Closing Bell - Overtime: Legendary VC Vinod Khosla On AI Optimism; CEA Chair Jared Bernstein On Falling Gas Prices And Strong Retail Sales 12/14/23

Episode Date: December 14, 2023

Another record high for the Dow as investors continue to parse Fed Chair Jay Powell’s message on rates. Fundstrat bull Tom Lee joins to break down why he is still optimistic heading into next year. Earnings from Lennar and Costco, including analyst reaction. Legendary VC investor Vinod Khosla on why optimists need to win out on AI. CEA Chair Jared Bernstein on the strong retail sales, falling gas prices, and President Biden’s economy. 

The rally holds. That's the scorecard on Wall Street. But winners stay late. Welcome to Closing Bell Overtime. I'm John Ford with Morgan Brennan. Coming up on today's show, FunStrat's Tom Lee, who has been riding the bull train all year, breaks down the push to new highs and where he sees markets heading next. Plus, early open AI investor Vinod Khosla on his top AI predictions for 2024 and beyond. And we will get a good read on the consumer and the housing space when Costco and Lenar report results this hour. But first, stocks finishing the day higher again as the Fed-fueled rally rolls on. The Dow at a fresh high today. Small caps getting another big boost today. And check out the 10-year yield. It's now firmly below 4%. It's been a huge move lower. Mike Santoli joins us now to break it all down. Mike, where to look first?

I tell you, Morgan, sometimes the day after a Fed meeting, even one that creates a strong market response, you sometimes have a little bit of a rethink and maybe we overdid it and maybe we misinterpreted something. And not really today. Today was just more of an extension of the reflex move yesterday in response to essentially a very dovish message, one that confirmed a lot of what the Fed has been saying. But the reaction to the bond market today, almost too dramatic, you might say, crashing 10-year yields below 4%, two-year really falling apart, the dollar heading lower in a really sharp way. So all that stuff says the market was at least to some degree a little off-sides versus the level of perceived dovishness.

And it's benefiting the average stock versus the mega caps that people have been wanting to see that dynamic happen all year. I think, again, it's all to the good. It all makes sense. It's all rooted in a revised macro fundamental policy outlook. I just think sometimes, you know, when you're at the North Pole, every direction is south. When everything's been going right and the market has rewarded it, any deviation from what's already been happening can be a little bit of a setback.

Mike, far be it from me to call any particular group of stocks trash, but I can't help but note some of the biggest stocks, you know, your Apple, Microsoft, your Alphabet, et cetera, were flat to down today. And Carvana was up 12 percent. You know, Vroom was up 12 percent. Peloton was up almost nine. For sure. So essentially what was going on for most of this year is a tremendous quality premium built up in the most reliable stocks with the best balance sheets and the best futures, you know, by acclimation. And, you know, the low quality stuff, which was, you know, two years past its peak, the speculative beneficiaries got trashed. And now the short,

heavily shorted stocks, the low quality, the unprofitable, they've been up a fair bit since October. But now you got the afterburners on. So I think a lot of it is that kind of squeeziness, the grab for beta, the way to participate. And it's a feature of all kind of fleeting rallies, but also usually happens when it's also kind of a bull market kicking into a new gear. So I would not say they're going to be leading the way for long, but it's not weird to see them come to life again. All right, Mike Santoli, we'll hear from you again in just a bit. Let's bring in our first guest, and I've been looking forward to this.

Joining us now on set is Tom Lee from Funstrat. And Tom, I had to be a little tough on you about a year ago because your year-end target for 2022 was way off of where we were, and I was guest anchoring, closing bell, overtime at the time. And now, here we are again, the S&Ps at 4719, and your year-end target is what? 4750 to 4800. That's crazy, Tom. That's crazy. How do we get there from here? Yes, I know. Anything can happen in the next two weeks, right?

Yeah, I think it's been a year where markets have been surprised by not only the resilience of the stock market, but the fact that inflation fell really quickly. And the Fed, which had really held really strongly to a data-dependent view, an inflation war view, I think essentially gave that up yesterday. I mean, I think it's now proven the Fed is now focused more on managing the business cycle. OK, so what can you still put your money into from here that has upside? I mean, the commercial real estate arena perhaps is easing off with the long bonds not so problematic? So we saw the KRE, the regional banks, doing a bit better. What areas do you see that have potential? Well, I think investors in the

next 12 months are going to start to say, what things get fixed if the Fed just stops being so aggressive on rates, right? So if rates fall, and it makes a lot of sense that asset quality gets better if rates fall for the banks. Commercial real estate comes back. Small caps, which are highly levered or higher levered, really benefit. So to me, this, you know, the next 12 months, it seems like small caps can be up 50 percent. You know, Russell just crossed, the Russell 2000 just crossed 2000 today. So maybe it hit. 50 percent. Yeah. So it could be Russell 2000 hitting 3000. I mean, we're seeing it today. To your point, it's another three percent, almost three percent day for the Russell 2000.

It's up eight percent in a week. It's up 17 and a half percent in a month. How much of this hinges, though, on yields continuing to move lower? And is there a point at which this steep fall in yields actually signals issues for stocks rather than positivities. Yeah, I guess on that latter part, you're wondering if it turns into a growth scare. I think that people are trying to figure out what message is coming from lower rates. But remember, it was just in October where everyone said term premium is permanently higher. Future inflation expectations are higher. The Fed has to keep a higher neutral rate. I think on three of those things now, given how much inflation has fallen, Future inflation expectations are higher. The Fed has to keep a higher neutral rate.

I think on three of those things now, given how much inflation's fallen, I don't think there should be the term premium. It should return to normal. The neutral rate probably is staying lower. And then inflation expectations are coming down. That means the 10-year could be below 4% for all of next year. And that would be really big for small caps, because on a price-to-book basis, they're trading at where they were in 1999 relative to S&P,

and that was the start of a 12-year outperformance cycle. What if inflation doesn't continue to fall as fast and furious as it has? What if it gets really sticky here? Well, I think that's the misconceptions. 60% of core CPI is housing and car plus car services. Housing and car services account for 1.74 percentage points of the excess inflation. We're at 1.6 percentage of the exit. So literally those two things account for all the inflation. Housing just needs to stabilize at 3% and used cars are going to fall like 30 percent.

So, I mean, I think inflation is going to easily hit the 2 percent core target sometime next year and sort of stay there. Why shouldn't we worry about Washington? I mean, it's an election year coming up in 2024. One of the potentially big spoilers of 23 was Congress not being able to function. Does that pose any danger for the markets? Yeah, it is a perception question because, you know, gridlock historically is good for equities. You know, in 24, I think people expect Senate to flip and House to flip, so it still remains gridlock. I don't think Washington dysfunction is, it can be sort of create

seismic events, but in 2024, those will probably prove to be by the opportunities. And so sector wise, I want to go back to that. You talked about a little bit earlier. Do you go defensive or do you not? You know, I I think it's cyclical because, you know, PMIs are turning up. There's some pent up capex. But to me, the rank order is the number one sector, I think, is small caps, and then financials, industrials, and then tech fang. So I think tech fang really still does okay,

but it's not going to be where new money flows in 2024. I'm going to ask you a question you probably haven't gotten in a while, and that is Bitcoin. Does that fit into a portfolio here, especially given the recent rally? Yeah, actually, you know, Bitcoin has two tailwinds now. The first is, you know, when the Fed pivots, that's actually bullish because it's a money supply benefit to crypto. And the second is, you know, early next year, there's a window where a spot ETF could get approved. And to me, it strikes me as people are vastly underestimating how much demand will occur. I mean, if Bitcoin becomes a spot ETF, everyone's under-allocated to an important asset class. Biggest risks to your thesis and the fact that you expect this bull narrative to continue in 2024,

what could derail this? What is the thing that you're most concerned about or that watching most closely in terms of that? Well, there's a few. One is a hard landing because, you know, that's confidence. But I'm assuming the PMI's turn because now the Fed says they're getting their foot off the gas. And of course, you know, you need a global turn. So China and Europe have to emerge from this stagnation. And if you don't, maybe we talk about a hard landing. The second is, of course, if we have a parabolic move in December and we end up at S&P 5000 by December 31, you've pulled forward a lot of the gains for 2024. So, you know, the first half could be pretty bad. OK, Tom Lee, thanks for joining us here on set.

Yeah. Well, let's bring back Mike Santoli with a long term look at the Dow versus the Nasdaq 100. Mike. Yeah. A two year round trip is what we're looking at for these two indexes, but really interesting paths that they each took to get to basically the same point. And this really tells you a lot about the differences between the big cap indexes. The Dow, obviously full of steadier companies, not market cap weighted.

The Nasdaq 100, much more concentrated in faster moving tech names. So you see the Dow is now outperforming slightly on a two-year basis. If you go all the way back to the all-time peak in NASDAQ 100, it was actually late November of 2021, so it's a little more than two years. But what you see, this is the way the Dow actually stays in the game and outperforms over periods, which is it just doesn't go down as much in bad markets. What you see the NASDAQ does is it has the deeper drawdowns but accelerates much higher. So if we're in more of an ongoing advance, a bull market type environment,

chances are Nasdaq is going to pull ahead again. But this is basically how you can kind of buffer the down moves with something like the Dow. Now, we saw a lot of convergence from leaders selling off and laggards picking up today. Take a look at some, I would say, cyclical bellwether-type sectors of the market and how they've diverged a lot. This is over five years here. So here you have housing in blue as well as semiconductors, obviously beneficiaries of secular trends. We all know about what's been going on there.

And then you have regional banks and transport much more kind of dragging up the rear. And we could have some further room for this to come together. We don't know exactly the proportions. I'm sure it's not going to be so neat and tidy that they all meet together. But it just shows you how this has been a very uneven market and one that, in theory, could start to spread its bets out a little bit more widely. I'm glad you brought up the transports because Russell 2000 is getting a lot of attention right now. But you do tend to see some similar trading dynamics in both of those averages. I mean, today you had the November cast freight shipment index come out. It showed an almost 9 percent decline year over year, 1.3 percent decline sequentially. So so month over

month. But within the report, it actually said that the acceleration in real disposable income, supported by a surprisingly sharp disinflation, and the ongoing strong labor market suggest demand fundamentals will improve in 2024. Now, that's through the lens of freight, but it's just one more data point right now at this moment in time that's signaling the potential for a soft landing. That's right. And I think the market is sort of warming to that idea. You know, Tom was talking about the PMI index is the manufacturing index is tilting higher. It's a similar dynamic. The parts of the economy that have been struggling or did have a little bit of a of a downside reset in theory could reawaken. Now, what that means for homebuilders of existing

home inventory comes on. You know, we got a six point six percent 30 year fixed mortgage now with what's happened in the bond market. So it's not as if it's going to be good and bad, absolutely, for these different groups, but it will be more nuanced, you know, even within transports. I mean, you've had like FedEx has done well, but airlines have struggled because people just didn't think the consumer was going to remain in the game. We'll see if that changes. All right. Mike Santoli, hear from you again in just a bit. After the break, noted venture capitalist and early open AI investor Vinod Khosla joins us to talk opportunities in artificial intelligence and his big predictions for the industry in 2024 and beyond. Plus, we are awaiting earnings in just a few moments from Costco, along with homebuilder Lenar. We're going to bring you the numbers and instant analyst reaction to both of those names. We've got a big show still ahead. Overtime is back in two.

Welcome back to overtime. Shares of shift for spiking this afternoon before coming off the highs, finishing the session up about 5%. Right now, they're up another 1% in after-hours trading. This after a Bloomberg report that PaymentsPierre Global Payments is weighing in acquisition of Shift4. Jared Isaacman, founder and CEO of Shift4, just telling me, quote, no change in our position from my Q3 shareholder letter. We are exploring various alternatives. Isaacman saying in that letter at that time that the company is actively exploring strategic opportunities and alternatives. It's

something I did ask him about on this show following those quarterly results. Take a listen. Despite shift forward delivering results really superior to all our peers, we've been getting thrown out with the rest of them. So I've been saying about our interest in exploring alternatives for probably two quarters right now. Shares of Shift4 did touch a new 52-week high today. We reached out to Global Payments as well for a comment, but we have not heard back. But it's one we will continue to watch, especially at a time, John, where we have seen the beginnings of a pickup in dealmaking more broadly across industries. Yeah, we'll see if global payments ends up making a payment. Intel, meantime, today touching a 52-week high after previewing its highly anticipated Gaudi 3 AI chip due next year.

It was all part of the company's AI Everywhere announcement in New York that included core Ultra chips for laptops and fifth-generation Xeon chips for data centers. CEO Pat Gelsinger said Intel's on pace with its breakneck speed manufacturing transition, trying to put out five nodes in four years. That's twice as quickly as the company normally moves. Intel now trails AMD and market cap, and 2024 is going to be a pivotal year to see whether it can execute on these high performance chips to put it in contention with NVIDIA. Everybody's trying to be in contention with NVIDIA. The stock closed up about 1.37%. Also today, as part of CNBC's Technology Executive Council gathering, I spoke with Sunshine co-founder Marissa Meyer

about AI's impact in 2023. Marissa Meyer, of course, worked on AI concepts at Stanford and at Google before she was CEO of Yahoo, but the acceleration in AI this year was huge. There's the ability to express itself that really took a quantum leap forward with ChatGPT and arguably DALI in images, as well as some of the other models that have entered the space. And so I think that was a big surprise to me. And it's been really fun to see where the technology can go once it can actually communicate with you and really express itself so fully.

Is it changing your roadmap? It is. I think we're starting to experiment with just different ideas. For us, we're really focused. We have contacts and sunshine birthdays in market, and we're looking at how do we bring groups together, how do we celebrate events, and there's a lot of interesting ideas with both generative text as well as generative images that can come into play here. So we've got some exciting things on the roadmap. The Technology Executive Council,

of course, a CNBC membership organization for the leaders of technology leaders of organizations, large and small. AI, a big topic this year, but not the only one. We also talked about quantum, still important, particularly in security and just remote work and what it does to culture. So much to unpack there, and we still don't know the answers because they're all evolving stories.

Indeed. Well, let's talk more about the investment opportunity in artificial intelligence. Specifically, joining us now is Vinod Khosla, the first venture capitalist who invested in open AI and one of the godfathers of Silicon Valley. It's so great to have you on the show. Welcome. Well, it's great to be here. So as we're talking about the impact of generative AI, do you want to get your thoughts on this? Because it's something you've been thinking about, writing about for the better part of two decades from as far as I can tell. And you were the first VC to invest in open AI. So how do you see this ecosystem taking shape and evolving? Well, these things take a while to get to a certain level of maturity. It was five years ago in 2018 that we decided to

invest in OpenAI because we believed AI would have a large impact on society and create lots of large businesses. When we invested, it wasn't clear when the breakthrough moment would come. Would the research take four years or eight years or 12 years? Very hard to predict. But with ChatGPT, it became clear now was the time to really make that investment. In 2018, we so believed in AI, we invested probably twice the largest initial amount I've ever invested in a startup in 40 years I've been doing this. Well, I was going to ask you another question, but because we are talking about open AI,

I do want to get your thoughts on the drama that we saw there, whether it was the ousting of Altman, the reinstatement of Altman, and now the reconfiguration of the board. Why that drama started in the first place, especially when the media has been framing this as a responsible AI debate? Is that the right way to be thinking about it? No. The media has talked about responsible AI. the media has talked about org structures, none of them are true. We had a couple of kooky board members in the Jonestown ilk of Doomer's, and the wrong thing was getting the wrong people on the board. That was a mistake. But otherwise, I think the thing to remember is the company is much better off today than it was the Friday before Thanksgiving week. It has a clear mandate, a better board, and more importantly, it's clearly established SAM's leadership. 700 people or plus people or almost the whole company willing to quit their very lucrative jobs to stay behind and with Sam Altman. So he clearly demonstrated his leadership

and how much the board was out of touch with what Sam was doing, his leadership. It's also important to remember there wasn't ever a question of Sam's motivations. He's one of those rare executives who cared about the impact AI could have. He never took any compensation that he could have had and would have been worth billions of dollars to him personally today.

But he chose not to take that. Instead, we have no conflict of interest in pursuing this mission of AGI and AI benefiting humanity. Okay, so five years ago, you made this unusually big, risky bet on generative AI, not knowing how long it would take to play out. What's your counterintuitive, big, risky bet now that everybody thinks that generative AI is the future? Well, I do think if I look four years out from today, there will be other things that add beyond large language models, which is the technical term that's used, or generative AI, that'd be very, very important.

For example, much better reasoning systems will come along. What that involves, it's a little hard to tell today, but there are exciting things happening in the background. So there will be other technologies that are complimentary to LLMs that LLMs will access. So think of LLMs as the conductor in the middle. It could call a calculator tool or other technologies and access them. So that's the simple way to think about, you know, if you're a human, you can use a calculator to do something or you can use a

hammer to do something else. LLMs will be the conductor. Vinod, over the past 10 years, there's been a lot more talk about the decline in relative importance of Silicon Valley. And then we've got this moment where OpenAI, very much in Silicon Valley, NVIDIA, very much in Silicon Valley, AMD, very much in Silicon Valley. There's a new focus, it seems, on Silicon Valley as a place. Is innovation as distributed as many were arguing as far as where the investment is going to need to go? Or is Silicon Valley itself still special? I do think Silicon Valley is special. So the narrative of Silicon Valley isn't the center of innovation, was amplified by the press. So it's really a press phenomenon chasing

Bitcoin, a blockchain, or Web3. So create narratives that they can report on for clicks. I think innovation will be more globally distributed. That is, in fact, true. But I think Silicon Valley has continued to be the center because it's the right ecosystem. It still attracts the best talent from everywhere in the world, and we need to do more of that. Some people have moved out, but I would suggest that the core talent is still here and more is coming in. And Silicon Valley will be the center as long as that is true. But that's not to say there can't be great innovation in Bangalore or somewhere else. Now, culturally, some people are less tuned than others. So Europe has

not been very tuned to entrepreneurial culture. We hope that develops there, too. OK. We can't forget about TikTok. That certainly did emerge big time in the past 10 years. But it wasn't me. Shanghai has been very, very interesting. I was not bagging on Silicon Valley at any point on the record. Okay, Vinod Khosla, great to have you. Meantime, Costco earnings are out. Pippa Stevens has those numbers. Pippa.

Hey, John, it's a top and bottom line beat for Costco. The retailing reporting EPS of $3.58 per share. That is a beat of $0.16. Re reporting EPS of $3.58 per share. That is a beat of 16 cents. Revenue coming in at $57.8 billion, slightly ahead of the $57.7 billion that analysts were looking for. Costco also announced a special one-time cash dividend of $15 per share. No word yet on whether they plan to increase their membership fee, but the call kicks off at 5 o'clock and that is certainly top of mind. Shares about flat right now.

Back to you. Wow, yeah. I mean, thank you, Pippa, and that stock is, you know, just about flat after hours. Yeah, it has been trading right near all-time highs, though, so we'll see. We'll see what we get with those membership fees, back to Pippa's point,

and, of course, we will have an analyst who's going to break this down for us shortly. So impressive at those all-time highs. that can hang in there. Meantime, retail sales turning in a surprise game for November, the latest sign of a resilient consumer in America. We're going to talk to the Council of Economic Advisors Chair Jared Bernstein about that number and the outlook for the economy in 2024 when Overtime returns. Welcome back to Overtime. Another strong economic data point coming in this morning.

November retail sales rose 0.3% versus expectations of a drop of 0.1%. And that's despite a 2.9% decline in gas station sales thanks to falling prices at the pump. Joining us now is Council of Economic Advisors Chairman Jared Bernstein. Jared, this should all be great news. Lower prices at the pump. Consumers are still spending. The stock market is up with the Dow touching all-time highs. And yet there's this disconnect from the message that the Biden administration is trying to spread about things are good and how a lot of people seem to be

feeling and feeling about the president's performance in this arena. Well, I actually think that's not that hard to square, John. We're moving in the right direction. We're doing it with some speed, but we've got more work to do. As you correctly pointed out, we've got the tailwind of a very strong job market behind the American consumer. And we have a 70 percent consumer economy. So if you have a tight labor market, if you have easing inflation, OK, down two thirds off of its peak. And now we're seeing actual price declines from from eggs to apples, from TVs to toys, sporting goods, airfares, car rentals, lower prices in those areas. So more work to do, but on the right path.

A year ago, I was hearing people say, oh, nobody wants to work anymore. Small businesses can't stay open. People are too satisfied with their built-up pandemic stimmy check savings. Now, I guess businesses are open because consumers seem to be spending. So in your and the Biden administration's estimation, what is it that people are feeling so unsettled about? Do you get it? Well, first of all, let's talk about this graveyard of inaccurate negative memes that you just took us through. The great resignation has morphed into a very strong labor supply, labor force

participation up recently at record rates, especially for prime age workers and especially for women. Some outlets told us we were facing 100 percent probability of recession. We are quite far from that, as the data that we've been discussing shows, and certainly as the Fed reflected yesterday. So, again, when you look at the work that this White House is doing and you latch that up to what people are dealing with in these sentiment indices, the fact that they need more breathing room, you see that this president is working very hard at directly that problem, trying to lower the cost of prescription drugs and, in fact, accomplishing that through legislation that's currently being implemented, lowering the price of insulin, lowering the price of medicines,

going after junk fees, you know, urging corporations, look, if you've saved prices on your input costs because we helped unsnarl those supply chains, pass those savings along to consumers. So we're going to continue to fight for breathing room for American families and to build on the actual price declines we've seen on sporting goods, on toys, on computers, on TVs, on appliances, and so on. That's the right path. We're actually starting to see some improvements in some corners of those confidence indices, especially the U-MISH in its most recent release.

We did see that. And certainly we've seen this pace of disinflation pick up speed and be very dramatic this year, Jared. I'm just curious about this last mile of inflation because historically it tends to be the stickiest. And we do have fiscal policies in place, whether it is on shoring, whether it is infrastructure, IRA, whether it is some of the immigration, legal immigration policies that are in place. How much do those, and I ask this as investors and economists have come on our air and talked about this, how much do those potentially contribute to a structurally higher pace of inflation? Well, I would probably push back in the following sense.

When you have increasing labor supply, as we've just talked about, by the way, the Fed references that as well. When you have rental prices that came down, say, six to 12 months ago and are entering the consumer price index with a lag because of the way it's constructed, when you have perhaps most importantly unsnarled supply chains in some recent work that CEA did, we think that up to 80 percent of the disinflation is related to the unsnarling of supply chains. You know, goods, core goods prices have been flatlining for a while now. I think you can count on inflation to continue to ease. And that certainly is the dominant forecast. So that would be that would be our outlook from from the perspective of where we think that's headed. And of course, that is that is the the modal forecast, whether you're talking about market forecasters or the Fed. Yeah. And of course, the Fed chair did

talk about that supply side yesterday in his presser. I want to shift gears a little bit because we had a moment in D.C. and that was the NDAA, this national defense policy bill, $886 billion defense policy bill that represents a 3% increase year over year in spending on defense, actually made its way through Congress today. Is this a sign that some of this legislative gridlock is now going to ease? I certainly hope so. And I'm really glad you raised that because it is a sign that people can put their heads together and shake hands on things that they

agree on. And so, look, there's a lot of stuff members disagree on up there. But when it comes to support for the measures in the supplemental, particularly, of course, I'm talking about Ukraine and Israel, there is broad, widespread agreement. So getting out of their own way and actually getting that stuff off the legislative goal line, it's a good sign, and perhaps it is a motivator to continue to make bipartisan progress in that regard. Okay. Jared Bernstein, thanks for joining us. My pleasure. Lenar, earnings are out. Bertha Coombs has the numbers. Bertha. Hey, Morgan. Lenar beating on both the top and bottom line, earning $482 a share compared to a $459 estimate. Revenues also well ahead at $10.97 billion compared to $10.22 billion.

Fourth quarter home building gross margins missed, though, at $24.27. The street was looking for $24.5. And also below guidance of what they'd offered, deliveries beat compared to what the street was looking for at $23.795. And new orders also better than expected. Now, in the release, CEO Stuart Miller said that the economic environment shifted as interest rates rose for most of the quarter. We know that they peaked at 8 percent in October, then subsided. Higher rates tested homebuyer sentiment, although purchases remained responsive, he said, to incentives and enabled affordability.

So that's one of the things that they're looking at. They think that housing demand is going to be stronger, certainly what we've seen over the last couple of days. That is one of the things that is outweighing the fact that they have such short supply. For 2024, they see deliveries of 80,000, but says they're not going to provide full-year guidance at this point on margin because interest rates are changing. In fact, Lennar is going to hold its analyst call tomorrow.

Morgan, you know, all the homebiddlers and John over the last couple of days are up 10 or more percent with this huge move we've seen in rates. Yeah, a lot of stuff is up. Bertha Coombs, thank you. Except the rates themselves. Except the rates themselves. Except the rates themselves. Time for a CNBC News update with Contessa Brewer. Contessa. John, the Senate will remain in session next week, delaying its recess as talks continue on border security and foreign aid.

Majority Leader Chuck Schumer announced there will be a vote on foreign aid next week. But the House officially has wrapped with legislative work for the year, and it's not scheduled to return until January 9th. New York Republicans today selected Nassau County legislator and former Israeli soldier, Mazi Pilip, as the nominee for a special election to replace George Santos. Democrats previously selected former Congressman Tom Suozzi. The election is set for February 13th. And it is 15 billion miles from home and Voyager 1 has a problem. NASA says a computer glitch has caused its flight data system to be stuck on auto repeat and they're trying to fix it. Now, it can still receive and carry

out commands, but no data is being sent back to Earth. It is sending data, but it's like scrambled ones and zeros. But by the way, this was a system designed to last five years, and Voyager 1 has now been going 46 years. It is the farthest made, human-made craft of any kind from Earth. And before you ask me, Morgan, yes, they did try to reboot it. They shut it down. They turned it back on. They tried to see if they could get it to function properly. I'm sure they've done that more than once. Contessa Brewer, it's pretty incredible when you think about it. Contessa, thanks. Sure. Got to jiggle the handle next. Up next, we're going to break down Costco's earnings results and look ahead to the analyst call,

which kicks off at the top of the hour. And check out the action in solar stocks today. A huge lift, very sunny day of trading. SolarEdge and Enphase leading the S&P 500. The tan solar ETF finishing higher by 8%. We'll be right back. Welcome back to Overtime. Costco beating on the top and bottom lines and announcing a special $15 per share dividend.

Joining us now, Bill Kirk of Roth MKM. Bill, your thoughts on the results we just got, the special dividend, and perhaps most importantly, whether we're actually going to see some sort of membership fee increase when we get the conference call? Well, I think that's precisely the question. So Costco always does a good job giving us a lot of inter-quarter data, right? They still give us the monthly sales data, comparable store sales data. So there's usually not a lot of surprises on the print itself. Most of the detail, and they give some of the best detail, most of the detail will be on that call here in about 18 minutes. But what you saw this quarter is they were able to beat on EPS. It does include a 10

cent tax benefit. But our main hesitation with Costco, and it's been our hesitation for a while, is it's a great company, but it already has a great multiple, right? For us, it's just too expensive in Staples retail. If you put some numbers on it, 40 times PE, roughly 25 on EVD EBITDA, that is four times conventional grocery. Conventional groceries, 10 and six, respectively. So you're paying four times for something. It deserves a premium, absolutely. But we think that's a little bit too rich in this environment. Okay, so if you're feeling cautious, how cautious does Costco have to be about raising the membership fee? In a way, given that we just saw Adobe, in a way, admitting in a completely different arena, of course, that raising creative cloud subscription fees kind of dulled their revenue momentum.

Can Costco still do that because it allows them to lower prices on the other end? So Costco's renewal rate is incredible and they are overdue for a membership fee raised. But that said, they've said in this environment, they want to be the first to present value to customers. So they said they'd be the first, if food deflation arrived, to pass it on. So if you're out there as Costco offering as much value as possible, maybe you wait for a membership fee increase. Maybe now's not the time, if you're advertising value, to go raise the biggest headline sticker that you have.

So we do think it will happen. We just don't think an environment where value is your biggest proposition, for that to be the time to offer it. Okay. We'll see what they do. Bill, thank you. Weekly jobless claims falling to the lowest level since mid-October. Up next, Mike Santoli is going to look at what that can mean for both the economy and the Fed. We'll be right back. Welcome back. This morning's initial jobless claims coming in lower than last week and hitting the lowest level since October 14th.

Mike Santoli is back with his take on what that means for the economy. Mike? Yeah, John, certainly a positive message from the economy. We don't have to necessarily wonder about how much the labor market is softening up further. Now that the Fed sort of had a dovish message, we don't have to worry about that feeding directly into higher for longer interest rates either. But there is an interesting little divergence between new unemployment claims. That would be the initial claims right here in orange, which have declined from recent highs. And then the continuing claims, which have been more steady. Now, this is a pretty strong absolute level. Anything under two million continuing claims

is still OK. So it's not showing recessionary numbers. But you see how it's been kind of sticky and this gap has opened up. And it just suggests other things we know about the job market, fewer job openings. So people are kind of cycling back into new jobs more slowly. So it's a little bit tougher to find work if you've lost your jobs. But layoffs themselves are not really picking up in aggregate. The total number of people employed is continuing to grow and at a record. So all in all, a pretty upbeat message as it remains this way. But total number of people employed is continuing to grow and at a record. So all in all, a pretty upbeat message if it remains this way. But that sort of stubborn continuing claims number could represent, you know, the early signs of maybe a little more slack building up in the

labor market. Any sense that there's a shift in how many jobs some people are working? Yeah, you can sort of get at some of that data in the monthly jobs report where you basically have multiple job holders is an actual category that has picked up. So that's represented at least part of the of the monthly net gain in in new positions. But I don't think that's necessarily a huge, huge factor here simply because you wouldn't be collecting unemployment if you had, you know, multiple jobs or one. All right. Mike Santoli, thank you. Still ahead, much more on today's after hours earnings action, including analyst reaction to Lennar's results. Stay with us.

Shares of Lennar are falling after hours in overtime, despite beating on the top and bottom lines. Alan Ratner of Zellman & Associates is with us. Alan, why do you think it's down? Hey, John. Thanks for having me. You know, listen, it was a strong quarter. They pretty much met or exceeded guidance on almost all key metrics. Stocks had a huge run these last few days with the Fed pivot. You know, if I had to poke holes with anything in the release, the first quarter gross margin guidance is definitely softer than I think we and others were expecting. But in retrospect,

it's reflective of a pretty tough sales environment during their quarter when rates were much higher. So more likely than not, this is going to be some short-lived pressure. How do interest rates affect the homebuilders from here as we look forward to 24? Well, obviously, lower interest rates is a great thing for the consumer. It improves affordability significantly. And affordability has been our biggest concern about the sustainability of the strength in the new home market. So if you can solve that problem or at least move that in the right direction through lower rates, that's certainly a huge positive. As far as the stocks are concerned, the old playbook is when the Fed pivots, you buy the stocks. They're early cyclicals,

and I think generally the group has rallied pretty hard in the past when the Fed has pivoted. The big difference this time is the stocks have obviously had a great run this year, even as rates were high. So they're coming into that pivot period at a much higher valuation. So then do you actually buy here at these levels, even if the fundamentals and the metrics that we've seen in this earnings, and even as rates start to come down, even as all of that's working in favor of the company and in favor of the group, do you buy because of the valuation? Well, I think the momentum is going to be your friend for the time being. Clearly, you know, with rates coming down, the stocks are going to rally in anticipation of a stronger

market. And really one of two things that, you know, needs to happen to derail that momentum, either rates need to reverse course and move up again, which I've been listening to your program today, and there's a lot of diverging views on that outlook for 24, or economic slowdown, if that were to occur and you see a pickup in job losses, that's going to trump lower rates. So with the valuations where they are, I think that it's a little bit tougher to get excited about the group here. But I think in the near term yeah i would bet on them the momentum continuing we had the ceo of meritage homes on earlier in the week and he talked about quote-unquote healthy demand despite the fact that rates have been high and home prices have been high that really got my attention and and i wonder if that's something we're seeing across the home building sector and And if so, why specifically?

Well, it's really been a tale of two housing markets this year. The resale market has been incredibly depressed. So if you were talking to a real estate broker or a mortgage originator, they would have a much different story. The home builders, on the other hand, have really capitalized from two things. Number one, very tight resale inventory of existing homeowners kind of staying in place at very low mortgage rates and not putting their homes on the market. And number two, the builders have been able to buy down mortgage rates and actually have a competitive advantage versus the resale market, offering consumer rates well below the current market rate. So both of those factors, I think, have resulted in a much stronger than expected year in the new home market. But I would say the resale market is definitely seeing quite different trends. All right. Alan, thank you. Alan Ratner. All right. Morgan, still more data to come. We get the New York Empire State Manufacturing Index tomorrow.

Darden Restaurants reporting before the bell. I mean, the consumer has hung in there pretty well. So far, so good. We get the flash PMIs as well for both the U.S. and for the EU. In the meantime, stocks just continuing to move higher here. We have another fresh high for the Dow. And so the S&P is not too terribly far away from an all-time high as well, something like 80 points, give or take.

I mean, what a week it has been. I'm not sure that many would have predicted the kind of market reaction that we've got. It's been something. Yeah, it's been pretty wild. But also, I mean, this is on pace. Mike Santoli's talked about it. The seasonality, we're still about a week away, maybe a little less from an actual Santa Claus rally. So we'll continue to watch it. Yeah, we'll see. Before we go, check out the latest installment of my On the Other Hand newsletter.

This week's debate, are diversity, equity, and inclusion policies on a collision course with free speech at universities? I argue both sides. You can sign up at cnbc.com slash OTOH. That does it for Overtime.