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Halftime Report
Final Trading Day of the Year 12/31/24
00:43:17
Frank Holland and the Investment Committee discuss the final trading hours of the year. Plus, Communication Services and Tech leading the charge again, up nearly 40 percent this year, the Committee reveal their 2025 strategies. And later, class is in session, Josh Brown shares his Trade School on ETFs in the new year. Investment Committee Disclosures
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- [00:01]
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Frank Holland
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Frank Holland
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Frank Holland
Before investing, consider the fund's investment objectives, risks, charges and expenses. Visit ssga.com for prospectus containing this and other information. Read it carefully. DIA is subject to risks similar to those of stocks. All ETFs are subject to risks, including possible loss of principal Alps Distributors, Inc. Distributor. I'm Scott Wapner and you're listening to CNBC's Halftime Report, the podcast the most profitable hour of the trading day. We record this live weekdays at 12 Eastern.
- [01:14]
Joe Terranova
Listen in.
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Frank Holland
Welcome to the Halftime Report. I am Frank Holland in for the judge, Scott Wapner, Front and center this hour, the final trading hours of 2024. Stocks are poised for back to back 20% plus returns. Comm services and tech leading the charts once again, up near 40% this year. But how do you want to be positioned going into 2025? We'll discuss this and much more with the investment committee. Joining me for the hour, we have Josh Brown, Joe Terranova and Jenny Harrington. But first, let's begin with a check of the markets this hour. Taking a look. Markets in the red across the board, but down fractionally. Dow down just about 0.15%. The S& P down just about a quarter of a percent. The Nasdaq the hardest hit, down a third of a percent. That's really where we have to begin. Joe, you and I, we've been here a couple days together just talking about the Santa Claus rally kind of faltering. We hit a stat yesterday. This is the first time since 1952 the S&P said declines of 1% or more in the final five trading days of the year. Does that mean anything now? I mean, at first we said it was algos, it Was seasonal, it was low volume. But we're starting to see some Trends break down. 70 year trends.
- [02:17]
Joe Terranova
So I had an advisor yesterday hit me with that statistic and my response was, well, what does that mean? And the advisor didn't have an answer for that. So let's put it into context. And look, this is for the longer term investor, okay? We're going into 2025, we've lost momentum for sure. We could clearly have a negative year. That could happen. But if you place what happened in that time frame into context, 49 through 52, four consecutive years, the market returned greater than 18%. Greater than 18%. Then here comes 1953. The market goes down. Ready, Frank? 1%.
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Frank Holland
1%.
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Joe Terranova
1%. The market goes down 1%. And then the obvious question is, okay, what happens on the other side? 54 and 55, 4 up 52%. 55, you're up 31%. So guess what? Okay, if 53 is going to look like if 2025 rather is going to look like 53, I'll take it if you tell me that 26 and 27 are going to look like 54 in 55. So don't make too much of these statistics. I will acknowledge we're going into the year, we've lost some momentum. We've got the Mag 7 in control right now and that might just mean we don't have the type of year we had in 24 and 23. And if you could trade around that, great, congratulations. I'm not discrediting you and I'm not saying that you shouldn't be doing that. But for the long term investor, keep it in mind, place into context the statistics surrounding 52.
- [03:54]
Frank Holland
So you're saying after back to back years of 20% plus returns, don't obsess over one or two days at the end of the year, it's normal.
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Joe Terranova
I mean, look, if, if 25 sets up and we're talking about a year where the return doesn't look like 23 or 25, that's normal. And if it's down, okay, that doesn't mean that on the other side in 26 and 27, you can't be blessed with positive years.
- [04:14]
Frank Holland
Once again, Josh Brown, right now we're looking at the Santa Claus rally just looking like it's not going to happen. At the same time, we've seen bond yields moderate a bit. Your take going into 2025, you hit us with your landmines a couple of days ago. Are you worried about anything new as we go into 2025 on this last trading day of the year.
- [04:32]
Josh Brown
No. And just to put a fine point on what Joe is saying, and I think what everyone rational would say, if you required a Santa Claus rally this year, with the Nasdaq already up 34% and the S&P up already 27%, you've probably been doing this wrong. I don't think most investors needed a quote unquote Santa Claus rally to end the year. This is one of the best years in the history of the stock market on so many levels. You've got household net worth finishing the year at $158 trillion. Like what, what is the difference if we have a flat week to end the year or if we have a pullback in the first quarter of 2025. Like these things pale in comparison to what's actually going on, which is we are in a 1990s style technological revolution that is powering continuous upside earnings surprises for the largest, most well capitalized corporations in American history. This is the backdrop. So what happens in the tape in any two or three days is really not the thing to be, to be focused on. I think what prudent investors should do is two things. Number one, ignore all price targets. Going into 2024, the average price target worked out to a gain for about 2% on the year. And we did almost 30. Okay, that's number one. JP Morgan had the lowest target for this year at 4,200. They were the quote, unquote bear. The biggest bull was Yardeni. He was at 5,400, we're at 5,900. Even the Bulls underestimated the power of the continuing bull market. And it's not that we want to just keep ratcheting up expectations. I think the second thing that prudent investors want to do after ignoring targets is, is to just say to yourself, all right, I said that I was going to be a 7030 portfolio based on my own personal financial goals. Well, obviously with a stock market performance like what we've just had, I'm probably overweight equities relative to what my long term plans are. So the prudent thing to do is to make sure you don't stay that way. Because if we do have a pullback and you don't have enough dry powder for, for a meaningful rebalance, you're going to kick yourself. We don't, we don't fixate necessarily on what the risks are. Everyone knows what they are. Everyone understands that below average volatility years typically lead to above average volatility years. This is just probability. So let's make sure that we do the prudent things in the early part of 2025 to set us up for a situation where we've got a durable portfolio regardless of the outcome.
- [07:20]
Frank Holland
All right, taking a long term view. Jenny, I'm going to come over to you. Just one more stat. The halftime team, they work so hard to generate these stats. Last day, we can use them. S and P trying to avoid its first four day losing streak to close out a year since 1966. Looks like it's on pace for that right now. Do you see any meaning in that or is it just time to turn the page and look ahead to 2025?
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State Street Ad
Yeah, no, I don't see meaning in that and I don't love those kind of stats because I think they mess with people's heads and I think, you know, I'll have clients email me and say like, oh, do you realize that? Do you realize that? But like it's always different and it's a lot different now, 60 years later than whatever, whatever built up to that. So this is why I like being a bottom up stock picker. Because when you hear those stats, they're very easy to get frightened, they're very easy to overly extrapolate and think of scary things. But when you start looking at the individual companies in your portfolio, at the individual allocation of your portfolio, you kind of ground yourself, you know, and as I think about what we're going into, Frank, I think to myself, like a lot of echoing what Josh was saying, think about allocation, you know, what's your portfolio. And as you're thinking about reallocating next year, don't succumb to just a random statistic. But think about the fact that there's froth. Everyone has frothy elements in their portfolio. Maybe think about taking some of that froth out and repositioning it into sensibly valued areas. So I'd say get away from, get away from the headline grabbing noise and just like go from the bottom up in your portfolio, whether it's at the asset allocation level or the stock level.
- [08:41]
Frank Holland
All right, connect you with the stat. I don't think it's meaningless. This might be important. Joe, I'm going to toss over to you because we were actually talking about this yesterday. It's an update. We had our CNBC data team update a stat. So since the election, the MAG 7, 95% of the S&P gains, 95%. Are you starting to get worried about concentration risk as you go into the next year, 50% of the gains year to date, but 95% since the election.
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Joe Terranova
Look, I've seen so many notes in the last week where you've got investment banks and the wirehouse community talking about you're, you're not correctly diversified if you're following Warren Buffett and you're just buying the s and P500 because 40% of your exposure is tied to these Magnificent Seven. And really your biggest concern is what Nvidia's earnings ultimately are going to be. Now, look, I run an equally weighted strategy. So running an equally weighted Strategy, if the MAG7 are going to outperform, that's troublesome for me. But the reality is the earnings growth that's being delivered is coming from these Magnificent Seven. And they've been delivering this type of earnings now for eight consecutive quarters. Frank, the market, Jenny's not going to like this, but the market is more and more growth. I gave the statistic yesterday. The last time value outperformed growth in an up year year was 2016. Everyone keeps saying, okay, value is going to outperform this year. To me, for value to outperform, it means we're having a correction in the market and the market actually moves lower. So the reality is you turn the page into 2025, the Magnificent Seven are in control of the positive momentum right now, where the rest of the market is narrowing out and losing its positive momentum. I hope running an equally weighted strategy, we're going to see a little bit of a reversal in that and a return to broadening out. But I think that's going to come when we hear from earnings. And you have to see the earnings growth in other areas of the market, not the Magnificent Seven.
- [10:35]
Frank Holland
You know what? Someone else has a bit of a different take in. Jenny, you're going have to let us know if you have a problem with this narrowness of the market. You don't, but I want to bounce this off.
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State Street Ad
But it's, you know, I kind of do.
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Frank Holland
I want to bounce this off you. Ed Yardeni out with a note today saying bull market brought in to resume during the springtime. He's pinning it to the springtime. He goes on to say the Mag 7, they might continue to outperform during the first few months of the year, but we expect the broading will resume along with the bull market, he says along with the bull market during the spring as Trump 2.0 policies become clear and should be bullish on balance, do you agree that couple weeks, couple months into this new administration, those policies take hold, then we start to see more of a broadening out. But the Mag 7, they're going to carry us, at least to a certain degree going into the new year. The first couple of weeks on the.
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State Street Ad
Mag seven carrying us, I'm not sure on that part in terms of the broadening out. I do think that's right, because when I look at our growth portfolio, for example, you know, and I. You're right. You know, growth has carried it and it just depends on how you define value. You know, is it actually stocks trading under a certain multiple or is it stocks that are trading at a discount to what their future cash flows are? But if you look at our growth portfolio, for example, like take American Express trading at 22 times and it's got high teens, low 20% earnings growth ahead. So that should be appreciated. That shouldn't trade at as big a discount in terms of valuation as it does to the Mag 7. So I can kind of see money flowing out of MAG7 and into stocks like that where there's still really great earnings growth, but the relative valuation is lower. And I think since the election, there's just been so much noise. We just need to get past inauguration. We need to get past the cabinet nominations and just let the dust settle. And then I think people can start to look at valuations instead of being swayed by stories.
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Frank Holland
But do you agree that the policies are what create the broadening or Joe's arguments, the earnings that create the.
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State Street Ad
I don't think. Yeah, I do too. I don't think it's the policy earnings because there's going to be noise around the policies. They're going to be messy. We're not going to know what's real and what's not real for a long time. So it's really going to be the earnings showing up and like driving the stocks and driving the growth rates. And it's going to be March Guidance is going to be super interesting seeing how the different CEOs are thinking about policies and how they might impact things. But I really think it's just like, you know, cash is going to be king, the earnings delivery.
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Joe Terranova
Jenny's right. The earnings growth is key. And there were other sectors, other areas of the market going beyond the max 7, where if you had the earnings growth in 2024, you were rewarded for that. I mean, just simple, simple as looking at airlines, United Airlines, Delta Airlines, they were rewarded for that. Financials, JP Morgan, Goldman Sachs, you rewarded for that. So there are areas of the market where if you show that you have the Earnings growth, you will be rewarded for it beyond the max 7. But the totality, when you're just thinking about, when you're just thinking about investing around an index itself, it's very difficult to overcome the earnings growth you get for the max.
- [13:23]
Frank Holland
Josh, we certainly didn't forget about you. I do want to get your take. Did you, do you have a thought on what Yardeni had to say? Do you agree with Joe that it's really earnings are going to lead to that broadening or do you even see a broadening coming up in the first quarter of next year?
- [13:36]
Josh Brown
We, we had, we had huge performance in financial stocks this year. Like that they were value stocks going into the year. They worked. But, but like the problem is the taxonomy. Spending all this time trying to categorize what type of stock something is and it's not a money making activity. The reality is that you could have value stocks become momentum stocks because all of a sudden those companies find the growth engine. In the case of the financials, it was the interest rate picture and the pickup of economic growth and the state of the consumer. Look at the performance of J.P. morgan this year. Look at the performance of Berkshire Hathaway. Those, those were value names but they had tons of momentum because to Joe's point, the earnings growth is what delivered. If you look at the six most popular factors to weigh the portfolio on and how they did last year, the tale of the tape is very Stark. Momentum did 48% last year. That, that's, that's one year over the last five years. It's annualized at a 20% return return. Momentum pure momentum growth did 38%. Quality did 27. Joe knows this. Low volume did 14.9. So if you had a portfolio managed toward a low volatility strategy mandate you underperformed by 50%. It's not, it's not a killer. You were up. But like that makes a huge impact if that's the game you're playing. Value did 13.4% worse yield. If you were allocating and you specifically said I'm going to weigh the portfolio based on dividend Yield, you did plus 78.7.8% horrendous. The emerging markets outperform you.
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Frank Holland
Jenny's itching to respond to you. I'm not sure what she has to say. She's been itching.
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Josh Brown
She could disagree with. She could disagree. But that's the data.
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State Street Ad
Yeah, but no, I just want to keep riffing on this earnings growth and the broadening and here are some really interesting numbers. So Q4, 20, 24 earnings for the S&P 500 are expected to be up 9 and a half percent year over year. Russell 2000, for example, expected to be up 43% year over year. As you take those further down the road, the numbers are even more astounding. So Q1, so what we're going to hear in April, right, Q1, S&P earnings are supposed to be up about 13%. Russell 2000 year over year should be up 28% next quarter, 12 and a half percent for the S&P, 48% for the Russell 2000. Next quarter, 13 and a half percent for the S and P, 57% for the Russell 2000. So as we talk about this earnings growth rate and broadening, right, the S And P, the Mag 7, they're still growing. Those growth rates relative to so much else out there just start to pale. So if we're, if the three of us are all in agreement that it's really about earnings growth, that's going to drive it, then that would argue that the rest of the Russell 2000, the 493, they're all growing on average at a much faster rate. So I do think we should see some broadening.
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Joe Terranova
The response I would have to that, though is that's why, to Josh's point, you use the factor of momentum to tell you exactly when that growth appears. I'm not going to guess and say, okay, I think this is it. This is the quarter where the Russell is finally going to have earnings growth. I want to actually see the earnings growth be delivered and the momentum factor will find those stocks and believe me, they will allocate towards them.
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State Street Ad
I agree.
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Frank Holland
I want to switch back to taxonomy. I like that word from Josh right now. We're going to talk about some big tech right now. Let's get to our own Steve Kobach for a look at two big challenges for Apple coming up in the new year. Steve?
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Steve Kobach
Yeah, Frank. These are going to be at the top of Tim Cook's agenda going into 2025. Two things. First, dodging President Elect Trump's tariffs as he did for Apple in Trump's first term. And second, China, specifically getting the government there to approve Apple intelligence and launch in that country. Let's start with tariffs. That's the most important. Trump coming into office in just a few weeks, promising blanket tariffs of up to 60% on goods from China that had hit Apple the hardest of any of the mega tech, mega tech companies we talk about so much. Most products, including a majority of iPhones, are still made in China. Now how Cook managed to dodge tariffs in the first term developed a relatively cozy relationship with Trump as his peers, especially folks like Jeff Bezos, took a more antagonistic stance against the Trump administration. That all culminated in 2019 when Cook gave Trump a tour of an Apple factory in Texas. That factory already existed at the time, but Cook showed Trump a new model of Mac computers getting made there. That became a win win for both sides. Trump got to show Apple making things here in the United States. And then the following month Apple got relief from tariffs on imports from China. Now ahead of Trump taking office again. He already said Cook came and dined with him at Mar A Lago a few weeks ago. No mention from Apple or Trump himself on what that means, though, specifically for tariffs so early in the year. Here's what to pay attention to. Keep an eye out for announcements from Apple related to job creation or manufacturing here in the United States that could be seen as an offer to Trump in order for some relief on those tariffs. Now let's talk about China. Still got some competition there from homegrown competitor Huawei on the hardware side, but beyond that, Apple needs to get the government to approve Apple intelligence so it can launch on iPhones in that country. I asked Tim Cook about that last earnings. He was fresh off one of his trips this year to China. He didn't have a comment, though those discussions still continue. And Apple needs Apple intelligence for those Chinese consumers who are more obsessed with tech specs amid such heavy competition over there. And it would likely have to partner with a company like Baidu on artificial intelligence since Open Air, the partner here in the United States is blocked in China.
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Frank Holland
Frank, our Steve Kobach with the very latest on Apple. Steve, thank you very much. Josh will come right over to you. You're the only Apple owner here on the desk. Your thoughts on some of the issues that Steve just laid out?
- [19:34]
Josh Brown
Yeah, I think two things can be true. If there's anyone I trust to nail the relationship with Trump, it's Tim Cook among all the Mag7 CEOs, including including, by the way, Elon Musk, who may be flying a little too close to the sun. The last reporting is that he's inhabiting a cottage next door on the grounds of Mar a Lago, to the dining room and just walking into meetings whenever he wants. If that sounds like it's unsustainable for the next four years, it probably is. Tim Cook's not going to get that cozy, but I do think he understands what the president elect wants to see and he's going to do what he has to do. The problem is not that. The problem is that Apple is the most expensive of the mega cap tech stocks other than Tesla. It's a 41 trailing P E that is not only high in absolute terms but in historical terms for Apple itself. The highest historical median trailing PE for Apple under any other time frame is 29 times and that's the five year look back. So we are even quite a bit higher than the elevated valuation the stock has had in the last five years. It's also the highest trailing PE for Apple since 2007 before they launched the iPhone. So in the, in the iPhone era, this is the most expensive valuation Apple has ever had. Stocks up 30% year to date, 14% just since the election. I am not counting on outperformance from Apple in the first half of this year. Now what could go right is they start talking about the monetization of Apple intelligence and they have better things to say about handset upgrades and the services part of the business. But it has to be related to all of the embedded expectations with, with AI because if you ask me why is this at 41 other than consistency of earnings and the ability to buy back stock, I really don't know why. It's, it's. If I did not own the stock I would not be running around buying it. And the greatest investor who ever lived just finished selling a huge, huge chunk of it. So it's not on my bingo card as like a hot stock to watch for.25. I hope to be wrong. It's just, it's not in my expectations.
- [21:59]
Frank Holland
All right, so Josh, obviously you're referring to Berkshire Hathaway selling some of their Apple stake. I do want to ask you, friend of the show, Dan Ives, he came out and said with a forecast there's about 300 million iPhones that are four years or older. He believes that if they can upgrade about 240 million of them over the next year, then Apple intelligence is a big success. I mean, do you agree with that? As long as it leads to an upgrade cycle, everything's great with the company. Put China aside, put tariffs aside, put everything else.
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Josh Brown
No, I don't agree. I don't think that Apple intelligence right now is the reason that anyone's upgrading. I think you just have phones that are relatively old and they're going to upgrade regardless. My mother in law just said should I get the 16? I started explaining Apple and she's like I don't want all that. I just need a New phone. Apple benefits from people who just need a new phone. The cherry on top will be if and when people start really getting excited about Apple intelligence. I'm not seeing that amongst normal people anywhere.
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Frank Holland
Apple shares down just about a half a percent right now. Moving on, the other big question for tech in 2025 is what happens to the once red hot semis trade. Christina Parts and Evolutions is here at post nine with the set up. Christina, I like that he just said normal people but I'll get to that. If you, if you had a basket of chips at the beginning of this year and held, you'd be up at least 40% as seen by the SMH. A winner no doubt. But that's still less than the rise we had in 2023 when the boom first kicked off. The sector has started to unwind for many reasons. You actually talked about a few of them. The return on investment for all of those expensive chips. There's a lot of questions about the roi, China tariff, tariff retaliation, big uncertainties there. Uncertainties around the Blackwell delivery, specifically from Nvidia and then the lack of recovery in autos as well as industrials. And so that's why you're seeing the SMH and the stocks that have been pretty much rangebound just since mid September. Even Nvidia has been moving sideways just over the last two months. Especially overhead lines about Blackwell delays and any China restrictions and what that would mean for the company. Bank of America said investors are shifting to quote China resistant names and AI beneficiary software stocks like the IGV which is up what 16% in the second half of 2024. When you compare that to the basket of chips we just talked about SMH or the stocks which fell about 11% really just a different trajectory for both sectors and this is driven by again the weakness in the PC refresh cycle, a slow recovery in auto and in industrials, weaker electronics and really just highlighting the ever present cyclical nature of chips. Christina, thank you very much. Joe, you have the most chip ownership here on the desk. Analog Devices, Applied Materials, AMD list goes on. And on. Your take on this range bound nature of chips in recent months.
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Joe Terranova
I think it's important for me to kind of look at the direction of the allocation to the industry. So yes we have, I might have the most exposure of anyone that desk towards the semiconductor industry. But in the quarter prior to that that exposure was even higher than it is today and in the quarter prior than that it was at its highest. So we begin we've been Reducing the allocation to the semiconductor industry over the last several quarters largely because of what Christina is talking about. We liquidated LAM Research at the end of October. That proved to be correct. Now you look, look at some of the other semi quick names like KLA Corp. Applied Materials, and clearly that has negative momentum. So when I look at the semiconductors, I think it's going through this phase where it's pricing in a lot of different headwinds. Might be the headwinds surrounding the impact of tariffs. It might be select semiconductors that do not have the exposure to AI and the market share that it's obvious Nvidia has and that Broadcom has. We haven't seen the recovery in semiconductor chips that have exposure to automobiles or personal devices. So that's been a challenge. Computers, PCs as well, that's been a challenge for a lot of these names. So I think it's becoming a very isolated, narrow set of semiconductors that you could view as having positive momentum. You could look at the other side and say that value is being restored in some of the semiconductor industry. And I don't disagree with that. I think it will, but that has to play out over time.
- [26:14]
Frank Holland
Our SMH down three quarters of 1%. Christina, thank you very much. We got to leave it there. Still ahead on Halftime, we have our headliner with more picks for your portfolio in 2025. Plus, we got a trade school for you and the playbook for one surprising sector that's seeing a big comeback. Halftime is back in just two minutes.
- [26:30]
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- [26:46]
Frank Holland
It'S CNBC's Big January with CES from Las Vegas, biotech and pharma at JPM Healthcare, the world Economic Forum in Davos.
- [26:55]
Capella University Ad
And the first Fed decision of the year.
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Frank Holland
Start the year ahead of the game.
- [26:59]
Capella University Ad
Cnbc.
- [27:02]
Frank Holland
Welcome back to Halftime. Our headliner today says to look beyond tech for some of the best opportunities in 2025. Malcolm Etheridge is the managing partner at Capital Area Planning and a CNBC contributor. Malcolm, good to see you. Happy New Year.
- [27:15]
Malcolm Etheridge
Happy New Year. Good to see you, man.
- [27:16]
Frank Holland
All right, so where are we looking at beyond tech for opportunities as we go into the new year?
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Malcolm Etheridge
Yeah, so I don't, I don't know that I can call it completely beyond tech because it's going to end with the word tech. But we're looking at fintech as one of the places that investors should be considering in addition to Fintech, the broader financial sector.
- [27:36]
Frank Holland
All right, so is fintech an area you like because you think there'll be less profit taking going into the new year? We've seen broader profit taking as we close out the year. Some thoughts that it might actually continue as we go into 2025 as well?
- [27:48]
Malcolm Etheridge
Yeah, no, I actually think that profit taking is going to continue in the bigger names, the Mega Cap names, the Mag seven, whatever we want to classify it as. And it's especially among retail investors. Right. If you look at a name like Tesla, 40% owned by retail, Nvidia, 30% owned by retail, those dollars are going to have to go somewhere. And more than likely those dollars are going to be part of the broadening story you guys started off the segment with. Right. So where you look for opportunities among as investors. As you look for opportunities, you're looking at some of the most hotly anticipated, anticipated IPOs of next year. For example, all in FinTech, Klarna, Stripe Chime. Those are the kinds of names that I see those dollars flowing to as investors continue to take profits and raise cash to look for what's coming next.
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Frank Holland
All right, so you're looking at Fintech, you're also looking at the money center banks. You're seeing opportunities there. Are there any particular names? Are you playing the sector more broadly?
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Malcolm Etheridge
Well, the IPOs that I just mentioned. Right. All of those names are already in talks to be brought public by JPMorgan Chase, Morgan Stanley, Goldman Sachs, it's the usual players. And so I think that those G sibs, the money center banks, the big banks, the too big to fail banks, however we want to classify them, those are the banks that will benefit in any environment next year. So we talk deregulation that's going to benefit them. We talk about falling interest rates that could benefit them. We talk about M and A activity, whether it's IPOs or traditional mergers and acquisitions that's going to benefit them. So it's a heads that they win, tails they win kind of scenario. And so I would want to look to play that using something like the XLF instead of maybe the KBE that's more broad based, specifically because you want to get exposure to the larger names and leave the smaller community and regional banks alone.
- [29:27]
Frank Holland
Malcolm, I just want to talk to you about cybersecurity. Now, you have an interesting thesis when it comes to cyber, you also have a pick for us. What's your favorite name? When it comes to the cyberspace.
- [29:35]
Malcolm Etheridge
Yeah. So I actually like the index CIBR, the cybersecurity index that owns both Palo Alto and CrowdStrike, because I know those are the two most popular names in that space. And if we talk about platformization, those are the two names that have gotten there ahead of everybody else in the sector. But I think that cybersecurity in 2025 is ripe for mass consolidation. I think that there's a lot of names of the smaller cap, micro cap names that are going to end up getting bought up by a lot of the other names that are looking to become platform players. And we don't want to necessarily have to choose the best one, two or three that are going to sit up next to CrowdStrike and Palo Alto. And so I think the safer play there is to go for the index approach.
- [30:19]
Frank Holland
All right, Malcolm Athens from Capital Area Planning, great to see you. Happy New Year. Thank you very much. Jenny, I want to come over to you about cybersecurity. You actually sold out of Palo Alto Networks, one of the companies that, that he was talking about.
- [30:30]
State Street Ad
Right. So here's the problem with, with, with cyber for us, and it's the most compelling story. We know that we're going to need it forever and ever. But the problem is, is they are actually kind of mature companies. So when you look at CrowdStrike, it trades at like 350 times. Fortinet and Palo Alto both trade at 4,550 times earnings. And when you look at their earnings growth, it's reasonable. It's like mid teens, you know, not even mid teens. Maybe like 10%, 12% as you look ahead. So the problem is, as with so much out there, the story has pumped up the share price in an unhealthy way. So do I want to get back into the space? Absolutely. Do I want to get back into it when the shares have created, have reached a reasonable valuation where the, where the earnings growth that's there can actually justify the valuation? Yes, I want to be there. You know, we bought Palo Alto several years ago. I think when we bought it, it was like a 10% free cash flow yield. We had this huge, like 600% return on it when we sold it. I want to be in at that point. I don't want to be in at this point. And so there's, there's so much of this. To me, they're the poster child for what's wrong in the market right now, which is that the stories are fabulous. People pile in with no heed. To valuation and, and it blocks people out.
- [31:41]
Frank Holland
But I do have to say, if you see strong earnings growth, doesn't that more than likely mean there was a big cyber incident that's leading more money to pile in? And you're going to see the same. They're cycle, repeat, repeat.
- [31:49]
State Street Ad
Like you look at their earnings growth and they're like 12%. I don't want to own something with a 12% earnings growth that's trading at 50 times. It's like American Express. I'd rather own American express with a 22 times multiple with the same earnings, same or better earnings growth. It's just too expensive.
- [32:04]
Frank Holland
Palo Alto trading lower right now. All right. Time now for the headlines with our Pippa Stevens. Pippa, happy New Year.
- [32:09]
State Street Ad
Hey, Frank. The U.S. imposed new sanctions on Iranian and Russian entities today for attempts to interfere with the 2024 US elections. The Treasury Department said today that the entities were a subsidiary of Iran's Revolutionary.
- [32:22]
Frank Holland
Guard Corps and an organization with ties to Russia's military intelligence agency, adding that.
- [32:28]
State Street Ad
The Russian entity used artificial intelligence to spread misinformation.
- [32:33]
Frank Holland
Puerto Rico's governor elect is promising to.
- [32:35]
State Street Ad
Make stabilizing the island's energy grid her top priority as officials work to restore.
- [32:40]
Frank Holland
Power amid a sweeping blackout.
- [32:43]
State Street Ad
More than 1.3 million people are still without power after a faulty underground line sent the US Territory into darkness early this morning. NTSA agents screened nearly a billion passengers in 2024, according to the Transportation Security Administration. Over 900 million travelers were screened, including.
- [33:03]
Frank Holland
40 million in the past two two weeks alone.
- [33:05]
State Street Ad
During a record breaking holiday travel period. 2024 screenings are about 5% more than the 858 million screened last year. Frank, back to you.
- [33:16]
Frank Holland
All right, Pippa, thank you very much. All right. Coming up here on halftime, we're going to take you to trade school. Today's topic, the record year for ETF investing professor Josh Brown. He's ready with his take on the.
- [33:25]
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- [33:43]
Frank Holland
It'S CNBC's Big January with CES from Las Vegas, biotech and pharma at JPM Healthcare, the World Economic Forum in Davos.
- [33:52]
Capella University Ad
And the first Fed decision of the year.
- [33:54]
Frank Holland
Start the year ahead of the game.
- [33:56]
Capella University Ad
Cnbc.
- [33:59]
Frank Holland
Welcome back to halftime. Sharpen your pencils because trade school is back in session. It has been a record year for the ETF industry recently surpassing $1 trillion of total inflows for the very first time. Josh Brown, you're going to break down this year's big move.
- [34:14]
Josh Brown
Yeah, I think the big thing to be said here is that underlying this $10 trillion in ETF assets is a big business model shift that I started to talk about publicly in 2014. I wrote a blog post called the Relentless Bid Explained. And I basically prophesied exactly what's played out and what it has to do with Frank is the financial advice industry shifting from transactional or commission based into more of a fee based fiduciary relationship with clients. The first thing that happens when you break away from the brokerage firm model where you're being paid to sell products and you go into the advice model where you're taking a fee on the overall portfolio is you stop selling people mutual funds. You stop selling people actively managed mutual funds more specifically. And so all of this money that's pouring into ETFs is not coming out of thin air. It's moving. And even the mutual fund companies have gotten hip to this. And in recent years we've seen reclassifications explode. Where a popular active strategy in a 1940 act mutual fund wrapper also becomes an ETF. It's more tax efficient, it's lower cost, and the one detriment that really doesn't matter anymore. With an active ETF, basically you have to show your trading in your holdings overnight at all times. In a standard mutual fund, you have 45 days past the close of the quarter to show what you're doing in the portfolio. Nobody cares about that. The other big trend though is how hard it's been to outperform active managers. Just had the biggest year of outflows on record, period. The S&P 500 did 27% this year, but only 137 stocks in the S and P were able to do better. Which means 73% of stocks underperform their own index. It's very, very hard as an active manager to beat an index that does that. So when you think about this trend and you think about the sheer amount of money that's moved into ETFs, the only question is, is it going to stop in 2025? And I think the answer to everyone is obviously no. You've also had some interesting developments in non traditional strategies being housed with an etf. Derivatives based strategies have exploded both the number of products and the dollars. There were 300 new derivatives based ETFs come to market just this calendar year. So for example, leveraged single stock funds, option writing funds, funds with structured outcomes like the buffer products, 55% of ETF flows went into products that charge 10% basis points or less, which means people are now paying up in ETF strategies for something that's completely different than an index, they're willing to pay more. So it's not just about cost. And I have to tell you, this is the biggest revolution of our investing lifetime. And it's not in the eighth inning like we're solidly middle innings here. You're going to see more money come out of active and come out of 40 ACT funds, more money go into ETFs. We'll have new and different types of ETFs. But the fact remains that is the wrapper of choice for both investors and financial intermediaries that work for them.
- [37:45]
Frank Holland
Also, once again, record years for ETFs inflows crossing the 1 trillion mark. Josh Brown with some trade school right there, there. Coming up next, Mike Santori joins us with his midday word. We're back right after this. And we are back on halftime. Senior markets commentator Mike Santoli joins us now with his midday word. Take a look at the markets. Yeah, we were talking about this earlier. I don't know if you were watching this, but first time in decades the S and P is going to look, looking like it's going to finish on four days of declines going in the end of the year.
- [38:11]
Joe Terranova
It's uninspired. There's really loss of momentum, wear and tear into the surface. Now today happens to be one of those days where the index looks a little worse than the average stock. It's actually breadth isn't terrible, but it started super strong and is eroded throughout the day. Just in terms of levels I keep focusing on, we spent a lot of time in this area that we first got to in October, November, the pre election high in The S&P 500 is almost exactly where we are right now from mid October. So you've kind of given up whatever you had thought, thought the election was going to deliver. Industrials down 8% month to date. Banks down 8% month to date. I mean this market is at least hinting that it's going to struggle with 4 1/2% 10 year treasury yields. I'm not saying that's true, but the market's behaving as if it is. It's got about a week I think to try and get up off its feet and prove that that this these concerns are unfounded.
- [39:04]
Frank Holland
You know, Julian Emanuel out with a note over the weekend. We didn't bring it up earlier this week, but basically saying that rising bond yields, especially on the long end of the curve, those are the single biggest threat to the cyclical bull market. Agree. Yeah.
- [39:14]
Joe Terranova
I mean, especially if we really get escape velocity in the long and I'm not sure we're there yet, but it would seem as if, if things become really unanchored, that's, that's definitely a risk.
- [39:23]
Frank Holland
Well, to continue to watch those yields. Mike Santoli with his midday work straight ahead here on halftime. The surprising sector seeing a big resurgence. The space we're watching and how to play it coming up in 2025. That's next on halftime. And welcome back to halftime. It has been a difficult year for REITs, but the sector might be a great place to hunt for bargains in 2025. Diana Ola joins us now with the very latest. Diana? Well, Frank, retail real estate has seen big demand coming out of the pandemic. Vacancies are low and rents are rising. In Q3, investment volume in the sector was up 49% compared with Q2. That according to a new report from JLL that was driven by a rise in high value transactions. JLL also said the recent Fed interest rate cuts are anticipated to stimulate even more activity in the coming months, leading the subsectors open air shopping centers like this one, with the highest leasing rate of all shopping center types at nearly 46%. Their vacancy rate is on the lower end at 5.3% versus closed in malls at 8 point. I spoke with the CEO of Kite Realty Group, a neighborhood shopping center reit, about why he's seeing this recent surge in business and value. It's both for practical reasons, for shopping, to get goods and services, but also socializing. And I think after Covid, people put.
- [40:44]
Joe Terranova
More value on that aspect of their life.
- [40:46]
Frank Holland
So open air shopping centers have had a great resurgence. There's very little support. That's also an important factor. People aren't really building these things that much.
- [40:56]
Malcolm Etheridge
Kaita is concentrated in the Sun Belt, which also happens to be where demand.
- [41:00]
Frank Holland
For open air shopping centers is strongest. Now this center here in Bethesda, Maryland, is owned by Federal Realty Trust and.
- [41:07]
Malcolm Etheridge
The Frank, that's just another stock to watch in 2025.
- [41:11]
Frank Holland
Diana, thank you very much. Jimmy, I'm going to come over to you. You have the most REIT ownership here on the desk.
- [41:17]
State Street Ad
So I actually used commercial real estate and specifically SL Green as my Contrarian play going into this year with this concept in mind is that there's cycles within cycles, there's industries within industries. Frequently we paint commercial real estate as one broad brush. And people say to me, aren't you worried about that? And I'll say, well, it depends on what area. So I mean the retail side's done really well this year. Diana just showed us kite. But then you can look at things like Simon Properties which is up 20% this year. Tanger outlets which is up 22% this year. So those have had a decent move. They still have really compelling valuations trading at like 14, 15 times, times FFO. I like to look more broadly and there's things like Easterly Government Properties which got slapped so hard because of Doge and the thought that they were going to, that they're just going to like defund all of their rent rolls. They're not. That's a great area of opportunity. There's other things in the retail space like National Retail Properties, which is a triple net lease reowner, they own things like, like 7 11. They have a counterpart Realty Income Trust letter O. Those are great places to be. And those stocks for example, are down a little bit on the year with really rich yields of almost 6%. So I think there's a lot of opportunity in this space, but you need to kind of carve through.
- [42:23]
Joe Terranova
Joe left out two names. Two names in the REIT space that are in the Jyoti ETF performed remarkably well so far year to date and now you're able to buy them on a significant pullback. First, one Iron Mountain ticker symbol IRM. 10% revenue exposure to data centers which is growing secondarily. You've got Welltower, Welltower W E L L There you get your exposure to senior housing, health care service related assets very quickly.
- [42:53]
Frank Holland
Crown castle at a 52 week low today or yesterday, I should say. Would you buy off of this low? Is this a business that you see having a big upside upside in 2025?
- [43:01]
State Street Ad
I don't know about big upside, but right now has about a 7% yield. Trades at nothing. They've been selling off a lot of their fiber assets which basically sets them up to rerate on valuation closer to their peers so that you could see like a couple of points of multiple expansion as they get closer to that. Joe, Interestingly on Welltower I use Sabra SBA as my final trade the other day in that skilled nursing space. There's a lot of opportunity in the REIT space.
- [43:24]
Frank Holland
All right, moving on Stay with us. We have our final trades coming up on halftime. You, you don't want to miss these last one of the year. And we are back with this New Year's Eve edition of halftime with final trades. Josh, you're up first.
- [43:37]
Josh Brown
Amazon like it for the balance of 2025.
- [43:40]
State Street Ad
Jenny, okay, one from our disciplined growth strategy. Uber wildly oversold. Unbelievable. 30% to 50% earnings growth ahead.
- [43:48]
Frank Holland
Joe, last word, Iron Mountain.
- [43:50]
Joe Terranova
And I think I speak for all of us in the investment committee. Everyone, everyone on the show. I just want to Wish Everyone in 2025 the two most important assets in your portfolio and in life, and that's health and happiness. That's what matters most. Thank you to all the viewers for watching all year. It's been a phenomenal year for all of us.
- [44:07]
Frank Holland
It really has. It's been great joining you guys. Josh, been great to be here with you. Jenny, always great to be here with you. Hopefully this show is really helping out our viewers make their investment decisions. You guys are all fantastic, along with the other investment committee members that are here on Halftime every single week. It's been a pleasure and an honor to fill in with you. And we're going to put a close to this very special holiday edition of Halftime. A little bit warm and fuzzy, warmer and fuzzier than this show normally gets. That is going to do it for halftime. You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays.
- [44:38]
Joe Terranova
At 12 Eastern only on CNBC.
- [44:43]
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All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC, NBCUniversal, their parent company, company or affiliates and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information the halftime Report participants consider reliable. But neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Halftime Report disclaimer, please visit cnbc.com halftime reportdisclaimer. Is it time to reimagine your future? The right business skills may make a difference in your career. At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals like business management, strategic planning, and effective communication. And you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at Capella, Eduardo.