So I think sentiment's the first backdrop. But the second backdrop is the slowly but surely turning of the trend. And we're starting to break that 18-month downtrend in the

REIT index. You're getting back above all the moving averages. The 200-day is starting to flatten out. So I think from a trend perspective, things are improving a bit. Sentiment is certainly there. And then some of the names also have extremely high short interest, in some cases, 20%, 30% of the float. So it doesn't take much to turn those names when you get any little bit of positive news. You know, and then the last point is, you know, you mentioned I think the problems in commercial real estate are well known, but parts of the real market like apartments, for instance, are actually doing well today. I think with the, you know, the news high of mortgage rates, maybe that's pushing people

again into the rental market. So a name like Avalon Bay is actually up 1% today. Yeah, good point. It's obviously not a monolithic sector. Is this a market in general where you feel as if it pays to look for a chance to play laggards, to kind of look for catch-up opportunities, given that it's been such a bifurcated market, or is this an isolated opportunity? I think to some extent, you know, our call into the third quarter has been looking for a bit of mean reversion. I think, you know, we're expecting and continue to expect some downside reversion, you know, in some of the growthier names, parts of the market. You know, I think it's been well documented that the NASDAQ has not had a down July since 2007. And we're actually fading that seasonality in the NASDAQ.

I think that's a part of the market that people are pretty much fully all aboard with. So I think there's bits and parts that you can fade on the edges. But I don't think you want to be dumpster diving across the board. But I think REITs are an opportunity where, you know, sentiments washed out, positionings washed out. And they do have a bit of a defensive characteristic in times. I know there's the interest rate part of it, but, you know, they also can act as a defensive sector. So we kind of like that here. Sure. More specifically on today's action, it was pretty comprehensive downside flush in the morning. It's kind of gotten some traction along the way.

What's your read on how the markets behave today, how it fits into the general field position? Yeah, I mean, we've, last time I checked, we were about a 90% downside volume on the NYC. If that holds, I think it would be the first 90% downside day since March. So, you know, definitely a day to take note that, you know, they did bounce them off the morning lows, which, you know, we continue to see that dip buying mentality. It does take a little while to kind of to break that, I would say. Obviously, interest rates are a factor with, you know, the psychological levels you mentioned, you know, the two-year above 5%, the 10-year above 4%. So, you know, things do feel a little bit different. But again, you know, to break the, you know, the kind of the

buy-the-debt mentality, it'll probably take a little bit more than just this one-day shock. But ultimately, we do think, you know, S&P at least needs to pull back to that 4,200 breakout level. You know, and that, you know, really to get there, you're going to need to see mega cap tech succumb, which we just talked about. Right, for sure. Yeah. So it's certainly a few percent down from here. I know you've been working on this thought that this year is stacking up as being almost the inverse to 2022 in terms of market cadence, some of the seasonal stuff, I guess even investor expectations. Where does that place us right now? I know you're not basically saying it's a blueprint for the rest of the year, but where does it place us right here at the beginning of July? Yeah, it has been uncanny. You know, again, you go back to the beginning of this year and the consensus seemed to be for a bit of a weak first half of the year and then a rally in the back half.

Of course, the first half was kind of the opposite. And if you look, it has been almost an inverse of last year, where last year was weak right until June. Then you had that kind of waterfall move after the CPI report in June, kind of culminated with a bottom just after the mid-month FOMC last June. You rallied a bit, you chopped around a bit, and then you took off in July after the 4th of July. This year, what do we have? We had almost the opposite, We had a nice rally into June. You had an acceleration into the FOMC, kind of topped out. You've been chopping around and then we've seen a bit of weakness post the 4th of July. So again, we don't expect this to continue to track so closely, but I think it does speak to where sentiment was, what the consensus was for the market

on January 1st of this year and where it is right now. And I think expectations, positioning have all come a long way in the last six months. And, you know, that again goes back to our thought to fade the Nasdaq seasonal strength that a lot of people continue to think will happen this year. Yeah, good point. It's a good reminder that a lot of what's going on this year is really just taking back some of those deep losses in the growthier parts of the market in 2022. Jonathan, great to catch up with you. Thanks so much. Thanks, Mike. All right. Up next, we're tracking the biggest movers as we head into the clothes. Christina Partsenevel is standing by with those. Hi again, Christina. Hi. Well, today's theme is about partnerships, JetBlue

ending one and the NFL extending one. And that means some stocks are making some big moves on the news. Details next. Less than 19 minutes until the closing bell. Dow down about 360. The S&P off about eight-tenths of one percent. Let's get back to Christina Parts-Nevelis for a look at the key stocks to watch. Hey, Christina.

Well, let's talk about JetBlue. It wants to protect its almost $4 billion purchase of Spirit Airlines, even if that means ending its partnership with American Airlines after a judge ruled it was anti-competitive. JetBlue said it had informed American of its decision to terminate the three-year-old alliance so that there would be no objections to its merger with Spirit. But American plans to appeal the ruling. You're seeing JetBlue shares down about 7.5%, American down over 2%.

Spirit up one. Let's switch gears. Shares of data and sports betting firm Genius Sports are soaring almost 28% right now after announcing a multi-year extension to its partnership with the NFL. That means Genius will remain the NFL's exclusive distributor of official play-by-play statistics in real time. Mike? Christina, thank you. Thanks. Last chance now to weigh in on our Twitter question. We asked, what do investors want to see in tomorrow's payrolls number? They want it to beat expectations, a downside surprise,

or in line with estimates? Head to at CNBC Closing Bell on Twitter. We'll bring you the results right after this break. Let's get the results of our Twitter question. We asked, what do investors want to see in tomorrow's payroll number? Well, the answer, at least for more than any other, is in line with expectations is what the market would crave. That would mean a job sprint about $2 240,000 for June, give or take. Here's where we stand as we head into the final minutes of trade.

You have the Dow down about 360 points, as well as the S&P off 0.8% to 1%, about half of its losses at the maximum in the morning. Up next, 314's Warren Pies tells us how he's navigating today's data and tomorrow's crucial jobs report. That and much more when we take you inside the Market Zone. And we've got a can't-miss interview coming up. Don't miss Amazon CEO Andy Jassy exclusively on Overtime. That is at 4 p.m. Eastern.

Closing bell. Be right back. We are now in the closing bell market zone. Warren Pies of 314 Research is here to break down these crucial moments of the trading day. Plus, Kate Rooney has the read on the retail investor playbook as the second half gets underway. Morgan Stanley's Keith Weiss, who just hiked his price target for Microsoft, he will tell us why. Welcome to you all, Warren. I'd love to hear what you think the market setup is going into the jobs number tomorrow. Clearly all year, you know, markets been operating between the threat of a weaker economy and higher inflation.

Things have gone more or less the bull's direction on those fronts. Where are we now? Yeah, thanks for having me. I think that the story of the first half was really just lopsided positioning. Everybody came into the year expecting a recession, was positioned for it, and that has been unwound. And so I think everything in the stock market rally has been a multiple expansion at this point. It's been all P, no E. We enter the second half where we're basically, from an earnings yield perspective on the stock market, and that's just the inverse of the P.E. ratio expressed as a yield, is below the two-year note after today, below the one-year note, and below investment-grade bonds. So I think at this point, we really need to see fundamentals

come through and confirm the rally that we've had in the first half of the year. That's what we're looking for more than anything. I mean, what would you say to those who say, look, earnings, the earnings collapse really hasn't happened. You've had some year over year declines, but the forecasts are kind of flattening out, maybe going to hold up a little bit better. And we have a Fed which has more to do, but it's doing it in smaller increments and more slowly. And the market seems to have been able to digest all that for now. Yeah, I mean, that's absolutely I mean, mean, that's correct. That's, I think, a good read on what we've seen so far this year. But I mean, we are entering this Q2 earnings

reporting season. And this is where we saw 2023 estimates begin to get marked down last year. So our theory at 314 is you get to about the midway point of the year, the market says, forget this year, we're on to the next year. So at this point, the market's going to start looking at 2024 estimates and analysts are going to start looking at these in these reporting seasons and looking to either take their estimates up or bring them down like they did last year. The growth that's implied at this point in time is like eight to nine percent. It's not very much. It lands you at like an 18 and a half P multiple next year. And that's if we hit all of these growth estimates. So I don't think that just mere stabilization at this point in time of earnings, you need growth to power this market

higher. In my view, if you're not betting on that, then you're betting on some kind of epic bubble like covid or the 2000 tech bubble. And so to me, it's it's pretty clear, you know, we need to get earnings follow through. This is definitely a zone where you could expect some weakness. And that doesn't have to be top line. It could be due to margin pressure, which is 100% of what we saw in earnings markdowns last year was all margin pressure. Analysts baking in 12.9% on forward margins for 2024. That's still 140 basis points over the pre-COVID peak. So there's room for margins to come down. And that 100 basis points of margin contraction in 2024 equals $20 off of EPS.

So operating leverage gets net really fast in this environment. Yeah, I know you're looking to feel like the risk reward is skewed to the downside for the S&P. Does the story change at all if you look below the surface of the index? Because that valuation, a lot of people say, has really been amplified by those very largest stocks. Yeah, I mean, I think that the AI, you have to set AI. It's interesting. When we came into May, there were, out of 11 sectors, only three were positive for the year. And that was actually coming into June. Coming into June, three sectors were positive. Everything else was negative. So a very weird and skewed market. Obviously, there's an AI story. Those are the strongest balance sheets, the strongest companies in the world. We all get that. It's a high quality

play. In my view, going into the second half of the year, I think you kind of, we've upped our equity allocation heading into June as we saw the market broaden out a little bit. We're not exactly buying into this, the bull thesis. So I think you still want to crowd into the quality stocks. Hopefully you can find pockets of quality outside of those AI 7, 8 tech stocks that really powered the market. Yep. All right. Still plenty to prove for this market. Warren, good to speak with you. Thanks very much. Thanks for having me.

Kate Rooney, with a snapshot of what retail investors have been up to, feels like they're feeling better about things. Yeah, a little bit, Mike. And Warren just mentioned it. There's been a lot of momentum behind AI, but we're starting to see a little bit of a rotation away from some of the red-hot artificial intelligence stocks into electric vehicle names. So new data from Vanda Research shows a surge in inflows for the most popular EV maker, Tesla. That's consistently the most bought stock among individual investors, actually ahead of Apple. And a recent beat in Tesla deliveries appears to be the latest catalyst there. You've also got Rivian, another EV name, that saw about $30 million of inflows in the past week or so and a 20% spike just this week on Monday after it also beat on deliveries. Meanwhile, some of the shine is coming off of AI. So C3 AI had been the top

pick. That really started back in March. You can see that there. The inflows have stalled a bit, though, in recent weeks. And Vanda highlights an increased risk in institutional investors coming in and shorting this name as a result. One exception, though, in that AI space is AMD. So the chipmaker did see an uptick in buys this week as well. There has been a lot of momentum and chasing momentum for some of these individual stocks. Vanda does note, though, some of the older and more conservative investors there are also joining the rally. That's based on an uptick in some of the broad equity ETFs and mutual funds as well. So it's a little bit more broad-based, Mike.

All right. Feeling better. Contrarians take note. We'll see if it's gotten overdone. Kate, thanks so much. Keith, lay out your case for Microsoft. You raised your price target today. You're seeing more than 20 percent further upside even after the stock has certainly performed very well, trading now above a 30 forward P.E. Excellent. So thank you for having me. And generally, I agree with the earlier guest, Warren. Numbers have to move for the stocks to move higher. And we think Microsoft has real catalysts to moving numbers higher.

And it comes from their positioning in generative AI. What we did in our report today is we created a framework for understanding what types of revenues can come behind these generative AI products, and Microsoft wins in two ways. They have both the picks and shovels in terms of stuff like Azure Open AI services, where companies are today building out the next generation of applications based on this generative AI technology. But then they also have the applications themselves, the gold miners, if you will, stuff like Copilot for GitHub. We expect Copilot for Office 365 and Microsoft 365 to roll out shortly. With these catalysts on the horizon driving new revenues,

and I think upside in revenues to people's expectations, that's what's really going to take Microsoft on the next leg is moving estimates higher. And we moved our estimates higher as well. Yeah. How much of a mover of the needle are those incremental revenues across its enterprise software area? It feels as if people feel like long term this is going to be an important component, but how do you quantify it? Yeah, so there's different frameworks for quantifying different parts of the equation. The first mover is likely to be the picks and shovels, if you will. That's Azure

OpenAI Services, and that's going to come through an acceleration of the applications that people are building on top of that platform. You're already seeing today really good indications of an affinity towards Azure OpenAI services. We recently ran a CIO survey. 27% of CIOs said they are looking to build on Azure OpenAI services in the next 12 months. So that should be the near-turn opportunity. The framework for looking at applications is really an install-based argument. Microsoft has some really large install bases.

When we're talking about office commercial, there's close to 500 million office commercial users. So it doesn't take a lot of penetration to move the needle. We think these are going to be high value, relatively high price point services. We expect about 20% penetration into that office commercial base over the next two years. And that can accrue on the application side of the equation. We have a base case of close to a $20 billion ad in terms of application revenues by FY25. That's Microsoft's fiscal year. All right. And all of that, you're saying justifies the stock getting up to $4.15 a share, would be above the $3 trillion market cap

level if we got there. Keith, thanks a lot. Appreciate you laying that out for us. Excellent. Thanks for having me. Just about a minute left in trading today. You have the Dow down about 360 points still. The S&P 500 off three-quarters of 1%, although that only takes the S&P back to where we traded essentially last Friday. We closed a little bit below here on June 29th. Financials have been a

weak point. You do have those yields moving much higher, taking another hit to bond portfolios. Some concerns about what that's going to mean for the banking sector, as well as creating some competition for deposits. The volatility index up above 15, not at an alarming level, but certainly braced for the potential for more bumpiness as we get through the jobs number tomorrow. We're going to finish with not quite 90% downside volume on the New York Stock Exchange. So we have had a little bit of an intraday rally. All right, some traction in the broad index is heading into the payrolls number in the morning

as the 10-year gets to our 4%. That's going to do it.