Podcast Summary: Halftime Report – "Momentum Meltdown" (December 10, 2024)

Hosted by CNBC’s Scott Wapner, the "Halftime Report" delves into the intricacies of the stock market, providing real-time insights and expert opinions to help investors navigate the trading day. In the December 10, 2024 episode titled "Momentum Meltdown," Wapner and a panel of financial experts analyze the recent downturn in momentum-driven stocks, explore strategies to mitigate associated risks, and discuss potential investment opportunities amidst the market turbulence.

1. Introduction to the Momentum Meltdown

[00:49] Scott Wapner opens the discussion by highlighting the significant decline in momentum-focused investment strategies. He references the February 2024 Nelson Report to set the stage for the conversation, bringing attention to the unusual downturn in momentum ETFs like MTUM and Jyoti, which experienced their worst days in months. Wapner emphasizes the importance of understanding what this meltdown signifies for the broader market and for investors holding momentum-driven portfolios.

2. Experts Weigh In on Momentum Strategies

a. Josh Brown on the Overextension of Momentum

[02:28] Josh Brown describes the momentum factor as "stretched" and "extended," indicating that momentum has ventured into areas of the market characterized by extreme leverage and higher risk. He draws parallels to historical periods (late 2002 and late 2008-2009) where momentum strategies preceded significant market downturns. Brown raises a critical point: while momentum as a factor has historically outperformed across various timeframes, the current overextension poses immediate risks that could lead to substantial reversals.

b. Assessing High-Momentum Stocks

[03:38] Scott Wapner presents a list of high-momentum stocks such as Applovin (+900%), MicroStrategy (+525%), Palantir (+344%), and Robinhood (+227%) that saw dramatic declines of 12-15% the previous day. He questions whether investors in these stocks are vulnerable to more severe reversions if momentum falters further.

[04:49] Josh Brown responds by advocating for a blended investment approach. He suggests integrating a quality factor—considering balance sheets, revenue growth, and profitability—alongside momentum to safeguard against such downturns. Brown uses Applovin as an example, highlighting its strong fundamentals despite its high valuation, arguing that quality overlays can help differentiate resilient stocks from overextended ones.

c. Joe Terranova on ETF Diversification and Risk Mitigation

[07:12] Joe Terranova explains that momentum ETFs often contain stocks held by major institutions and mutual funds, making them susceptible to synchronized sell-offs. He advises against heavy weighting in a single factor and recommends combining momentum with quality screens to identify strong companies whose stocks might be temporarily undervalued due to profit-taking or market adjustments.

[08:44] Scott Wapner discusses the use of stop-loss orders to protect gains in high-momentum stocks, citing his own experience with Toast, which saw a significant drop after being stopped out. Terranova elaborates on the importance of risk management, suggesting strategies like rolling up stops or using options to navigate volatile movements without entirely exiting positions.

3. Spotlight on Specific Stocks and Strategies

a. Stephanie Link's Tactical Moves

[11:06] Scott Wapner shifts the focus to specific investment moves by panelist Stephanie Link. He inquires about her new buy in Zscaler, a cybersecurity company that has underperformed relative to its peers.

[11:52] Stephanie Link explains her strategy of purchasing Zscaler due to its compelling valuation despite its recent losses. She believes in the long-term growth potential of the cybersecurity sector, anticipating consolidation and stronger performance as companies operationalize their cybersecurity needs. Link draws parallels to Fortinet's turnaround, emphasizing the importance of fundamental strength over short-term momentum.

b. Jim Laventhal on Oracle's Valuation and Future Prospects

[18:51] Jim Laventhal discusses Oracle’s recent earnings miss, arguing that the company remains fundamentally strong in the AI infrastructure space. He suggests that Oracle's forward earnings multiple (~28x) is justified given its strategic positioning and ongoing deals with major tech players. Laventhal recommends building a position in Oracle, seeing the current price as a buying opportunity despite short-term setbacks.

[21:56] Scott Wapner probes into whether Oracle's fundamentals justify its 70% year-to-date gains, prompting Laventhal to defend the valuation based on Oracle's strategic initiatives in AI and its historical performance metrics.

4. Market Sentiment and Sector Rotation

[25:04] Stephanie Link highlights that while not all software stocks are under pressure, many in the semiconductor sector have faced significant rollovers due to overextended valuations and unmet monetization expectations. She contrasts this with the software sector, where strong monetization trends support ongoing growth, thereby differentiating resilient sectors from those facing declines.

[33:07] Scott Wapner and Jim Laventhal discuss the broader market rotation away from momentum-driven growth stocks towards more value-oriented or fundamentally strong sectors in anticipation of potential corrections in January.

5. Addressing Underperforming Stocks

The panel examines specific underperformers since August 5th, including Pfizer, Boeing, and Freeport, assessing their prospects amidst the momentum downturn.

a. Joe Terranova on Pfizer and Boeing

[42:33] Joe Terranova acknowledges Pfizer as his worst-performing holding but expresses optimism for a turnaround next year, despite current challenges. Similarly, Stephanie Link favors Boeing's potential recovery in 2025, citing improved production rates and strategic financial positioning despite its turbulent 2024 performance.

b. Jenny Harrington on Skyworks and Other Laggards

[44:03] Jenny Harrington advocates for a shift in market sentiment towards undervalued stocks like Skyworks, which she believes are poised for earnings growth and mean reversion. She emphasizes the need for companies to effectively communicate their value propositions to overcome investor skepticism.

6. News Highlights and Sector Updates

Headlines covered include:

• UN Refugee Crisis: Over 800,000 people displaced due to fighting in Syria, adding to the existing 16 million in need of humanitarian aid.
• Malibu Fire Incident: Rapid expansion of a wildfire near Malibu underscores worsening weather conditions.
• Political Nomination Concerns: Over 75 Nobel laureates urge senators to reject Robert F. Kennedy Jr. for Secretary of Health and Human Services, citing his stance on vaccines and fluoridation.

7. Calls of the Day: Top Investment Picks

The panel identifies and discusses several top picks for 2025, with a focus on companies showing resilience or strategic growth potential.

a. Broadcom:

• [36:12] Joe Terranova and Stephanie Link cite strong fundamentals and recent positive analyst coverage, making Broadcom a favored top pick.

b. UPS Upgrade:

• [37:12] Jenny Harrington praises UPS for overcoming pandemic-induced distortions and entering a phase of substantial earnings growth, supported by robust logistics and package shipment demands.

c. Walgreens Deal Rumors:

• [38:34] Stephanie Link discusses the market reaction to potential acquisition talks between Walgreens and Sycamore Partners, highlighting a significant stock spike following the Wall Street Journal report.

8. Final Trades and Closing Remarks

In the concluding segments, the experts share their final trade ideas, emphasizing sustained momentum in resilient stocks like Amazon and reiterating confidence in strong sectors despite recent downturns.

[46:25] Joe Terranova and [46:34] Josh Brown both highlight Amazon’s ongoing momentum as a robust holding, expecting continued performance driven by its diverse business operations.

[47:10] Jenny Harrington brings attention to the undervaluation of certain stocks like Skyworks, advocating for their potential to rebound as market perceptions shift.

9. Closing Statements

[48:09] Scott Wapner wraps up the episode with standard disclaimers, reminding listeners that the opinions expressed are those of the panelists and should not be taken as specific investment advice. He encourages viewers to tune in live on CNBC during the trading day for real-time updates and expert analysis.

Notable Quotes:

• Josh Brown [02:28]: "Momentum as a factor has historically outperformed across various timeframes, but the current overextension poses immediate risks that could lead to substantial reversals."

• Joe Terranova [07:12]: "One of the ways to mitigate that risk is to not just be weighted toward momentum, but to augment that with a quality screen."

• Stephanie Link [11:52]: "I think the fundamental strength over time... emphasizes the importance of quality overlays in identifying resilient stocks."

• Jim Laventhal [18:51]: "I think you should buy a small toehold position here. I see nothing in these results that says there's something fatally broken here."

• Jenny Harrington [44:42]: "We need a bigger market sentiment shift to recognize undervalued companies poised for earnings growth."

Conclusion:

The "Momentum Meltdown" episode of CNBC’s "Halftime Report" provides a comprehensive analysis of the recent downturn in momentum-driven stocks, offering insights into risk management strategies and highlighting investment opportunities amidst market volatility. Through expert dialogue, the panel emphasizes the importance of balancing momentum with fundamental strength, advocating for diversified investment approaches to navigate uncertain market conditions effectively.