Closing Bell - Stocks Jump, Inflation Nation & Strong Foundation 1/11/23

Episode Date: January 11, 2023

Stocks rallying ahead of Thursday's key inflation data. Investors betting inflation will continue to show signs of slowing. The Shelter Index was the largest contributor to inflation in November, but Zelman & Associates Director of Research Dennis McGill says he thinks rent prices are finally peaking. Kroger Chairman & CEO Rodney McMullen says food prices are holding steady, but believes there will be some moderation later this year. He also discusses how high prices are impacting consumer spending behaviors. JPMorgan Asset Management's Phil Camporeale says he is skeptical about the recent market rally and explains why he thinks bonds look more attractive than stocks. Beauty store retailer Ulta hitting another all-time high. D.A. Davidson's Michael Baker says this stock can keep rallying and be a strong foundation for your portfolio.

Stocks building on Tuesday's gains with the Nasdaq once again leading the charge here as Wall Street awaits tomorrow's inflation data. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand broadly in the market. There's the Nasdaq up 1.3 percent. Dow's up 200 points or so, just about the highs of the day. The S&P 500 is up a full percentage point. So we're seeing more sizable gains than we did this time yesterday. Every sector is higher right now, except for consumer staples. That's the only one that's underperforming. Real estate's having a huge day, up 3.3 percent. Some of those rates climbing back like crazy. Consumer discretionary also strong. Amazon's a big part of that reason.

The small caps up almost a percent as well, and yields are a little bit lower ahead of CPI. Buying bonds. Check out the names driving the strength in the Nasdaq 100 today. You can see the comeback in tech here play out. Lucid, Lossian, Airbnb, Amazon and Illumina. Coming up on the show today, two key guests to give you an inside edge on inflation ahead of tomorrow's official government CPI report. We're going to talk to Dennis McGill from Zellman & Associates for his read on the all-important rent component. Housing driving prices up lately.

Plus, the CEO of Kroger joins us exclusively to talk about the trends he is seeing in food prices, the nation's largest grocer. First up, though, time for the Market Dashboard. Senior markets commentator Mike Santoli, what is on your radar as we see another strong day? Strong day, Sarah. The market continues to act as if people came into the year pretty defensive, not enough risk exposure. You have things like a pretty strong, you know, read on fourth quarter GDP rates. I mean, the 10-year Treasury yield is down by a third of a percent. And so it seems like you have this sense out there building that perhaps inflation might have some downside momentum.

And therefore, the things we were most scared about coming into the year, not quite as scary. The riskier sectors of the market also are kind of leading the way. Now, where it brings us to is right to the almost to that downtrend line from the very peak of the market in January of last year. Now, what are we looking up at? It's around the 4,000 mark. The 200-day average of the S&P is about 1% higher from here. The early December high is 4,100. So we're in this zone where it seems like you have a cluster of significance in terms of the next move, probably a more balanced footing going into CPI. It's getting a little bit stretched in the very short term. You look at like the five-day rate of change starting to get a little bit hot, but not as extreme as it was in August. Consumer discretionary on an equal

weighted basis, along with industrials over the past six months, clearly leading the S&P 500. It's really hard to get too worried about an imminent breakdown in the overall economy when these sectors are performing like this. Now, in the first half of last year, consumer discretionary underperformed by 10 or 12 percentage points. So this is a makeup move. And obviously, yields are helping. But it's an interesting, I said, split sentiment between that and what the bond market is trying to perhaps tell us in terms of the deeply inverted yield curve between short and long-term rates. It's like what I brought up to the World Bank president yesterday. Would Caterpillar be trading at an all-time high if we were worried about an imminent

recession in this country? Certainly not a global recession, because you do have this other factor of China back in the game. Copper is running. But I agree with you. And I think it's also worth noting, if you look at past cycles, the deepest inversion of the Treasury yield curve happened as much as a year ahead of the onset of prior recessions. In other words, it starts to reverse higher before you've gotten to the point where you're talking about a recession being on the doorstep. The other interesting factor is gold, which is making some new high, multi-month highs here.

It is. And the dollar's been weakening. Dollar's been soft. You know, arguably, if the Fed's done, a real yield's going to basically top out here. I think that's probably part of what's going on. Plus, it's a metal. The other metals are going, too. Yeah. Highest since May 6th. Mike, thank you. Markets are bracing for the December CPI number out tomorrow morning. One factor in focus is the shelter index, which was the largest contributor to inflation for November, rising 7% from a year ago. But the question is, could we finally be seeing a peak in December? Let's bring in Dennis McGill, director of research at Zellman

and Associates. And you guys, Dennis, do your own rent trackers that come out before CPI that everyone pays attention to, especially the macro funds. What are you showing? Yeah, thanks, Sarah. We do have surveys both for the multifamily and single-family rental sectors that we're doing every month. And importantly, they include both new move-in rents as well as renewals. And a lot of the different data out there is unfortunately just limited to new move-ins. Our data is showing, like others, that there is deceleration. For tomorrow, we think the seasonally adjusted sequential change in overall housing CPI, so that's going to be both rent and OER, is about 54 basis points. That was 70 basis points for the November reading. So you are

starting to see that ease a bit. We do, however, expect over the next couple of months that it's going to stay relatively elevated in that 40, 50 basis point range. So I think everybody expects deceleration based on what some of the asking rent measures are doing. Our view is that deceleration is almost for sure. The question is how quickly that deceleration unfolds. So just to be clear, you think we have already seen the peak in those rent prices, shelter prices? Absolutely. And I think that the peak was ultimately in the true market was about three or four months ago. What we find is that the actual fundamental data leads the Fed's data by about three to four months. That is our data that captures both renewals and new move-ins.

You started to see operators take the foot off the gas on rent increases really around that July, August timeframe. And that's now starting to filter into the government's data here in November, December. So you posed the question, how fast do you guys see it coming down from here? So we do expect, like I said, it's going to ease over the next couple of months. If you think about that on a seasonally adjusted basis, you're still going to be over 5% by our map in the first quarter. That's an average for the full first quarter. Part of that has to do with the lag of the fundamental data, the government's data. The other factor is that wages are an important undertone to what happens with rent prices.

And our view or our work historically has shown that you tend to have a bit of a lag from when wage growth rolls over before rent growth. And you're still seeing, as you know, it was pretty strong wage growth out there. So we do expect deceleration. I think by the end of 23, we're still looking at four and a half percent increase for the fourth quarter. That's on a year of a year basis. It's not until we get into 24 that we think you're going to get back towards that two percent type number. So what about the supply issues that have kept housing prices inflated here? Because it hasn't all been about the Fed, is it? Well, clearly mortgage rates were the biggest driver by far of the excessive price appreciation that we saw. We don't really subscribe to the same type of pent-up demand and housing shortage that others do. It was very much a mortgage rate driven factor. And that affordability hangover is very real today

and very significant. So home prices, by our math, are going to be down double digits over the next six quarters or so. We've already seen about a 5% type decline so far in the second half of this year. And supply both across single family and multifamily rental and for sale is going to be very significant as you move forward through the rest of this year into 24 as well. So we're not arguing that there's going to be undermining of the growth that we've seen on the rental side. Supply is going to be a big part of that. And one thing to keep in mind is that occupancy rates in the rental side have actually been under pressure so far this year or in 2022 throughout.

And that's on a seasonally adjusted basis. And that's with all the pressure that there was on for sale affordability. So there's other factors going on, some unwind from the pandemic related to people getting back to one residence instead of two, having a remote place and a permanent place. And we think that that's been undermining some of the demand measures as well. Homebuilders are having another good day, up 2.2 percent. Dennis, thank you very much for giving us an early read on what you expect to see in those rental CPI numbers tomorrow. Dennis McGill from Zellman Associates. It's been a rough day for American travelers after the FAA issued a ground stop this morning, pausing all domestic flights following that system outage. Check out the front page of the Drudge Report this afternoon, calling it the biggest grounding since 9-11.

Flights resume just before 9 a.m., but thousands of trips have been delayed or canceled. Complete mess. Phil LeBeau joins us with the latest. I don't know, Phil, does it just snap back or is it just going to be chaos for a while? Oh, I don't think it's chaos. I think it's already calming down, Sarah. Look, it was not fun. And I was at O'Hare this morning and it was not fun for the people who were scheduled to fly out, not just at O'Hare, but around the country. Those flights didn't take place. But slowly, the system is getting back to what you would consider normal. There's still delays. And yeah, there have been a lot of cancellations today. So here was the outage that happened this morning. Happened shortly after 5 a.m. Eastern

Time, went to about 8.50. That's when they lifted the ground stop. And this was due to a system outage, a part of the system that sends critical information to flight crews, airlines, everybody who's involved on the regular process of flying every day, they get these notable alerts. They couldn't get those. And therefore, the airlines decided and the FAA decided it's not smart to be flying. So as a result, what you're looking at, airlines canceling more than 1,200 flights in the U.S. today. For a point of comparison, there's a little over 150 yesterday. Delays now totaling more than 8,300. And we're seeing less and less of the delays as we move further into the day. But we're still seeing them right now. Transportation Secretary

Pete Buttigieg says he wants to get a better understanding exactly what happened. And a lot of people in the airline industry, as you take a look at the airline stocks, which for the most part are mixed today, although United having a nice move higher, for the most part, people in the airline industry are all saying the same thing, which is it's a robust system that they've invested in. I say they, the federal government over the last several years, but they believe it could be far more robust. And that's going to be what the focus will be of any investigation. Could this be a system that is far more robust and one that would not have to deal with this type of an outage.

By the way, it's not hacker related. There's no indication that this was a cyber attack that caused this. Well after Southwest and this, it feels like there needs to be a lot of examination into the systems and technologies and potential upgrades here. True, but totally different, Sarah. Keep in mind, this is the national airspace and the FAA's equipment having a system outage. With regard to Southwest, that's strictly with one airline, with its investment in its technology. So that's, I understand the frustration that

travelers are seeing right now, but they are completely different in that regard. Sure, but same industry, same similar issues that affect people. But important to point out, nonetheless. Thank you, Phil. Keep us posted. Phil LeBeau. After the break, Kroger CEO Rodney McMullin joins us exclusively with his read on food inflation ahead of tomorrow's CPI print, plus the latest on the Albertsons deal and much more.

We've got the Dow up 211 points, highs of the day. The Nasdaq once again in the lead as tech bounces back. You're watching Closing Bell on CNBC. A new New York Fed survey released this week showed consumers expect food inflation to rise 7.6% over the next year, which is only down slightly from the previous month's expectations. Joining us now exclusively ahead of tomorrow's CPI report is Kroger CEO Rodney McMullin. Rodney, great to have you.

Welcome back. Thank you, Sarah. Hi. Hi. Well, we're wondering about food inflation because it's been one of the biggest problems and one of the most stubbornly high parts of the overall inflation story.

What do you think is happening right now? Is it decelerating? Yeah, I would agree with your comment about being stubborn in terms of as we look forward, our expectation is early in the year, the inflation will continue to be higher than what it had been a couple of years ago. But as you get later in the year, we do expect some moderation there. But it's still gonna be a while before it really takes some pressure off the customer. And we're doing everything we can to make sure

that we minimize that impact. But just to be clear, Rodney, about what's happening now, are prices accelerating? Are they staying high or are they accelerating less? They're staying about the same. There are some CPGs that continue to pass cost increases through. People that were a little slow early on the inflation on passing it through. But if you look on terms of year on year, it's a little bit lower on a rolling 12-month basis, but it's still very high.

So how do we get it down? It's not like the Fed can control supply chains for food, which has always been one of the issues here. How does that come down later in the year and into next? Yeah, it's a great question, Sarah. And obviously, from a farming standpoint, on a supply basis, it's hopefully, you know, this will be a great growing season. And hopefully, as you look across the world, it will be a good growing season. When you look at corn prices, wheat prices, all the raw ingredients, it's really supply and demand. And if you look at the grain prices, the hope is that you'll see some moderation there. From a labor cost standpoint, you still continue to see some inflation there as well. Well, and then there are these other acute issues like what's happening with egg prices. In California last week, $7.37 for a dozen eggs, where it should be, what, $2 to $3?

Because of avian flu and all these other issues. When does that come down? Yeah, and if you look historically, it really takes a growing season on chickens. And chickens have the fastest replenishment rate of any of the livestock items. So hopefully there's not another avian flu outbreak and assuming there's not, you would expect over in the next several months the new chickens will be coming being hatched and then producing. So would expect some some moderation there, but that's really will be driven in terms of having more hens laying eggs. And, you know, it's not the first

time that we've had this happen in the U.S., obviously much bigger this time than previous issues. All right. Well, I guess good that they replenish faster. So, Rodney, what are you seeing from the consumer? How much resistance, if at all, to these high prices? Our customers are telling us they're doing a lot of changes in terms of how they manage their money. We see customers continuing to engage in our promotions more than before, downloading electronic coupons, things like that, continuing to move to our brand products versus some of the national brands. Everything they can do to stretch their budget, but they're still continuing to engage in spending money, but making sure they're stretching it anywhere they can and balancing

their budget in every way they can. Also, what we see, and as you know, it's a lot cheaper to eat at home than going out to restaurants. And we continue to see people eat at home and using some of those skills they learned during COVID as well to stretch the budget. Yeah, it's been somewhat of a surprise. A lot of people who followed your stock expected there to be give back on the eating from home lifestyle. But it doesn't seem like you've really seen that that much, have you? Not at all. And when we talk to our customers, they tell us a couple of things. One is they've learned how to cook, but two, they really enjoy eating as a family and eating with family and friends. And those are longer-term

trends that we would expect to happen, you know, to stay in place. One of the things that we view that we're responsible for is how do you keep it inspiring? How do you create and share new ideas for somebody to try something new at home? And we feel as long as we continue to do a good job there, people will continue eating at home. And, you know, it does help stretch a budget. It also helps a family stay as a family. So, Rodney, you're also in the middle of this huge lift in terms of acquiring, trying to acquire Albertsons. Where are you right now in that deal process and the talks with the regulators? How's it going? Yeah, in terms of the overall merger, first of all, obviously a huge congratulations to the Albertsons team yesterday and their earnings release and continuing to do a great

job on connecting with their customers and associates and communities. We're still in active dialogue, and it's similar than where we were several months ago, and we expect this will take several months to play out. And the timing and things are tracking as we would expect. What about the unions? They still have their opposition. They still have concerns. What are you telling them about what would happen to the stores that have to be divested, whether they'll be competitive against some of the bigger players and what will happen to their jobs? Yeah, when you look overall, you know, this,

the merger will make sure there's more job security for everyone. And one of the things that we're in active sharing with the various unions is helping them understand how a company that is able to continue to better compete against a Walmart, Costco, many of those other non-union players will be better long term and create more job security for everyone. If you look at the stores that end up being divested,

those stores will be divested to somebody that is really a good operator, good viable strong competitor, and will also provide good solid union jobs. So when we look overall, the majority of the unions, obviously we still have ongoing active conversations, we're sharing all the information as we have it, obviously we still have ongoing active conversations. We're sharing all the information as we have it. And we just know over time that our associates will have better job security. And we find so many people come for a job and make it a discover a career because there's so many advancement opportunities and this will create even more. Got it. Well, keep us posted, Rodney, on those

discussions. Obviously a huge one. Kroger CEO Rodney McMullin, thank you very much for the time. Let's check on the markets right now up to 52. We're building on some of the gains we've had for the Dow. There's the S&P. It's up over a percent. And the Nasdaq, one and a half percent. As far as what's driving us, it's a S&P. It's up over a percent. And the Nasdaq, one and a half percent. As far as what's driving us, it's a pretty broad rally. In fact, every sector is now higher. Consumer staples joining the party just in the last few moments. Real estate's in the lead.

All those REITs making a comeback. Consumer discretionary up two and a half percent. Materials, information technology, that is what is working and what is powering this market higher. As far as the Nasdaq. Illumina is a big winner right now. Amazon, too. Ulta shares hitting an all-time high today after rallying nearly 12% just since late December. Up next, a top analyst on whether this stock can keep being a strong foundation for your portfolio. Be right back on Closing Bell. Check out today's stealth mover. It is Ulta Beauty, the stock. It's been stealthily

climbing higher for a while now, now trading at all-time highs, going back to the IPO in 2007. Gains picking up steam just in the last month or so. Joining us to talk about what is driving the move is Michael Baker from D.A. Davidson. What is the story here? Ulta making new highs on days that the market's rallying, but also on days, I've seen it lately, where the market is selling off and worried about recession. Yeah, it's really been a great performer and it's been a top idea of ours. It's really checking all the boxes that we look for. Beauty is a great category right now. It's still benefiting from people going out a little bit more than they were during the pandemic and using cosmetics as they do that. They really don't have any inventory issues, which has been a big issue for other retailers, but not really a factor in the beauty space.

They are a best-in-class retailer, which means they're taking market share. They have the right mix of new products, new innovation. They have mass and prestige. That helps them regardless of the economic environment. And from a financial standpoint, they keep beating estimates and raising the guidance and beating that. So despite being a really strong outperformer last year and in year eight so far this year over the first couple of weeks, it's really not that expensive of a stock because the arguments keep going. Well, that's what I was going to ask you. After this rally, what, 30 percent in the last 12 months? How many companies can boast

about that? What has that done to the valuation? And if you missed it, is it too late? Yeah, the multiple has actually gone down over that time because the estimate has gone up even a little bit more than that. So, you know, ALTA has never eaten cheap stock, but relative to where typically trades is not out of bounds at all. In fact, it's a little bit below average. It's right about

an average multiple for the broad line and hard line group that I cover right around 20, 21 times next 12-month consensus estimates. So, you know, again, despite the performance,

which has been spectacular, again, up 22% last year in a terrible market and not performing again this year, the valuation really still makes sense to us here. How vulnerable is it to a sharper consumer slowdown, if that is what we see as a result of all these rate hikes, changes in the market? How discretionary versus staple is this category in the past? Sure. You know, we wouldn't want to say that anything is recession immune, but we think they

are a little bit more resistant than others. It is a relatively low price purchase for cosmetics. People still are going out, going to work, going back out to restaurants, doing all those kinds of social things, which typically requires some cosmetics. And again, as I said earlier, their mix really helps them where they do have the prestige categories, but they also have a lot of mass brands. And that's really the beauty, if you will, of Ulta is that diversity in that mix. And so perhaps we'll see a trade down.

We haven't really seen much of it yet. Maybe there was a touch of that last quarter, but that is something that will, that will we think help keep them strong even in a little bit of a weaker economic environment well you clearly still love it a top idea for you i think for 2023 545 price target michael thanks for joining me for the special stealth mover segment here on el alta michael baker up next jp morgan asset management Management's Phil Camparelli on whether he thinks this market rally is for real or just a bear market bounce. Be right back. Welcome back. Stocks are building on the strong start to 2023, but our next guest says he is underweight U.S. equities for the coming year. Joining us now is Phil Camparelli, JPMorgan Asset Management

Portfolio Manager on the Multi-Asset Solutions team. Always a mouthful. Good to see you, Bill. Good to see you. So why are you not convinced? Yeah, so we're still underweight right now because the Fed last year did their quickest monetary tightening that they have ever done. They've moved by 450 before, but they've never done it that quickly. So there still remains uncertainty about what that lagged effective policy does. However, the 60-40 portfolio, right, the multi-asset portfolio, that was so painful last year. Sarah, last year was the first year since 1974 that that 60-40

portfolio was down with both stocks and bonds being down. It's so hard to manage risk in that environment. So that you think changes bonds work? So that changes, right. So the bonds work. And I think one of the things that was underestimated last year was just the fact there was nowhere to hide. You couldn't manage your SOS claim unless you just said, okay, I'm going to go into cash. And nobody really thinks about that. Now, what this sets us up for now is we have the best forward-looking return on the 60-40 of 7.2% that we have had over the next decade since 2010. Right? So the cost-benefit analysis for the Fed here,

all right, what's the benefit of them continuing to move so aggressively if the cost of those hikes puts undue and uncertainty on the economy in a world where inflation is moving in the right direction? And we have evidence, a lot of evidence, ISM prices paid, services prices paid, and the wage report from last Friday that tells us that inflation is heading in the right direction. So you think the Fed is close to wrapping it up? We think they're close to wrapping it up, that goodness. And I'm going to convince you, Sarah, that they're not going to move by 450 basis points

this year, right? So that— Do you think they're going to cut? Cutting, we would need a real sharp pullback in the economy for that. But you're not bullish on the Fed pausing, because you still think, what, recession's not priced in or weakness? Well, we think that the Fed pauses. Fix you're not bullish on the Fed pausing because you still think, what, recession's not priced in? Well, we think that the Fed pauses. Fixed income is a nice place to go.

The dollar is important here. The dollar weakens, which introduces a whole bunch of asset classes outside of the U.S. And right now we're long some calls on the S&P. Yes, we're underweight, but we're long calls on the S&P that can get us back into the S&P if that underweight is incorrect. It did feel toward the end of last year that everyone and big funds and strategists were bearish this year. They're worried about the world falling apart because of all the Fed tightening and the fact that we haven't seen the recession yet and the Fed is still hell-bent on tightening. And it became a little consensus.

Yeah, but it was a race. It's always been a race between growth and inflation, right? So if we're getting evidence now, Sarah, that inflation is heading in the right direction. By the way, it's not going to be two anytime soon, but heading in the right direction. Tomorrow we get a CPI number. That's likely going to seal the deal between 25 and 50 basis points. I don't know. Rodney McMullin didn't make me feel like food inflation is coming down anytime soon. Yeah, but there's three pieces, right?

It's goods inflation definitely coming down. Everybody can afford a car again. And then you have the shelter inflation, and you talked three pieces, right? It's goods inflation, definitely coming down. Everybody can afford a car again. And then you have the shelter inflation, and you talked about that, right? Shelter inflation seems like- Not coming down super fast either. Owners' equivalent rent looks lagged. I think the more anecdotal pieces of rents

look like they're coming down. And then there's that part where wage inflation is so important. It's services X shelter. Going to hotels, going to things like that, restaurants and all that stuff. That's the part that we need to head in the right direction. In order to be really bearish here, Sarah, you have to have the view that the Fed's taking the policy rate to 6%. That is not priced

in. That's a microcosm of where we were last year. And that puts a lot of pressure on the equity market. That is not our base case. That would be something that would keep us up at night, though. So you're underweight stocks, but it sounds like you're feeling a little better about the situation. You'd be adding? Yeah, put it this way, Sarah. So we were at one point last year, in the heat of the summer, we were 40% in equity. Now we're 58% in equity. So, yes, technically still a little underweight, the 60, but a lot closer to home. And then the other piece here is if you believe that the economy is going to stay between plus or minus 1%, I guess that's a soft landing, right?

That's an environment where stocks can do okay, growth stocks can do okay. But importantly, investment grade credit and carry and yield and all that stuff makes sense in a portfolio. A lot of people are talking about that too. Bonds are back, Sarah. But you know how many people sit here and tell me bonds are back and to get into high yield? Well, you want to know what? Well, I didn't say high yield. I didn't say high yield. I said investment grade credit, even parts of the treasury market, right? A 4% 10-year treasury note looks like an attractive place to be in a world where the Fed is stopping at 5% of the policy. I get it. Phil, thank you very much for joining me with your worldview on 6040. Phil Camparelli, JPMorgan Asset Management. Take a look at where we stand overall in the markets. We're rallying today. We're just off the highs of 177 on the Dow.

S&P is up a little less than 1%. We've taken a quick, a tiny step back from where we were a few moments ago. The Nasdaq is still up 1.3%. And you've still got big winners today like Amazon, which is rallying more than 5%. Bank of America, the latest Wall Street firm to upgrade the home builders, which are having a good day. Coming up, we will discuss why analysts are so bullish on these stocks these days, despite the rising rates. Welcome back. Rally day on Wall Street, stocks and bonds. And here are the top search tickers on CNBC.com right now. The 10-year note yield right in the top spot, yield down to 3, 5, 4 percent on the 10-year. Tesla up 3 percent today.

Bed, Bath & Beyond on the brink of bankruptcy, rallying, look at that, 60 percent to $3.25. Amazon is having a very strong day. That, of course, is a huge company, so it has a big weight on the Nasdaq and the S&P. And Apple coming back 1.5 percent, a little less than the overall market right now. But again, it's a broad rally. Only consumer staples are down. Even the meme stocks are up today. We'll talk about what is driving these big gains, especially for names like AMC. I showed you Bed Bath & Beyond GameStop. AMC is up almost 17 percent. That story, plus Apple and travel stocks rallying when we take you

inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day as always. Plus, we've got Steve Kovach here on Apple and Seema Modi tracking the travel stocks. Mike, we'll kick it off broad. We're up about 200, holding some pretty steady gains. Bonds are up today. The dollar is strong today. Gold is strong today.

One of those days where there are buyers in the market. Make it a tougher setup for a big, all-important CPI report tomorrow. It would seem a somewhat tougher setup, or at least I would say a more balanced setup. People do remember that we've had both kinds of reactions to big CPI numbers. Now, I think right now you can look at some of those leading signals of where inflation is going. People are gaining confidence that kind of the burden of proof is shifting over to people who think inflation is going to be sticky at high levels. We'll see if that plays out. As I mentioned, very short term, the S&P, it's getting a little bit hot, a little bit stretched to the upside, but nothing too crucial. It's not as overbought as it was last August. So I do think people feel like they can't be too negative if the Fed is almost done. The

earnings look pretty beatable, given what fourth quarter GDP looks like it was shaping up as. And, you know, people came in light on risk into 2023. Right. A lot of the positioning here felt very bearish going in. It's been a bit of a surprise. Amazon's up 5.7 percent. Look at the meme stocks. Here we go again. A number of these retail favorites getting a bid today. GameStop, AMC, Bed Bath & Beyond, all rallying. Mike, obviously, we need to keep it in perspective. And the perspective is the air has come out of these stocks big time. But it is interesting to see when it reignites. Yeah, and it's definitely a faint echo of what we saw toward the heights. If you look at, you know, any kind of a two-year chart of these types of stocks, you're going to see that this is barely visible as a bounce.

But it's part of the same process of people feeling as if, you know, risk assets got washed out at the end of last year. Yesterday, the heavily shorted stocks in the market were some of the biggest leaders to the upside. So you have this sort of rolling squeeze going on at the same time. Maybe some people are being enticed back into the game. We're three months removed from the last low in the S&P 500. Rates are down. Maybe people feel like their risk budgets are big enough going into a year they can grab at these things. I would say you could expect it to be fairly fleeting in terms of this rally in the absolute pure meme stocks. I would imagine it's not something like the story like the big picture story has changed. And I also wonder, and we've had this discussion at Infinite Item about whether the Fed is going to look at these kind of indications of animal spirits rising and not love the picture. Right. I mean,

it means that people are still willing to get into the speculative behavior, blindly chasing, for instance, a bankrupt, almost bankrupt company like Bed Bath & Beyond. Yeah, and it happens. I have to say, a lot of it is just sort of the funny games that happens at the margins of the markets. But yeah, if it really, really builds into something, then you might be more concerned. Yeah, definitely some big short squeezes going on there. Look at Bed Bath, up 66 percent. Apple, we want to hit because it is outperforming the Dow, despite Barclays cutting its price target on the stock to $133 from $144, citing App Store growth concerns. This says Apple rolls out a big update to its Maps service and reports the company that will start making its own screens for iPhones, which would be a blow to Samsung and other third-party suppliers.

Steve Kovach joins us. All of these threads, Steve, and just generally watching this stock, which had underperformed so much toward the end of last year. Yeah. So let's talk about the services bit of here, Sarah. So what we learned yesterday from Apple, in addition to what Barclays put out, was that the App Store, which is a huge chunk, maybe up to a quarter of the services business, was actually likely flat year over year. This is just from data that Apple gives out about how much they pay developers. And you can do some back of the envelope math and kind of figure out how much they actually made off the app store. So and but this

also backs up what we've been hearing from Tim Cook. He told me last quarter that this fall in gaming spend is what's really hurting the services business. And that also backs up what Barclays is saying. What we really need to be on the watch for, Sarah, though, is if that demand slips on the hardware side, too, is iPhone demand going to slip? Or is it still as strong as Apple said it was back in November when they warned about those production cuts or looming recession? Are they going to be in trouble there?

And then the question is, talking about the Maps news today, what other levers can they pull in the services business if the App Store is weak? Well, we've been talking about advertising across Apple's ecosystem for the last several months now, and today they announced a new feature for Apple Maps that would let businesses create their own pages, kind of like you see on Google Maps, and that is seen as a foundation to adding paid promotion and advertising within the Apple Maps app one day. So some worried about services slowdown. Some, it sounds like not as much demand concerns, but more on the production concerns. What's been happening with the numbers,

the outlooks? Because I know this Barclays, part of the Barclays call was they cut the forecast. Yeah. And we've been seeing cuts, you know, down. Most people had it in the $200 range, I say. And a lot of analysts have been slowly trimming away at that. I've been seeing some, like, theories out there that $125 is going to be the ultimate bottom. Maybe that's true or not. They were pretty close to there last week during that fall that they had.

So it's really all over the place. This is going to be, in just a couple weeks, February 2nd, Sarah, is their earnings report. And this is going to be just a huge report for them to get an idea of not just how bad last quarter was, but what they're seeing in the coming quarter. And I'd also note TSMC, which fabricates all the chips for Apple's iPhones, they're reporting earnings in the middle of the night, our time, and their guidance is going to be important as a read into Apple as well. Oh, good. That's something to watch. Thank you, Steve. Mike, is Apple your bellwether?

Is Amazon, which is at the top of the market, or Microsoft? What are you watching now to get a good read on sentiment and where we are on the growth train? I mean, my sense on Apple has always been that it's not the greatest bellwether

either of macro sentiment or conditions. It's somewhat of a bellwether of retail investor excitement. I think it all comes down to what multiple you want to put on steady earnings. You know, it's fiscal 2022 and this year and next year. It's all six bucks a share, plus or minus. That's the estimate. So you want to pay low 20s multiple. OK, for the safety and security and the good performance and the quality of the balance sheet. That's where it comes down to with Apple. Now, when it comes to other stocks, I'm more focused on things like the industrial stocks, the steel stocks, some of the consumer cyclicals that are acting better.

It's giving me more of a read on whether you have soft landing moving somewhat closer to a consensus call as opposed to a fringe one. Although I got in trouble for mentioning Caterpillar. Matt Maley, Miller Taveback, technical analyst, said be careful with that one because it made a new high in the middle of the great financial crisis June 2008. That is true. So not necessarily a bullish development. Well, that was on the China boom and everything else.

Yeah, exactly. Right, right. But you can look at groups like industrials, like this consumer discretionary that you said, rallying, not necessarily things you'd be buying into a recession. The airline stocks included, they're climbing today, despite the FAA grounding flights across the U.S. for several hours this morning, following that critical computer system outage. Transportation Secretary Pete Buttigieg says there is no evidence a cyber attack is to blame,

but the department is not ruling it out. Meanwhile, Expedia, one of the department is not ruling it out. Meanwhile, Expedia, one of the big winners in the S&P 500, Oppenheimer upgrades the online travel company to outperform from perform on expectations of improving revenue and margin growth. Seema Modi joins us for more tracking the travel trade, which has really bounced back to start the year, I think also confounding a lot of expectations. Yeah, that's right, Sarah. We initially saw airline stocks fall today after the FAA outage grounded U.S. flights, but now names like United Airlines staging a comeback up over 4%. Separately, we did see Barclays raising its price target on the stock.

So just more optimism about the return of international travel. And then draw your attention to Expedia, now up about 13 percent in the first two weeks of the year. Oppenheimer pointing to margins improving as more people travel. And they're also bullish on Expedia's new CFO who came over from Williams-Sonoma. And on the China reopening, Expedia is sharing with CBC that air searches for travel from China to the United States increased by roughly 40 percent compared to the week prior to the announcement that the quarantine was ending. So that's been really a positive catalyst there for the broader industry. And now the question is, will we get the recovery that so many are anticipating?

Yeah, absolutely. Thank you very much. Chinese stocks doing well today. Also, some of those Internet names, Seema, thank you. Housing stocks are on the move after a Bank of America call, the firm naming NVR its top pick among the builders, while also upgrading Toll Brothers and Pulte Group to buy from neutral and Lenar to neutral from underperformed. Analysts are saying valuations look promising, even, especially, actually, if mortgage rates have already peaked. We are watching KB Home closely, reports earnings after the bell. Street consensus is for total sales to climb nearly 20 percent in its fourth quarter. I think the question we've been asking for a while, Mike, is, is it too early to get

into the homebuilders on the idea that rates have peaked? Well, yes. I mean, by the way, if it's too early now, then it was, I guess, just the perfect moment several months ago when they were 20%, 30% lower. It's a tough question. I think you can basically argue that rates and mortgage rates have peaked, but how low do they have to go to find a really good equilibrium for supply and demand to really kick in again in favor of the homebuilders? I would say a lot of folks feel like mortgage rates maybe have to get below 6% by some margin. Affordability still doesn't stack up that well, but there will be,

you know, there's enough pent up demand in stuff that's underway. There's enough cost advantages now versus a year ago for the builders that maybe they can make it work. And yes, they do look cheap on current earnings. So I think that there's a fairly decent basis for believing that they can work. But it's going to be rate sensitive. And as I said, affordability seems to stand in the way of another real push higher in demand for homes. Session highs here minutes into the bell. S&P is up one and a quarter percent. Mike, I want to mention the REITs.

They are flying right now. This is an industry that has been beaten up on concerns about higher rates. And it's really across the board, Mike, residential REITs, office REITs, retail REITs, they're all at the very top of the market today. Yeah, it's the combination of yield sensitivity and cyclical exposure. People worried about their credit sensitive credit markets have really held up pretty well on the first part of the year so far. So it does make sense that, again, laggards of 2022, getting a little bit of a fresh look and the yield sensitivity is working in their favor. But really, most things that are a little bit cyclical or a little bit more aggressive,

riskier, finally have a refreshed bid this year. Yeah. I also know commodities had a good day, too. It really a lot. Everything getting bought today. Oil prices, copper prices had a very strong day. Two minutes to go here in the trading session at the highs of the day. Mike, what do you see in the internals? Yes, strong again. So this is definitely one of those rallies that has broad participation. It's been the case for a while. Two and a half to one advancing versus declining volume. And then take a look at the new 52-week highs versus lows on the NASDAQ. This is starting to turn. Now, of course, we're more than a year beyond the absolute peak in the NASDAQ index. So you're starting to have some higher prices roll

off of these calculations. But the last few days, highs starting to eclipse lows. That's part of the process of building some confidence that maybe a meaningful low could perhaps be formed. And then, of course, the volatility index, even with the indexes up, is a little bit perky today. That's obviously because of the event risk of the CPI tomorrow. We know there's going to be kind of, you know, two-way risk after that number comes out. Low 20s is a little bit different than where we met the previous CPI report, which was more like mid-20s. So we'll see if this can deflate right after we get the CPI heading into another three-day weekend. Mark, it's feeling good about this inflation number going into the report. Again, Phil Camporelli from J.P. Morgan told us, watch that services-ex-shelter component,

because that's really something that the Fed has been concerned about. Of course, it tracks those higher wages as well, and that's been an inflationary problem in this economy. There's the S&P into the close, 1.25% higher, as I mentioned. Real estate on top, but close second is you've got consumer discretionary stocks working really well because Amazon is having a big up day. Technology working well today. Every sector is going to go out with a game. The NASDAQ is in the lead. It's up one and three quarters percent, really zooming. Thank you, Amazon, Microsoft, Apple, Alphabet, and Tesla rallying today as well. Bonds are up, the dollar stronger, and commodities also having a good day.

That's it for me on Closing Bell today. I'll see you tomorrow, everyone.